Passing Along Some Vital Information on Illegal Immigration

I received this email from Numbers USA over the weekend.

Without explanation, Congress has stripped away $3 billion in desperately needed funds to build the Border Fence that it approved last year and to provide for other border security.

That's right—without telling the public, Congress is pulling the plug on the U.S.-Mexico Border Fence that it voted for with such enthusiasm last year (just before they asked voters to re-elect them).

Help us turn this petition into a national overnight phenomenon. Time is critical—Congress will finalize this funding question before Christmas!

Now, it is important to emphasize again, as Numbers points out, that the fence and its funding was voted on late in the session in 2006. At last check, about eleven miles out of thousands had actually been built.

The fence has become a sort of cause celebe for opponents of tough measures against illegal immigration. Their rallying cry comes in this statement from Governor Janet Napolitano of Arizona.

You show me a 50-foot wall and I'll show you a 51-foot ladder at the border. That's the way the border works

That sort of statement is what I refer to as a strawman arguement. No one is claiming that the border fence will keep out everyone that tries to come in. It will however keep out a lot of them, and that is the point of anti illegal immigration legislation. Everytime I hear this statement, I always point out that a Mexican migrant is going to look awfully funny walking around the desert with a fifty one foot ladder. There is no one hundred percent full proof way of keeping illegals out. If we put together a human wall, someone might ride in in a tank. That doesn't mean that methods aren't effective even if some smart person has figured out a way to theoretically get around them.

The border fence near San Diego is proof that the fence works.

Before the fence was built, all that separated that stretch of Mexico from California was a single strand of cable that demarcated the international border.

Back then, Border Patrol agent Jim Henry says he was overwhelmed by the stream of immigrants who crossed into the United States illegally just in that sector.

"It was an area that was out of control," Henry says. "There were over 100,000 aliens crossing through this area a year."

Today, Henry is assistant chief of the Border Patrol's San Diego sector. He says apprehensions here are down 95 percent, from 100,000 a year to 5,000 a year, largely because the single strand of cable marking the border was replaced by double -- and in some places, triple -- fencing.

Both houses of Congress voted on and approved this fence and the President signed it. If laws aren't followed through on, then our government is nothing more than a banana republic. This is unacceptable and I hope everyone rises up and demands that Congress follow through on what they started.

More Action From the Legislature Vis a Vis Mortgages

The Legislature just moved to open up FHA loans for many of the borrowers currently facing hardship.

The Senate moved Friday against the worsening mortgage crisis, voting to make it easier for thousands of homeowners with ballooning interest rates to refinance into federally insured loans.

The legislation, approved 93-1, would allow the Federal Housing
Administration to back refinanced loans for borrowers who are delinquent on
payments because their mortgages are resetting to sharply higher rates from low
initial "teaser" levels.

The bill also tries to make FHA loans more attractive than risky subprime loans by accepting lower down payments and expanding the eligibility for counseling for homeowners having difficult with their mortgage payments.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to reset in the next year, jumping to much steeper rates that could cost borrowers their homes. The wave could crest during the presidential and congressional election campaigns next year, and politicians have been wrestling with what the government's response should be

A colleague of mine pointed out that there are several things that are currently different and still need to be worked out between the Senate and House version.

Downpayment/cash investment: Senate - 1.5% cash investment w/ maximum loan amount of 100% of sales price/value that includes the upfront MIP; House still has a 0% downpayment provision.

· Mortgage limit for “high cost” areas: Senate - $417,000; House – up to $729,000.

· Seller participation in down payment assistance programs:

· Moratorium on implementation of risk-based pricing: Expect a delay of a year before enactment..

· Broker surety bond in lieu of audit: It is in the House bill only. I will be shocked if this makes it in the final bill…Get those audits ready….

Just like every other government action in response to this crisis, this one is flawed and quite possibly counter productive. The main problem lies in the fact that most politicians have no idea how FHA works, and thus they can't possibly know if it will help. FHA has limits on debt to income that are much more stringent than most of the loans the sub prime borrowers are currently in. In other words, most of the borrowers currently struggling in these sub prime loans wouldn't qualify FHA if it is in its current form. If debt to income limits aren't adjusted this move is largely ceremonial.

If, on the other hand, the limits are adjusted so these borrowers would qualify for FHA, then we could be facing the same sort of crisis in FHA within a couple of years. Much of the reason that FHA has been a successful and profitable mortgage is the very limits that it has on debt to income.

Furthermore, the legislators want to increase the loan limits on FHA. What they don't understand is that FHA is a government bureaucracy. When I do an FHA loan, I am not only dealing with the bank but also the bureaucracy of the government. For instance, the FHA bureaucracy assigns a case number to each FHA loan. By increasing the limits, especially if they are increased dramatically to 700k, they will create too much demand for FHA loans for the bureaucracy to handle. FHA loans are already a bureaucratic nightmare for any loan officer to deal with. By expanding them this much, the nightmare will become obscene.

The limits on down payment are also largely ceremonial. Already, FHA only requires a three percent down payment. Dropping that requirement down to 1.5% is negligible.

Thus, the sixty four thousand dollar question is whether or not the debt to income limits will change. If they don't this is a largely ceremonial bureaucratic nightmare. If they do, this will eventually devastate FHA the way that subprime is currently being devastated.

Gotta love our elected politicians.

The Peculiar, Enigmatic H.R. 1955

I have only recently been made aware of this bill and for now I will reserve judgement besides the observation that it is peculiar and enigmatic. It is called the Violent Radicalization and Homegrown Terrorism Prevention Act of 2007 and it is sponsored and promoted almost exclusively by Democrats led by Jane Harmon. Thus, not surprisingly, this has made it the target of conservative pundits.

Thus, Orwell says, we end up with political language that consists "largely of euphemism ... and sheer cloudy vagueness."

That's how we end up with terms like "surge" for escalation, or "enhanced interrogation techniques" for torture.The language of H.R. 1955, The Violent Radicalization and Homegrown Terrorism Prevention Act, which passed the House on Oct. 23 and is now in committee in the Senate, has that Orwellian quality of sheer cloudy vagueness, and as such lends itself to the potential for 1984-ish Thought Police in the form of a committee.

I have personal experience with the dangerous and corrosive effect of vague legislation in my business, mortgages. Thus, my radar is up to the potential dangers pointed out in this column.

It is also being challenged on civil liberties grounds.

Many scholars, historians and civil liberties experts say they fear that the proposed bill will set the stage for future criminal legislation that be used against U.S.-based groups engaged in legal but unpopular political activism, ranging from political Islamists to animal-rights and environmental campaigners to radical right-wing organizations.

"This bill fits the pattern we are seeing coming out of Congress - both Republican and Democratic - of a continued campaign of fear, which gets into heads of Americans that we now need to start criminalizing ideology," said Alejandro Queral, executive director of the Northwest Constitutional Rights Center. H said he is very concerned about the bill's vague definitions of "violent radicalization," "homegrown terrorism," and the terms within the definitions including "extremist belief system," "violence" and "force."

"What is an extremist belief system? Who defines this?" Queral questioned. "Planes flying into the World Trade Center is an extremist belief, but are anti-abortion activists extremists? Are individuals who liberate mink extremists? These are broad definitions that encompass so much, which need to rather be very narrowly tailored. It is criminalizing thought and ideology, rather than criminal activity."

I think the vague definitions that this bill appears to have lends itself to potential abuses of civil liberties. The bill is certainly well intentioned. Home grown terrorists are a big and bigger problem. That said, it doesn't seem to me to be something that can be legislated. This seems to be a priority law enforcement, intelligence, and homeland security matter. I don't think you can legislate tougher measures against homegrown terrorists. That happens when departments apply more pressure, more focus, and more resources to the matter.

Finally, from scanning the bill, I have found one other big potential problem. Here is the full text of the bill. Here is the part that concerns me.

The Secretary of Homeland Security shall establish or designate a university-based Center of Excellence for the Study of Radicalization and Homegrown Terrorism in the United States (hereinafter referred to as `Center') following the merit-review processes and procedures and other limitations that have been previously established for selecting and supporting University Programs Centers of Excellence. The Center shall assist Federal, State, local and tribal homeland security officials through training, education, and research in preventing radicalization and homegrown terrorism in the United States. In carrying out this section, the Secretary may choose to either create a new Center designed exclusively for the purpose stated herein or identify and expand an existing Department of Homeland Security Center of Excellence so that a working group is exclusively designated within the existing Center of Excellence to achieve the purpose set forth in subsection...

