Clinton Mortgage Reforms More Pandering Than Problem Solving

Presidential candidate Hillary Clinton unveiled her “mortgage reforms” on the campaign trail yesterday. You won’t be surprised to hear they are more pandering than problem solving. Her rhetoric was emotionally charged placing the blame specifically and solely at the doorstep of the mortgage brokers. No mention was made of Wall Street mortgage investors, wholesale lenders, retail mortgage divisions of home builders, or big banks.

Mortgage Brokers Get the Blame

Mrs. Clinton said in a report on Financial Times website, FT.com:

“We need to put an end to fly-by-night mortgage brokers peddling loans to unqualified applicants based on inflated appraisals,” she said. “We need to help those facing the pain of foreclosure. We need to secure the market place and put reforms in place right now.”

Of course, the home builder banks peddled their share, Countrywide peddled their share, as did Washington Mutual and Bank of America. It is estimated now with effective bank marketing over the last few years, broker market penetration is down, falling from 75% 10 years ago to roughly 50% today.

So with only 50% of the retail market, why is Mrs. Clinton finger-pointing only at mortgage brokers?

PAC Money Talks

It’s no coincidence Wall Street, home builder banks, and retail depositor banks get left out of Mrs. Clinton’s diatribe. The 3 lobbies that protect and promote those interests are in the Top 5 PAC campaign contributors in the last 6 Federal election cycles. Millions of dollars spread around to both parties insures when you as a politician speak ill of the mortgage industry, “broker” is what’s said.

The mortgage broker lobby, National Association of Mortgage Brokers, on the other hand, contributes so little money making them inconsequential and impotent when it comes to defending it’s own.

Don’t Blame the Waiter!

This attack on the mortgage brokers is like blaming the waiter for a bad steak. The waiter only takes the order. He didn’t buy the beef or cook it. Sure in this analogy, the waiter could screw up the order, scribble down rare when the customer wanted well done, but here that doesn’t apply since mortgage customers wanted easy money cheap and they got it.

If a politician really wanted to reform the mortgage industry instead of just pander to voters a more courageous plan would need implementing and it would mean taking on the biggest PACs in the country. So don’t look for it anytime soon.

When a Reform is Not a Reform

Mrs. Clinton’s so-called reforms are:

1. New disclosures stating fees in plain language with a full disclosure of monthly tax and insurance
2. Banning prepayment penalties on all home mortgages

These are basically subprime mortgage reforms since A-paper conventional loans fully disclose taxes and insurance, and have no prepayment penalties. Subprime mortgages typically do have prepayment penalties and are virtually always sold as “no escrow” loans…so disclosure of escrow items (eg. taxes and insurance) are not required.

Of the 14 million homes sold in the last 3 years, 7 million home mortgage customers “ordered” adjustable rate, subprime loans which are the cause of the current crisis Mrs. Clinton wants to fix.

The customer wanted this particular “steak”. So Wall Street bought the beef, the wholesale lenders cooked it, and the mortgage brokers took the order.

But remember, it wouldn’t have even been on the menu, if consumers didn’t want (or need) it.

Groucho Said It Best

The perfect quote to describe Mrs. Clinton’s mortgage reforms…

“Politics is the art of looking for trouble, finding it,
misdiagnosing it and then misapplying the wrong remedies.”
- Groucho Marx

You said it, Groucho!

Author: Rob K. Blake
Published August 8, 2007

• Previous post in Mortgage News:
  Panicked Jim Cramer Calls On Bernanke To Stem The Subprime Meltdown

• Next post in Mortgage News:
  Subprime Mortgage Meltdown Goes Global- Dow Plummets