A lot has happened since I last wrote. Rates have plummeted. Appraisal values have done the same. A backlog of foreclosures and short sales. The end of the tax credit. And more legislation aimed at consumer 'protection'. Really, it is aimed at the consumer. The consumer has the target on his back.
Credit card protection gave so much lead time for banks [yes, banks...they ARE the credit card companies] that rates were jacked up, limits lowered, guaranteed life rates on those little cash advance checks were no longer guaranteed, credit scores were lowered [as a result of these actions], etc ad nauseum. Yes, there is a notice telling the consumer how long minimum payments will take to eliminate a balance. Small consolation when juxtaposed against all of the other changes made. It really protected the banks when coupled with the change in Bankruptcy laws a couple of years ago.
You'll notice fewer choices for mortgage lenders & brokers these days. It likely will get smaller as the large banks consolidate their market share and force the brokers out of the circle of business. Less knowledgeable order takers will make up a larger percentage of loan officers as we move forward. The Good Faith Esimate changes have resulted in higher costs to the consumer as various parties are forced to eat different costs if there are any changes--even if those changes resulted from unforeseen problems like a title issue which could delay closing. Enforcement of existing laws would have accomplished the goal of protecting the consumer. It just wouldn't have provided a press conference opportunity.
Have you ever wondered about terms like 'too big to fail'? And have you ever considered that if you lend your brother-in-law a hundred bucks and he does not pay you back that the government will make good on it? No, you lose your 100 bucks. Same thing with a stock investment, etc. Not so with many of the big banks. Bad investing had the risk taken away with TARP [Troubled Asset Relief Program]. Consider Bear Stearns which issued a lot of bad mortgage paper. It was allowed to fail. Now consider Goldman Sachs where Ben Bernanke, former Treasury Secretary Paulson & current Treasury boss Timothy Geithner once worked. Similar scenario. But they were allowed to convert to a bank and grab TARP funds to prevent failure [a euphemism for loss of investment]. Why should they have been rewarded for mismanagement?
Indeed, many of the TARP funds were secreted away by Bernanke & Co with no accountability. If there was a loss to be taken through a decrease in property values, application of funds directly to individual loans would have paid those investments back and the consumers would have not been subjected to being upside down. Walking away from houses would not have occurred in such great numbers and property values would not have plummeted. Instead, funds were used for AIG to hold parties, banks to buy other banks, etc ad nauseum. And is the economy any better? We still hear about Bernanke et al proclaiming that disaster awaited the economy if they hadn't done something. Really? Worse than what we have with the gross mismanagement of funds that should not have been provided in the first place?
And this is not a partisan event. Incumbents in both parties willingly participated in this farce and all of the subsequent legislation that has made it very difficult for people to buy & finance homes. Smart underwriting would have accomplished the same thing. FHA has been around since the 30s. And VA since the 40s. Sound underwriting was the rule rather than the exception. The elimination of credit scoring would accomplish much. It is pretty easy to underwrite a file with a credit report minus the scores. Payment histories are very well spelled out. Credit scores only serve to hammer consumers and are subject to manipulation. Elimination of them would be a service to all.