Invariably, whenever Congress identifies a problem they want to study it. Invariably, this group turns into nothing more than an added layer to the bureaucracy that comes to the federal government for money, my money and every other tax payer's money. I have already pointed out the huge potential problem of the added bureaucracy of the SAVE Act. Yet again, Congress has created a bill that will ultimately add to the size of government.

I am not against studying homegrown terrorists, however there are two things that I see to be problematic here. The first is that it is best studied through field work. In other words, the FBI agents, secret service, and police that are out on the street battling homegrown terrorist are in effect engaged in the study of homegrown terrorists. This isn't the sort of thing that academics studying theory would contribute in any reasonable way. We don't need Congress to act to do this. Hopefully, it is already happening. Second, I don't think my tax dollars should go to such theoretical research. If someone wants to fund a university to study homegrown terrorists, let them but it shouldn't be my money.

The SAVE Act and My Favorite Yogi Berra Quote

Yogi Berra once said this...

in theory there is no difference between theory and practice, but in practice there is.

I get that feeling when breaking down the SAVE Act. There are frankly very few laws that sound bad in theory. That unfortunately is not true in the debate over illegal immigration. Most of the proposed laws to deal with illegal immigration weren't just bad in practice but in theory. Whether it is driver's licenses for illegals, the mass amnesty of last summer's comprehensive bill, or the mass amnesty of the DREAM Act, most of the bills that deal with illegal immigration are bad even in theory. Not so with the SAVE Act, this bill sounds absolutely wonderful in theory. Here are the particulars as enumerated by one of my readers.

8000 more Border Patrol agentsMore Judges, courts, and detention centers.Border fencing and vehicle barriers (where needed), and all-weather surveillance roads in conjunction with high tech surveillance equipment including satellite surveillance, infra red, and seismic detection. It requires construction along the border to take into account environmental and private land use needs.Requires development of a national strategy to secure the borders and all ports of entry to the United States by December 31, 2010.

This Bill even has accountable and transparent financing of the effort built into it giving power of oversight to the Comptroller and Inspector Generals to keep Congress appraised.This bill is going to receive some stiff opposition from organizations like LULAC and LaRaza, and incumbent Democrats beholding to the illegal immigrant population communities, and incumbent Republicans beholding to employers pressing for cheap illegal labor. They will try to fight this Bill. This SAVE Act offers the Independent voters in America the first real opportunity to flex their newfound muscle by supporting this Bill and pressing their representatives to vote for this legislation.

Here is how Numbers USA analyzed the most important part of the bill, the verification system of employees by employers.

provides employers with an inexpensive, quick, and accurate way to verify employee eligibility. E-Verify has already achieved tremendous success, but is currently voluntary and offers little incentive for employers to participate. This puts users at an economic disadvantage when it is only being used by a fraction of U.S. employers and competitors continue to hire illegal aliens.

All of this sounds great "in theory" however...

in theory there is no difference between theory and practice but in practice there is

Sure, it all sounds great that we will finally have a system where employers can verify the legal status of all of their employees. In practice that system will be done by a new government bureaucracy. In practice, most government bureaucracies fail in their mission and become counter productive. In theory, the DMV sounded like a great idea. In theory, Medicare was a great idea. In theory, social security was a good... all right that would be taking things too far. Still, the difference between whether or not most bills become good bills isn't theory but practice.

Yet, no one is asking the sort of critical questions necessary to figure out how to resolve all the potential nightmares that this bureaucracy may bring. Here is what Numbers USA says.

The SAVE Act will broaden and enhance border security and interior enforcement. With a number of border security Democrats and Republicans already agreeing to co-sponsor, this bipartisan effort may be Congress’s best chance to achieve substantial immigration reform this Congress.

Here is how Michelle Malkin sees the bill.

There are, believe it or not, a few Democrats who have their heads screwed on straight when it comes to immigration enforcement. Several were elected last fall; the open-borders lobby has conveniently ignored them.

Referring of course to Congressman Heath Shuler who is the main sponsor of the bill.

Here is the word from Tom Tancredo's PAC.

Well, now there is a bipartisan immigration bill that actually reforms our immigration system rather than just opening our borders and granting amnesty. We need to put the pressure on members of both parties to support this bill!

Even John Murtha showers this bill with nothing but fawning accolades.

This bipartisan bill will help our law enforcement agencies provide tighter border security and give our employers the resources they need to verify documented and undocumented workers,” noted Murtha.

No one is talking about exactly how this bill will be carried out. What will the new bureaucracy look like? How will it carry out its mission? How will this bureaucracy be any different than Social Security which was supposed to do the exact same thing? Everyone is just impressed how in vague theory it will secure our borders and help verify employees legal status. Just because it will do this in theory doesn't mean it will do it in practice.


No one is talking about any of these vital issues because we finally have a piece of legislation vis a vis illegal immigration that actually sounds good in concept. Most people take its goals at face without ever asking how the bill will be carried out to accomplish them. Just because a bill has good intentions, and this one clearly does, doesn't mean that the bill will accomplish those goals.

Everyone is fawning over this bill like it is the prom queen and no one is asking any critical questions. If we don't ask any critical questions then we will fawn over yet another counter productive bureaucracy.

Dems and Iraq: Rock Meet Hard Place

Here is the latest "good" news out of Iraq as reported by the New York Times yesterday.

As Iraqi refugees begin to stream back to Baghdad, American military officials say the Iraqi government has yet to develop a plan to absorb the influx and prevent it from setting off a new round of sectarian violence.

The Iraqi government lacks a mechanism to settle property disputes if former residents return to Baghdad only to find their homes occupied, the officials said. Nor has the Iraqi government come forward with a detailed plan to provide aid, shelter and other essential services to the thousands of Iraqis who might return. American commanders caution that if the return is not carefully managed, there is a risk of undermining the recent security gains.

“All these guys coming back are probably going to find somebody else living in their house,” said Col. William Rapp, a senior aide to Gen. David H. Petraeus, the top American commander in Iraq, speaking at a two-day military briefing on measuring military trends for a small group of American reporters in Baghdad...

But Mike, that isn't good news... Sure it is. This is, after all, the New York Times. If all they can find in the way of bad news is the government's troubles in dealing with refugees. Well, that frankly is good news. Our goals in Iraq were to remove Saddam, install a representative government, and turn Iraq from an enemy into an ally in the GWOT. None of that has anything to do with their refugee situation. That is, with all due respect, entirely the internal problem of the Iraqi government. If the government fails in such tasks as dealing with refugees, well then, the Iraqis will quickly grow as cynical toward their elected officials as we do here. So what. That has nothing to do with any of our goals in the country. The good news is that the New York Times can't actually find any real bad news.

On the same day, we also had vocal war opponent Jack Murtha say this.

Murtha said he saw signs of progress and continuing chaos during his one day in Iraq. A hospital he visited had been hit by a mortar attack the day before, but more parts of the country are peaceful than before, and Iraqi troops in the Al Anbar province are rooting out the remnants of al-Qaida in their area, he said…

Murtha said that “surge” of troops is working, but it only underscores how poor planning from the Bush administration has hamstrung the war effort. Other examples include the slow response to protecting troops from roadside bombs and a shortage...

Despite the expected caveats, Murtha couldn't deny reality. The surge is working. Violence is down. Iraqis: Sunni, Shia, Kurd, and all others are turning against the insurgency and are working with our side. Even the Daily Kos is starting to admit reality.

As U.S. casualties have continued to drop, many people on the anti-Bush side of the aisle have begun to quietly panic in recent days over this question: "Could George W. Bush and Frederick Kagan have possibly been right about the surge?"

Simply put, the answer is no. The surge is not working and George W. Bush and Frederick Kagan were not right. Despite what right-wing blogs are saying, and despite what conservative observers are noting, the plunge in violence is actually the result of an Iraqi political decision made by and implemented by Iraqis—and the drop has little to do with the "surge"—an infusion of 30,000 troops (which wouldn’t fill a Major League stadium) into Baghdad, a city of six million people...

It may in fact be desperately important for the Kossacks to prove to the world that the improved situation has nothing to do with the surge, however in reality, the arguement is silly, because it is not relevant. First, Bush's legacy will be set by history. Second, in the next election Bush won't be on the ticket.

Several anti war Democrats will be though. An entire Congress that tried to stop the surge before it got started will be. Let's take them one at a time...

Hillary Clinton

I think that the reports that you provide to us really require the willing suspension of disbelief...“In any of the metrics that have been referenced in your many hours of testimony, any fair reading of the advantages and disadvantages accruing post-surge, in my view end up on the downside.’’

Barack Obama

I will not support funding for a failed policy. It is long past time for the Republicans to stop filibustering a responsible removal of our troops from Iraq, and for the President to stop threatening to veto anything that is not a blank check for his failed strategy.

"Our troops must not bear the burden for the failure of Iraq's leaders to reconcile, nor should they be kept in Iraq to counter Iran.

Harry Reid

I believe ... that this war is lost, and this surge is not accomplishing anything, as is shown by the extreme violence in Iraq this week...

Nancy Pelosi

No statistic can capture the pain and loss endured by the families of the fallen in Iraq, particularly the children of parents who will not be returning home. Those who have lost loved ones, and those still serving in Iraq and around the world, are in our thoughts and prayers every day as we work to bring an end to the President’s disastrous war.

"While nothing compares to the loss of life in Iraq, the financial costs of the President’s policy are enormous and growing, with $10 billion being spent each and every month of the war. The total cost for the Bush Administration’s Iraq war could rise as high as $2 trillion, according to the Congressional Budget Office

"With every passing day, the President’s Iraq policy leaves the United States more isolated at a time when we must reclaim our moral leadership and rally the world to fight against terrorism. The choice is between a Democratic plan for responsible redeployment of our troops and the President’s plan to spend another trillion dollars for a 10-year war in Iraq."

So, every Democratic leader is now on record as believing that what is happening would NOT happen. They called a policy failed before they even had time to assess it. They are now stuck between the perverbial rock and perverbial hard place. They must now convince the country that what is real isn't actually real.

That's why they are all fixated on the benchmarks which haven't been met. The Dems are reaching for anything out of Iraq that looks like bad news. It is a very difficult arguement to make though. It is hard to convince the public the surge isn't working because the central government hasn't reached agreement on some pre determined goals. Second, this is becoming more and more General Petreaus' war. Thus, in order to prove failure when there is success, they will ultimately have to show the country more credibility on this matter than General Petreaus (who they incidentally voted unanimously to install less than a year ago).

I pointed out that the Republicans are not in a great position either because they are handcuffed to a war that will likely never be popular, however their perverbial "pickle" is much easier to navigate. Here is how they are currently navigating it.

The 2008 Republican presidential candidates have a simple position on the war in Iraq: They want victory, and they want to talk about something else.

With the notable exception of Rep. Ron Paul (R-Tex.), they echo President Bush, and say the United States must remain in Iraq for an unspecified period until the country is stable, and that leaving before then would be a victory for al-Qaeda.

But they usually only say that when asked. The two leading candidates in Iowa, former Arkansas governor Mike Huckabee and former Massachusetts governor MittRomney, occasionally give entire speeches without even using the word "Iraq."

Unlike the Democratic candidates, who have competed over who can offer the most precise plan for withdrawing troops as president, the GOP candidates have offered limited visions about how they see Iraq's future, choosing instead to focus on howthey would enlarge the U.S. military to fight the broader war on terrorism.

The Reps want to minimize Iraq as an issue as much as possible. That maybe the appropriate strategy now, however as the war continues to get better, and especially after Petreaus' next report in March, this issue may even turn into a benefit for the Reps. All those quotes will be damning if our casualties fall into the teens or even single digits by the next election after all. For the Reps, the trick is easy. Divorce yourself from the failed strategy that Bush employed (relatively easy since it was Bush's strategy after all, and Bush isn't the first President to start with a failed war strategy, see Lincoln, FDR, Wilson, Washington, etc.) Continue to back the current strategy and contrast that with the defeatist strategy that the Democrats are now married to.

Trifecta from the New York Times vis a vis Mortgages

Either I have come late to the game or the New York Times used this week to come out swinging against the mortgage industry. In the last two days, I have featured two separate articles vis a vis mortgage from the New York Times. The articles follow a pattern of narrative of the mainstream and it is a dangerous pattern.

The New York Times takes on a populist message. They side with the borrower against the mortgage broker and the bank (and even against Wall Street). The propose all sorts of legislation that protects the borrower even more against foreclosure and the undefined "predatory lending". For instance they back a bill by Dick Durbin that gives an incentive to go into bankruptcy. Under his bill, a person that goes into bankruptcy can re negotiate the terms of their loan. I assume that means for the better. Not only does this give incentive to go bad, but frankly all good borrowers would scream bloody murder and it would create an obscene amount of legislation.

That is some of the legislation they support in the first and second installment. Here is their third installment. (I believe it is their first in chronology however I found it last). First, the New York Times laments a portion of H.R. 3915 that has been altered.

Industry has already scored some regrettable victories. It persuaded the bill’s backers to include a provision that would prevent borrowers from suing Wall Street firms in state court — where consumer protections are often stronger — for common abusive loan practices.

Here, the New York Times, much like most in the media and unfortunately in Congress as well is dealing with concepts well beyond their grasp. While it may make for a great populist message to say you back allowing borrowers to sue Wall Street if they suffer hardship, this is an absolute nightmare. The first problem is that most people don't understand Wall Street's role and of course the consequences of opening them up to suit. Wall Street creates markets for loans. Whereas banks deal in millions of dollars of loans, Wall Street turns those loans into bonds and deals in hundreds of millions. If each individual borrower could actually go to the securitizer (that is Wall Street or the folks that turn loans into bonds) and sue them because they felt they were wronged, that would open up the litigation floodgates with unknown results. That said, the practical results would be that Wall Street would simply not get involved in securitizing loans.

This is in fact what Wall Street has done already with no legislation. Long ago Wall Street soured on mortgage backed securities and without legislation they have washed their hands of the instrument. The sort of legislation the Times touts would give Wall Street even less incentive to get back into that market. Remember, it is those "evil" Wall Street folks that the Times is dying to attack, that created a market for most of the poor folks to get loans in the first place. Before there was such things as mortgage backed securities, the standard loan usually required 20% down and good credit. It was only the innovation of mortgage backed securities that lead to the revolution in mortgages and created the sophisticated system we have today.

Now, the market in the aftermath of the crisis is threatening that system. Sub prime, the outlet for loans for most of the poor folks the Times pretends to care about, is being threatened out of existence through market forces. By this I mean, Wall Street is refusing to make markets for those loans. Without a market, most of these banks will go under or move out of sub prime. Again, this is happening without the push of any legislation. Now, the Times is supporting legislation that would hold Wall Street liable for bad loans. This gives the folks on Wall Street even less reason to make a market. This is at exactly the time when we need to give them as much reason as possible.

Then, the Times says this...

Another must-pass amendment would adopt sensible underwriting standards for all nontraditional mortgages — not just subprime loans — including a rule that lenders must verify a borrower’s ability to repay. The amendment is crucial because it is not only subprime loans that have turned out to be toxic. Another important proposed change would give borrowers the right to modify an illegal loan, before they’re forced into foreclosure.

The first problem with this philosophy is that the word sensible is vague and difficult to define. In my business, whenever there is legislation that is vague and difficult to define what that means to the consumer is

YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET

If there is legislation passed and all it says is a reference to sensible underwriting standards, then banks will create a sensible underwriting standards disclosure. That is what banks do every single time there is vague legislation and the reason why there a hundred documents to sign and not ten or so. Second, the Times, with their cohorts in Congress, continue with their attack on stated loans. (these are loans in which income is claimed but not verified). While the concept of stated loans gets debated in the halls of the Times, the mortgage market has long rendered its verdict. Stated loans are virtually non existent. If Congress wants to outlaw them completely, that is their prerogative but they will only be following the market. The problem with outlawing stated loans is that it assures that the overwhelming majority of self employed borrowers and real estate investors never get a mortgage. Since they are able to take a plethora of write offs, proving income is virtually impossible. (for real estate investors, there is a complicated mortgage formula too boring to discuss that also makes it impossible)

By throwing out the baby with the bathwater so to speak and outlawing stated loans entirely, all Congress would do is remove their original intent. The market has long ago on its own returned stated loans to their original intent, self employed borrowers and real estate investors. The problem wasn't stated loans but rather that garbage men, secretaries, and janitors, could now claim income even though they were salaried and thus had only lying as a reason to go stated.

The New York Times, along with their cohorts in Congress, don't care much about that or frankly good policy. They have figured out which side they need to be on to look good. Keep in mind that while the Times looks to punish banks, brokers and Wall Street for providing loans to borrowers who "lacked a reasonable ability to pay". It was these same borrowers that willingly agreed to take loans that they either did know, or should have known, they couldn't afford. If the borrower themselves had followed their own reasonable ability to pay philosophy, we wouldn't have this mess. The blame isn't solely on their shoulders however, unlike what the Times, and the Congressional cohorts believe, they must shoulder some of the blame.

The reason this is important is because the crisis will affect everyone. The legislation that will no doubt follow must be sensible. Right now, it is not. The Times is effectively cheerleading for Congress to pass legislation who's sole effect is playing political games at the expense of good policy. Ultimately the only practical effect of these new laws will be that the borrower

HASN'T SIGNED ENOUGH PAPERWORK YET

There are two huge problems with this entire mortgage debate. The first is the naive and uninformed making statements, observations, and recommendations regarding the path forward. The second is the uninformed making policy on how to move forward. The New York Times represents the first and Congress represents the second. The mortgage market is at vulnerable state and the last thing it needs is the contribution of the uninformed.

My Frat, The Dems, and War Funding

It was only a couple of weeks prior to graduation and given that Champaign, Illinois is cold throughout much of the school year, many of my fraternity mates went to the roof of the house to enjoy their alcohol. Alcohol did what it does, and soon enough, some of them started jawing with the members of the fraternity across the street. This jawing continued to escalate until one member of my fraternity through a bottle across the street onto their roof. They one upped us and used a sling shot to hurl a bottle across the street. This one didn't just fall harmlessly but rather crashed through the window in the back of the roof. This turned into a full confrontation, and it was a confrontation that my fraternity eventually backed off from. We allowed our window to get broken with absolutely no response.



It was the most I was ashamed of my fraternity brothers. I won't pretend that it had anything to do with the drinking or machismo. I was ashamed because clearly members of my fraternity started a confrontation that deep down they had no intention of finishing. I said as much to all the members in my senior speech. I said that if you are going to start a confrontation you d#$n well better be ready to finish it.



The reason that I bring up this peculiar story is because I believe that most of the Democratic leadership is acting much like the "tough guys" of my fraternity vis a vis Iraq war funding.



Stories are currently all over the place about the Democrats looking to tie war funding to some sort of a troop withdrawal date. Don't believe the hype. The Democrats are no different than any of the members of my fraternity. They are starting a confrontation they have no business finishing. I know this because they backed down in this same confrontation months ago.



Back in May, after passing funding only with troop withdrawal dates which the President promptly vetoed, the Democrats relented and passed a "clean funding bill". Maybe they didn't have the stomach to handle the political fallout of cutting off funds while troops were still in the field. Maybe, they weren't really sure the war was lost. Who knows?



Either way at the time, the war was written off by almost everyone. There were three digits of American military deaths monthly. Two to three thousand Iraqi civilian deaths monthly. Anbar was still in the beginning of its renaissance, and people were tired and angry about the war. Since then, our military deaths have dropped precipitously. Civilian deaths have fallen with them. The remarkable turnaround in Anbar has been chronicled by Michael Yon , Michael Totten , and many others. It has turned cities like Ramadi and Baquobah from some of the most violent anywhere into two of the safest in Iraq. The bottom line is that the situation has seen a remarkable improvement since the last time the Democrats have tried this.



The Democrats gave themselves away with this stunt when they began pushing it months before the military actually needs funds. They are clearly playing to their lunatic niche. It won't work with them and it won't work with the rest of the public. The far left won't accept the old college try, and no one else will accept cutting off funds especially now. The Democrats have started a confrontation they have no intention of finishing and they will end this one the way my fraternity ended ours, in shame.



Their base wants nothing short of all out withdrawal. They aren't going to deliver that. If they didn't deliver when the war was hopeless, what do they expect to do now that we are doing well. (for an excellent analysis of what is currently going on check out this piece by Christopher Hitchens) The rest of the country isn't going to be impressed with these shenanigans meant only to appease the fringe that everyone else frankly hates. There aren't going to be many moderates impressed with the Dems when they see them speak with a bunch of bluster only to back down, AGAIN. Our fraternity was the laughingstock of the Greek System (the largest in the country) in the immediate aftermath of that failed confrontation, and the Dems will look no less foolish once they back down from this ridiculous confrontation that they have started and have no plans of finishing.

In The News

Rumors are everywhere that it was the Romney campaign itself behind the anti Romney phone calls. While the blogosphere is abuzz the rumors come from one source, Mark Hemingway of the National Review.

News broke Thursday that voters in New Hampshire and Iowa had received phone calls from pollsters raising questions about aspects of Republican Mitt Romney’s Mormon faith. Who made the calls? Although the Romney campaign denies involvement, evidence points in its general direction.

I don't have much use for rumors and I know nothing about Hemingway so I won't say anything about their veracity. You can read all the links and decide for yourself. I will say that, if true, his campaign is through.

Michelle Malkin reports that Fran Townsend is resigning. Townsend is a top advisor at DHS and most political junkies will remember her from several Sunday Morning talk shows she has done over the years. I don't know much about her though Michelle asks,

If you’re saying to yourself “Fran who?,” don’t feel bad. And if you’re also saying to yourself, “She’s not the only one who should be resigning,” you’re not alone:

For all you libs that consider Michelle a Republican shill. She is a shill for legal immigration and takes out venom against anyone she sees that isn't aggressive enough in such areas.



In what can only be described as delicious political theater, Robert Novak is sticking by his story. What story is that? According to Novak, Clinton operatives are spreading rumors throughout Democratic circles and that

the Clinton campaign is spreading the word that it's holding back on dishing dirt on Barack Obama, and charged the Democratic frontrunner with playing "Nixon tricks."

This must be true and I believe it hook line and sinker, however that is only because Robert Novak is a graduate of my alma mater and spoke at my commencement ceremony. All right, that really isn't much of a reason, so stay tuned.

The New York Times, of all places, has word of continued drop in violence in Iraq. They make sure to mention that it hasn't been met with political reconciliation however anyone who has read these pages knows this is frankly old news. The admin may have boxed itsefl in regarding the scope and nature of the reconciliation, however the bottom line is that in Iraq the politicians are no less incompetent than they are here. Most of the reconciliation is happening on the grass roots level. We see Sunni and Shia Sheiks coming together to work on strategies to quell violence. The admin has made some token appearances as well with different sects.

The admin made certain things a model of reconciliation: an oil law, De Baathification, etc. Those things are likely NOT going to happen anytime soon, however to say that without them means failure in Iraq, is like saying the U.S. will fall apart without comprehensive immigration reform.



The situation in Pakistan remains dicey. Musharaff hand picked new supreme court judges after dismissing others, and then they took two hours to dismiss appeals to his victory in the last election. Musharaff is certainly acting like a dictator however in that part of the world the devil you know is much better than the devil you don't. With Iraq calming down, Pakistan may become the new focal point for the jihadis.

Passing Along an Action Alert From Numbers USA Vis a Vis the SAVE Act

Numbers USA sent me this email this morning.

Senators Mark Pryor (D-Ark.) and David Vitter (R-La.) have introduced Senate versions of Rep. Heath Shuler's (D-N.C.) SAVE Act (Secure America with Verification Enforcement [H.R. 4088]). Sen. Pryor's bill is S. 2368 and Sen. Vitter's bill is S. 2366.

The two bills are substantively the same -- essentially both bills are identical, so the best thing would be to encourage your Senator to sign onto both. If they want to make a choice based on something other that the substance of the bill, that is their call, but NumbersUSA has endorsed both.

Send this fax asking your Senators to cosponsor BOTH S. 2368 and S. 2366, important bills that would immediately begin to reduce illegal immigration.

My last post on the matter pointed out that the SAVE Act has started to gain a sort of rockstar status. I believe this believe has all the right intentions and it has a ton of potential, however the fawning which is being given to it scares me.

This bill has a huge potential flaw that no one but me it seems is willing to talk about. This will create yet another massive government bureaucracy and that is almost never good and I have heard nothing about this bureaucracy.

Thus, my advice is that everyone do what Numbers asks, but that you also ask about this new bureaucracy and see if the pols know how it will be implemented.

SAVE Act: The New Rockstar Bill

If you ever wanted to compare a bill to a rock star, then the SAVE Act would be the rock star. Most bills are much to mundane and wordy to ever warrant such a comparison, however this one may be different. While I support the idea of this bill, and much of its content, I am concerned that the rock star status of the bill may lead to trouble.

First, let's get everyone a brief background on the SAVE Act. It does several things to beef border security however the center piece of the act is a new verification system, that if it works properly, will insure that every employer can easily verify if their employees are here legally. (Go here for more reference) This bill is being introduced by former quarterback now Congressman Heath Shuler of North Carolina. It has an impressive array of supporters. Everyone from Tom Tancredo, to the National Federation of Independent Business, to the International Brotherhood of Electrical Workers support this bill.

Congressmen from every stripe are lining up to support this bill. Everyone from members of the Congressional Black Caucus like Congressmen Davis (D-Alabama) and Bishop (D-Georgia), to members of the Congressional Hispanic Caucus like Congressman Rodriguez (D-Texas), to strange bedfellows like Congressmen Rohrbacher and Murtha.

Numbers USA speaks about this bill the way most dorky high schoolers describe the head cheerleader.

NumbersUSA believes that this legislation originating on the Democratic side of the House is just the vehicle to give us a chance to actually pass immigration legislation through a Democratic-controlled Congress that would significantly improve the lives of most Americans. "It's the one [immigration] bill that will pass this Congress," said Congressional Immigration Reform Caucus Chairman Brian Bilbray (R-Calif.) in an interview with The Hill. "We have to make this about illegal employment and crack down on employers."

My own blog has lit up with readers of previous blog entries. It seems everyone is fawning over this bill as though it is infallable. The problem is that it is fallable. There is a huge potential problem that all the fawning supporters overlook and disregard. This bill would create a huge new bureaucracy. Most massive bureaucracies aren't merely a headache but frankly counter productive. Most people that I mention this to write it off and say it is just something we will need to deal with for border security.

Well, with all due respect to the fawning supporters of SAVE Act, it won't necessarily be a minor inconvenience. It may just be a disaster waiting to happen. This new bureaucracy sounds good on paper but there are no guarantees that it will do what it is supposed to do. INS and subsequent metamorpheses in the DHS have shown time and again that they fail to do what they are supposed to do. How many times do we hear stories of the Feds losing track of illegals.

This system can very well be headed for the same type of disaster if everyone that fawns over it refuses to address what I see as a huge potential problem. While politicians of both stripes push others out of the way to be the first in line to support this bill, I hope they also understand that just because a bill has good intentions doesn't mean it will actually be implemented effectively.

I have heard absolutely nothing from anyone about how this massive new bureaucracy is going to function. The only thing I hear is that we will finally have a system that tracks the legal status of employees. With all due respect to everyone, I thought that social security numbers were designed to do that. If those have proven ineffective, there are no guarantees that this will either. I am not saying this system will fail. In fact, I hope it won't. What I am saying is that everyone needs to stop fawning over this thing like a beauty queen and actually examine it in a sober manner. No bill is ever perfect and the worst are often those that everyone thinks at the time is great.

This bill has potential to do great things against the cancer of illegal immigration, however it also has the potential of creating yet another massive non functioning bureaucracy. Just because we want it to do the first doesn't mean it won't actually do the second.

H.R.3915: THE DEMOCRATS THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET: The Political Reality if Republicans Choose to Take It

The full House voted on H.R. 3915 yesterday and the vote was almost entirely party line. Here are the final tallies.

Latest HR 3915 Vote in the House of Representatives
FINAL VOTE RESULTS FOR ROLL CALL 1109
(Democrats in roman; Republicans in italic; Independents underlined) H RES 825 YEA-AND-NAY 15-Nov-2007 11:36 AM QUESTION: On Ordering the Previous Question BILL TITLE: Providing for consideration of H.R. 3915, Mortgage Reform and Anti-Predatory Lending Act
Yeas Nays NV
Demsocratic
224 6
Republican

193 2 7




TOTALS
224 195 13

My initial interest in this bill was entirely self interest. The bill threatened to remove Yield Spread Premium, a tool that I use not only to make money but to provide better loans for my borrowers. There continues to be all sorts of confusion as to whether or not YSP has been eliminated. The members of my Representative's office (Rahm Emanuel) weren't sure themselves. His financial services specialist first sent me here ( this link was useless to me since I had already referenced it myself.) He then sent me here ( a document that is about one hundred and thirty confusing pages. You can take my word for it or open up the link and see for yourself). It was clear that my Representative and his office didn't have much more information about this bill than I already did on my own. I registered my extreme opposition to this bill to which his guy reminded me that Emanuel is NOT on the banking committee. It was typical politico. Whenever there is a bill they are proud of, the Democrats passed it. In this case facing an irate constituent, Emanuel is suddenly not on the committee. Those excuses are no longer acceptable since Emanuel voted for the bill.

What I have figured out is that YSP is NOT the best tool for political hay in this bill. YSP can be removed and added easily. There is another much more serious much more systemic problem with this bill and that can be used to make political hay. The bill is called The Mortgage Reform and Anti-Predatory Lending Act of 2007. Here is the first and main problem (from a Winston Salem newspaper regarding the North Carolina anti predatory lending law upon which this is modeled)

There is no specific definition about what exactly predatory lending entails, though most observers believe that the description applies when lenders take advantage of borrowers by charging high interest rates and consider only the value of a borrower’s assets, as opposed to what the borrower can afford to pay.

That's right, the Democrats (which we can now say since the vote was essentially party line) are attacking a problem they can't define. That should scare everyone. In my business if you can't define it, what that means is you, the borrower and consumer of loans, HAVEN'T SIGNED ENOUGH PAPERWORK YET. In practical terms, when someone is vague and cannot define an issue, it means they are actually quite ignorant to it.

What the Democrats are equivalent to is someone going into a lab and mixing chemicals even though we have no science background. We wouldn't accept that, but yet we sit by while totally clueless individuals mix perverbial chemicals with the loan process.

Let me lay out every instance within this law where I believe the practical effect will be YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET.

steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics

There are at least three new disclosures just in this sentence. I know there will be a net tangible benefits disclosure because the Illinois Legislature has already created that for ALL loans in Illinois. There will no doubt be a reasonable ability to pay disclosure, and probably an anti predatory lending disclosure. In other words, without looking at any other part of this bill, THE DEMOCRATS THINK YOU DON'T SIGN ENOUGH PAPERWORK YET.

Safe Harbor: A presumption can be made that the minimum standards (reasonable ability to repay and net tangible benefit) are met for “qualified mortgages” and “qualified safe harbor mortgages.” Qualified mortgages (prime loans) are presumed to meet the minimum standards and this presumption may not be rebutted. For qualified safe harbor loans, the presumption may be rebutted only against creditors.

The term safe harbor is very important in this bill because "safe harbor" loans are excluded from much of the legislation. Since it becomes vital that a loan be a "safe harbor" loan, you can bet that banks will create however many disclosures they feel necessary in order to insure that each loan meets the vague definition that the law lays out. Since the law itself is vague and undefined, the banks can respond with whatever paperwork they deem necessary to make sure becomes defined as "safe harbor" in the closing documents. In other words, if we went no further, THE DEMOCRATS THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET.

steering any consumer from a prime loan to a subprime loan,

This sounds reasonable however "prime loans" can mean a lot. For instance, Fannie Mae is prime. Fannie Mae has several different categories. For instance, Fannie Mae has Expanded Approval levels, 1, 2, and 3. If someone is only approved for EA 3, their rate can easily reach 9% and beyond and if the loan to value is over 80%, there will be a large PMI payment as well. So, what if someone is only approved for EA 3, and I steer them toward sub prime (which very likely would have a better deal in such a scenario). Could I be sued? That question is very undefined. The most likely reality is that no one that voted for this bill even knows that there is such a thing as Expanded levels on Fannie Mae loans. I bet most of the legislators think Fannie Mae is candy. What is the practical effect of such vague and undefined situations, that's right, YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET.

You think I am at the end. Oh no, I am just getting started.

Assignee/Securitizer Liability (does not extend to trusts and investors): Subject to exemptions below, for loans that violate the minimum standards (reasonable ability to repay and net tangible benefits), a consumer has an individual cause of action against assignees and securitizers for rescission of the loan and the consumer’s costs for rescission.

Exemption from Liability: An assignee/securitizer will not be liable for a loan that violates the minimum standards if the assignee/securitizer provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer, OR (1) has a policy against buying mortgage loans that are not qualified mortgages or qualified safe harbor mortgages and exercises reasonable due diligence to adhere to such policy AND (2) has obtained representations and warranties from the seller or assignor of the loan regarding not selling or assigning loans that violate the minimum standards.

This wordy and most likely extemely confusing portion of the bill, first, actually allows that a foreclosed borrower can sue the securitizer (Wall Street or those that turn mortgages into mortgage backed securities). This is of course unprecedented and would open up a pandora's box that none of the legislators could possibly manage and control, however the second portion of this piece of the law lays exception to the suits. Since those exceptions are also vague and undefined (for instance it says as long as Wall Street did its "due diligence"...keep in mind mortgage backed securities have markets in the billions so we can assume that no law is necessary for there to be "due diligence") and the stakes are so high, we can expect that with this portion of the bill, THE DEMOCRATS REALLY, REALLY, THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET.

When the holder of a mortgage loan or anyone acting on behalf of the holder initiates a judicial or non-judicial foreclosure, (1) the consumer who has a rescission right under this bill may assert such right as a defense to foreclosure against the holder to forestall foreclosure, or (2) if the rescission right has expired, the consumer may seek actual damages (plus costs) against the creditor, assignee, or securitizer.

This portion of the bill could ACTUALLY be construed as motivating the borrower to get foreclosed because instead of punishing the borrower for not carrying out their end of the bargain (since a mortgage is a contract and a borrower agrees to make payments on time) the bill mostly lays out steps which the borrower can take action against their creditor. Since it goes without saying banks would never allow themselves to be sued by those they foreclose on, the practical effect of this portion of the bill is YOU REALLY, REALLY, REALLY, HAVEN'T SIGNED ENOUGH PAPERWORK YET.

Finally, there is this,

requiring pre-loan counseling.

We tried pre loan counseling here in Illinois. What it did was forced mostly poor folks to spend $300 extra dollars in closing costs (it was of course mandated that the broker pay but those costs are invariably then passed onto the consumer) to meet with a state sponsored counselor so some stranger can tell them if their loan is good for them. The practical effect was a significant drop in real estate sales, more bureacracy, and of course a handful of new disclosures specifically to address that portion.

Here is the bottom line. If I debated anyone, on either side of the aisle, about this bill they would be so embarrassed I could probably force them to resign. Most of the legislators are clueless about any part of my business. It is easy to pass legislation that only creates more paperwork if you never have to deal with any of it. By the time a loan is closed, it looks much like an edition of an encyclopedia. Those loans must be kept in storage since regulators can inspect any of them anytime. That means that a successful mortgage company has an overwhelming amount of paperwork to deal with. Again, it is easy for the legislators to constantly legislate more paperwork since they have no responsibility in managing it. I have no such luxury, and you the consumers don't either.

The only conclusion I can make is that clueless legislators from one party (the Democrats) have designed a bill that tackles a problem they don't understand or define. The only practical effect of this bill is YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET. Imagine any Republican running with that slogan. H.R. 3915 can become the symbol of the Democrat's entire domestic economic agenda if the Republicans want it to. Leaders like Barney Frank led in crafting it. Chris Dodd is leading the charge on the Senate side. The Republicans can add H.R. 3915 to their list of Democratic legislative failures. All they need to do is make a few commercials with this on the screen

THE DEMOCRATS THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET.

This bill is the perfect test case to see just exactly how powerful the internet really is. While this bill may not be known by much of the mainstream, it is the equivalent of a rockstar on the internet. The blogosphere is abuzz with it and my own site's traffic has exploded with with people reading my work regarding it. The beauty is that on the internet, there is bipartisan opposition all over the internet. Whenever the crazies at Daily Kos find themselves on the same side of an issue as libertarians, small government conservatives, and of course mortgage professionals, you know you have a juicy opportunity. What needs to happen is for all the sides to get connected and to attack Congress at once.

The narrative is there for us to take. THE DEMOCRATS THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET. The parties must meet and spread the message together. On the other hand, this bill has a populist message and good targets, however our side has the truth. The way for my vision to be realized is for all of the internet to relentlessly beat the message I am talking about,

THE DEMOCRATS THINK YOU HAVEN'T SIGNED ENOUGH PAPERWORK YET

This may sound self serving and egotistically but what if everyone knew about my article? What would they think of H.R. 3915 and the party that sponsored it? If I am wrong, please challenge me. The way for this to work is for everyone opposed to this bill to spread the message throughout the internet until the internet does what it is supposed to do, create a network. Once that happens this message goes from niche to mainstream and everyone behind this bill will have to answer why

THEY DON'T THINK YOU SIGN ENOUGH PAPERWORK YET

I can't say it enough.

Momentum Builds for SAVE Act

According to Numbers USA, both business and labor leaders have endorsed this bill.

The National Federation of Independent Business (NFIB), representing more than 600,000 small businesses in every state endorsed SAVE's requirement that every employer run every new hire (and eventually old hires) through the electronic E-Verify system to ensure that illegal aliens don't get American jobs. It said the bill strikes a “fair balance between increased enforcement and limiting regulatory burdens placed on small business.”

The 752,000-member International Brotherhood of Electrical Workers -- as a way to protect American jobs for American workers -- endorsed the Secure America through Verification and Enforcement Act (SAVE Act).

In politics you never say never, however it is fair to say that the SAVE Act has some great momentum. It certainly has all the political elements in place to become law. Here is how Heath Shuler, the man that introduced the bill, put it.

The SAVE Act is commonsense legislation that is bringing people together to address this difficult issue," Shuler said. "I was proud to work with the NFIB and IBEW while drafting this legislation because of their strong representation of American businesses and American workers. I deeply appreciate their continued support for this bill as we work to pass the SAVE Act into law.”

Numbers says that some bloggers have expressed doubts that it isn't tough enough. I have not heard and my doubts are different and so far they haven't been heard. SAVE Act will most likely create a massive new government bureaucracy. This bill has all the right intentions and lots of people behind it and for that matter I am afraid that many are overlooking its potential problem. I firmly believe that with proper attention and debate the Congress can work it out so that this bureaucracy doesn't become counter productive. That won't happen unless people recognize the potential problem.

Too often we fawn over good work. I believe that some of that is happening here. I firmly believe that Congressman Shuler has created a bill that can have tangible positive effects on stemming the flow of illegal immigration. That doesn't mean that there aren't potential flaws. If we don't address the right way to deal with the massive new bureaucracy that will be put in place, it will wind up working about as well as much of the rest of INS and other such bureaus.

I support the concept behind this bill and I believe that it needs a full and fair hearing, however I am troubled by the way in which a bi partisan group of legislators and special interests are falling over each other without offering any constructive criticism to make it better. We don't need another massive non functioning bureaucracy, and that is what we will have if the powers that be don't recognize that potential flaw and address it. It won't be addressed if every group under the sun is fawning over this bill like a rock star.

Defining Predatory Lending

Justice Brennan once famously said this about pornography.

I shall not today attempt further to define the kinds of material I understand to be embraced . . . [b]ut I know it when I see it .

The Supreme Court has continued to this day to try and define what is free speech and what is obscene and pornography. While in the matter of pornography vague definitions may suffice, I have pointed out over and over that vague and undefined regulations always lead to disaster in mortgages. What it always leads to is more useless paperwork to sign. If you go to the previous link, you will see that it is all the paperwork already part of the process that leads to much of the fraud.

Enter the term predatory lending which is at the center of the new bill H.R. 3915. Here is what one Winston Salem paper said about predatory lending.

There is no specific definition about what exactly predatory lending entails, though most observers believe that the description applies when lenders take advantage of borrowers by charging high interest rates and consider only the value of a borrower’s assets, as opposed to what the borrower can afford to pay.

Keep in mind the full name of H.R. 3915 is the Mortgage Reform and Anti-Predatory Lending Act of 2007. In other words, the Congress is trying to legislate that which it can't even define. Look at what this paper describes it as. First, it says that it involves "high interest rates". That is of course in the eye of the beholder. How do we determine high? Is high the same for a borrower of a credit score of 800 as it is 500? Is it the same for an investment property as it is for a primary residence? No one knows because "high interest rates" is another dangerously vague term.

Look at the other part of the description. It is a loan that considers value and assets over their ability to pay. I once closed a loan for two borrowers in which their debt to income ratio was almost 100%. You read that right. Keep in mind that income is before taxes and I still was able to get them approved even though just the debts on their credit report amounted to their monthly mortgage. How did this happen? The wife was the breadwinner and she recently got laid off. That income wasn't allowed to be counted. Since they were actually well off, their credit score approached 800. They had about as much in liquid assets (checking, saving, investment, retirement plans, etc) as though owed. Also, they only owed about 200k on a property that was worth 450K. Was I doing predatory lending? By this description I was. This is despite the fact that in this case I was merely lowering their rate while paying for all their costs. In other words, all I did was lower their monthly payment from their previous one.

Yet, without a clear definition of predatory lending, this could be construed as "predatory lending". Even in the current bill there are all sorts of vague characteristics of predatory lending. For instance, there is net tangible benefit. I personally have no problem with net tangible benefit. I use that concept to sell. After all, I have to have a reason for the borrower to take the loan. To me that is their net tangible benefit.

Then, there is the anti steering portion of the bill. According to the bill, if I steer someone into a sub prime loan even though they are qualified for prime, that could be construed as predatory. The problem is that there are times in which sub prime loans are better for the borrower. For instance, Fannie Mae has several different levels. It has Expanded approval and that reaches three levels. By the time a borrower is only approved for Expanded Approval III, they are most likely better off going to sub prime. Yet, unless anti steering isn't better defined, this may also be construed as predatory.

There is more. Look at this portion of the bill.

engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.

Abusive and unfair can mean just about anything and frankly any borrower can feel as though they were treated as such. By leaving the definition as this vague, it opens just about any behavior to "predatory".

This should scare everyone. Congress can't even define what they are trying to prevent. Then, they use vague and unclear language to describe it. If this bill gets passed in its current form, predatory lending will mean just about whatever anyone wants it to mean. If that is the case, it opens up the industry for all sorts of law suits. More than that, it opens the process up to all sorts of new paperwork to sign. In fact, the legislators think that more paperwork is the answer. Let's look at another part of the article from the Winston Salem paper.

We should have more disclosure about the loan terms that people are signing on to … a one-page summary that every borrower sees explaining everything,” he said.

That was said by Republican Patrick McHenry. Notice he never says what everything is. In his world, after getting everything out in over one hundred documents, we still need one more to summarize everything. This is the sort of nonsensical perspective that our legislators from both sides bring to this debate. All it will lead to is more vague language, more paperwork, and ultimately more confusion.

More Asinine Politicking from Harry Reid

The hat tip goes to the Weekly Standard for pointing this out. Harry Reid ultimately caved and went down in a stunning defeat the last time he tried to play chicken with the President. In the spring he tried to stare down the President in a battle of wills over troop funding. We all now know that he and Nancy Pelosi ultimately caved in and gave the President a clean appropriations bill with no troop withdrawal. Well, here is what he is saying now.

Senate Majority Leader Harry Reid said Tuesday that Democrats won't approve more money for the Iraq war this year unless President Bush agrees to begin
bringing troops home.

By the end of the week, the House and Senate planned to vote on a $50 billion measure for operations in Iraq and Afghanistan. The bill would require Bush to initiate troop withdrawals immediately with the goal of ending combat by December 2008.

If Bush vetoes the bill, "then the president won't get his $50 billion," Reid, D-Nev., told reporters at a Capitol Hill news conference.

This is a lot of posturing because as WS explains the Pentagon has funds to last several more months. Given the events on the ground, it is highly unlikely he will have the political power to actually accomplish this.

When I was a senior, my frat brothers got into a verbal joust with the fraternity across the street from ours. The joust led to more words and ultimately people started throwing things across the street. The incident came to a head when the other fraternity used a sling shot to throw a beer bottle across the street. That beer bottle broke one of our windows. Despite a lot of bluster, we ultimately backed down and did absolutely nothing about the beer bottle thrown through our window. It was the most I was ashamed of my fraternity.

I bring up the story because just like Harry Reid we started a fight we had no plans on finishing. The people that started the verbal joust had no intentions of seeing any confrontation through if it became physical. While they had no problem talking tough, they had no intention of backing up their words ultimately with actions. The same, I believe, goes for Harry Reid.

While he is trying to play up his far left credentials with tough talk, he has, in my opinion, no intention of seeing this through. While the war continues to be unpopular, it is far more popular now then it was then. Here is one poll that tracks opinion for the last ten months. It is beyond polls though. Combat deaths have gone from over ninety in August, just over sixty in September, and just over thirty in October. Civilian deaths have gone from just under two thousand in August, to nine hundred plus in September, to seven hundred plus in October. There is no doubt that things are getting better.

If Harry Reid couldn't pull off cutting off funds when it didn't look like we could win, what makes him think he can do it now? He is acting no different than the hooligans from my frat. They started a fight they had no intention of finishing, and so is he. I lost all respect for those guys and the same for Harry Reid.

The Ponzi Scheme Known as Social Security

This is Charles Ponzi and he is the inspiration for Social Security.



A hat tip needs to go to Michelle Malkin for pointing out this story. It seems that Barack Obama has made enemies with the nutroots recently. His crime is pointing out that social security has some problems. Social Security is the third rail for the base of the Democratic Party and much like someone's ugly wife, criticizing it brings an emotional response. He got hit by most of the usual suspects

All of which makes it just incredible that Barack Obama would make obeisance to fashionable but misguided Social Security crisis-mongering a centerpiece of his campaign. It’s a bad omen; it suggests that he is still, despite all that has happened, desperately seeking approval from Beltway insiders.

...

Barack Obama, please realize that you are assisting the right’s efforts to get rid of Social Security. Their strategy is to make the public think that the program is in trouble and then sweep in with their “solution.” …IS your heart in the right place? Social Security is not in trouble. Stop saying it is.

Now, the right blogosphere is having fun with this little political civil war however they should also remember their own threats against most of the candidates for the Rep nomination because they dared not toe the company line on things like abortion, campaign finance reform, immigration, etc. We all have our third rails and Democrats have among them Social Security.





I don't much care about this little battle. I frankly believe that Obama is better off taking them on. He has nothing to lose at this point anyway and the nutroots turn off as many people as they turn on. I am glad he said what he said and frankly showed political courage that I wish more politicians would show.





That said, I am much more interested in the problems facing Social Security and their solutions. I pay about seven percent of each check to social security and I don't believe that I will get anything when I retire.





A Ponzi scheme works as such. I came to you and promise that if you give me $100 today I will give you say $200 in the future. The way I get your $200 is from other suckers that are made the same promise. This works until I find no more suckers.





Now, the way Social Security works is that today's workers pay for today's retirees under the promise that once they retire, that day's workers will pay for them. That is no different than any other Ponzi Scheme only two things: 1) the government doesn't even hide that it is a Ponzi Scheme and 2) since the government is doing it instead of being illegal it is Social Security.





Frankly, the politicians can raise the age limit or the limit on income or any other limit, and it won't change the fundamentals behind it. If one group is used to fund the investment of another group, that PYRAMID scheme will fail once you have an imbalance in the investors. Say for instance, one month my ponzi scheme had a huge number of new investors and the next month I slowed down. I wouldn't be able to fund the new investors from the first month. That is what is happening now. It wasn't a month but years of baby boomers being born, and now there aren't enough workers to fund their retirement.





Anyone that knows anything about Ponzi Schemes knows that at some point there will be suckers holding the bag. It maybe the baby boomers if we don't figure it out, or it might be my generation or maybe even the generation after us. It matters not. The system is flawed. Social Security is among the worst ideas our government has created. It is a state sponsored legal Ponzi Scheme. That is what we should focus on. Everything else is trivial.

The Ironies of H.R. 3915

Upon reflection, I was just slightly in error in my analysis of the mortgage crisis and the subsequent political opportunism currently being displayed by the politicians. While I believed banks provided easy targets, I also expected that politicians would never attack them because banks have two resources that make attacking them risky and unwise: money and power. For this reason, I thought banks would remain largely unscathed with responsibility and most of the punitive action would fall on the easier target: the mortgage broker.

I was only about 90% correct in my prediction. In fact, the politicians have figured out how to attack banks without necessarily picking a fight that might get messy. They have chosen the sub prime market. In layman's terms sub prime loans are those give to people with poor or mediocre credit profiles. Sub prime lending has revolutionized not only how we lend but who we lend to. The sub prime concept has also been one of the fall guys in the mortgage crisis. (Once again I recommend the book, Liar's Poker, which details how the market for these sub prime loans was created)

As I have already pointed out in previous posts, the market makers of sub prime loans created a market for so many ridiculous loans that just about anyone with a pulse could get qualified. Since merely having a pulse doesn't guarantee that you can pay your loan back, we are finding that many of these loans aren't being paid back. Since foreclosure is the ultimate punishment for non payment, and the borrowers aren't much of a target politically, the concept of sub prime has become the target of politicians everywhere.

There were layer and layers of irony in John Edwards being being attacked for his links to a sub prime mortgage provider. First, Edwards wouldn't know the difference between sub prime and a submarine ship. Second, the reason he was attacked was because this lender had the "audacity" to try and foreclose on borrowers that didn't pay. Again, it seems no one had one problem with sub prime lenders when they were creating markets for all sorts of poor and middle class folks to buy properties that never even dreamed of owning homes before.

It was only when we all realized that everyone was acting irresponsibly, and ultimately lending to irresponsible people, that everyone decided to turn certain groups into villains. Since it makes no political sense to blame the poor folks, the politicians needed an easier target. They chose the sub prime lending concept.

Thus, while I didn't initially predict the draconian ways in which Congress, lead by Barney Frank, plans on dealing with sub prime, they should have been altogether easy to predict. Make no mistake, if the remedies currently in H.R. 3915 are passed then sub prime will be eliminated.

There are four different things that H.R. 3915 does that deals with sub prime.

1) It eliminates Yield Spread Premium on sub prime loans. The great fear for all mortgage brokers is that YSP will be eliminated, however if I read the bill correctly, it is only on sub prime that it will be eliminated.

Since Congress knows very little about my industry and even less about what created this crisis, they think that YSP is what has caused the widespread delinquency on sub prime loans. The reality is that banks and their partners on Wall Street created loans for irresponsible borrowers and we, sociopathic mortgage broker, had absolutely no problem putting the three of them together. The problem is not and never has been YSP, but rather 620, stated, stated, to 100%, a loan in which a borrower with the marginal credit score of 620 could state their income, their assets, and still buy a property with no money down. YSP had absolutely nothing to do with this concept or the fact that Wall Street decided to make this concept into a market. Yet, it is YSP that is being blamed for the excesses of the mortgage dynamics.

By eliminating YSP on sub prime but not on prime, Congress merely makes even more incentive for someone like me to focus on good borrowers. If I know that I can make money on good borrowers without necessarily charging extra fees but not on marginal borrowers, guess which borrowers I will focus on. Furthermore, sub prime was never meant to be a long term loan. It was meant to be taken on while the borrower's credit was being turned into that of someone that would qualify for a prime loan. That being the case, why would it ever make sense for that borrower to pay anymore costs than they absolutely have to. By eliminating YSP, I am forced to make all my money in up front fees. Thus, borrowers with loans intended for short periods are now forced to take on extra fees.

2) Fees and points can no longer be financed. I have already explained that all new sub prime loans will be hit with even more up front fees than normal. Now, Congress is forcing that the borrower rather than the loan pay for these extra costs. Keep in mind that sub prime tailors to the poor. It is ludicrous to believe that poor folks be forced to take on extra fees, pay for those fees up front, and not have any unintended consequences. Financing of points and fees is an old trick that scummy brokers use to hide those fees. If someone isn't paying for something out of their pocket, they simply usually don't realize that they are still paying for it. By simply rolling fees and points within any new loan, brokers are able to use slight of hand so to speak to make people believe they aren't paying costs or merely not paying that much.

It is used much more often, though, by scrupulous brokers to make sure that borrowers that have little or no funds are able to get loans without going broker. What the politicians have never figured out is that despite our reputation the overwhelming majority of loans that are done are done with the borrower's best interest in mind. Thus, while there were plenty of brokers that abused rolling points and other costs into loans, the majority did it with the borrower's interest in mind. By throwing the baby out with the bathwater so to speak, all the politicians will really do is make it that much more difficult to do loans. Since most poor folks, the overwhelming majority of sub prime's target market, don't have thousands lying around, it is going to be very hard to do a loan for them that involves coming to closing with thousands of dollars. That is ultimately the practical effect of no longer allowing rolling in closing costs into the loan. Poor folks will just have to bring the closing costs and points to each closing they have.

3)Anti Steering. Here is another vague and very important part of the current bill.

steering any consumer from a prime loan to a subprime loan,

Now, what this means, I assume, is that anyone who qualifies for a prime loan has to go into a prime loan. While this may sound good and well to a politician, there are times when a non prime loan makes more sense for the borrower. For instance, Fannie Mae loans actually have three levels, called expanded approval 1,2, and 3, besides their standard approval. These are much like the minor leagues of Fannie Mae loans (with EA 3 being like single A). Anyone that only qualifies for EA3 would most likely be better off getting a sub prime loan especially those where the loan to value is high thus making their mortgage insurance expensive as well. Again, it is unclear if EA3, for instance, is considered prime. Thus, it is unclear if someone could be sued for steering a borrower away from it in favor of a sub prime loan.

Whenever it is unclear or murky, either new disclosures are created, or banks and brokers simply stay away from such borrowers. Either thing is ultimately not good for the fate of poorer borrowers as well as sub prime altogether.

4) This bill introduces loan counseling for borrowers in sub prime loans.

This was tried here in Illinois with HB 4050. Here are the real estate sales in the zip codes it was tried in.

Compared to August 2006, sales were down 45% in the target zip codes. The breakdown by zip code:

60620 experienced a 43% drop in sales
60621 experienced a 25% drop in sales
60623 experienced a 57% drop in sales
60628 experienced a 15% drop in sales
60629 experienced a 63% drop in sales
60632 experienced a 34% drop in sales
60636 experienced a 41% drop in sales
60638 experienced a 54% drop in sales
60643 experienced a 49% drop in sales
60652 experienced a 43% drop in sales

Compared to September 2005, one year ago, sales were also down 45% in the target zip codes. So, we can say with near certainty that the plummet is not strictly seasonal. The breakdown by zip code:

60620 experienced a 28% drop in sales
60621 experienced a 37% drop in sales
60623 experienced a 61% drop in sales
60628 experienced a 17% drop in sales
60629 experienced a 70% drop in sales
60632 experienced a 54% drop in sales
60636 experienced a 1% drop in sales
60638 experienced a 65% drop in sales
60643 experienced a 49% drop in sales
60652 experienced a 41% drop in sales

Counseling brings with it extra fees and extra paperwork and most of all it brings with it a lot of confusion. Some thirty lender decided to pull out of zip codes in which HB 4050 applied. Many lenders will simply pull out of doing loans wherever this sort of counseling is done.

Everyone needs to keep in mind that if sub prime was a boxer it would be taking a standing eight count after taking a huge upper cut. Now, Congress is coming in reigning haymakers with H.R. 3915. If this bill gets passed in a form even close to what it is now, it WILL end the area of sub prime. This WILL hurt the poor the most, and ultimately Congress WILL blame someone else for it.