Obama's aggressive stance on subprime lending

Today, in an opinion piece in the Financial Times entitled Fine unscrupulous lenders, Barack Obama introduced his plan to solve the financial crisis brought on by the meltdown in the subprime mortgage sector. Obama started out with a rebuke of subprime industry practices, along with a stearn warning about the potential consequences of the present crisis. He also indicted the lobbying culture in Washington as complicit in the problem:

The implosion of the subprime lending industry is more than a temporary blip in our econ­omic progress. It is a cancer that, given today's integrated financial markets, threatens to spread with devastating impact to housing and to our economy as a whole, unless we act to contain it.

It is also a parable about how an excess of lobbying and influence can defeat common sense rules of the road, placing both consumers and our nation's economic well-being at risk.


In his diary at DailyKos today, Jerome a Paris praises Obama for his strong stance on the issue:
The intro pulls no punches, and is very heartening to me - not because it's good news that a "devastating" financial crisis is likely, but because it is, as far as I can tell, the first acknowledgement by a senior politician anywhere of the gravity of what's unfolding.

If you read my diaries, you may have noted that I personally think that the financial crisis will be massive, and I also note how important it is that Democrats put the blame properly where it belongs, i.e. in the feudalistic, class warfare economic policies of the right, which use massive debt (borne by the poor) to hide the capture of an increasingly large share of the economic pie by the ultra rich.

The first step is to not deny the economic realities, and to speak up against that wall of debt, and it is good to see Obama making that step clearly.


The introductory paragraphs set the tone for a strong set of proposals to alleviate the crisis. Perhaps most prominently, Obama calls for fines to be levied against predatory subprime lenders in order to rescue homeowners facing foreclosure after receiving loans they could not afford.
We need to help struggling borrowers to weather this storm. One way to protect innocent homeowners - at least until this crisis passes - is to establish a fund to help people refinance or sell to avoid foreclosure. We can partially pay for this fund by imposing penalties on lenders that acted irresponsibly or committed fraud.

The second part of Obama's plan involves tighter regulation of the lending industry. Here, Obama returns to an old theme, arguing that it will take a reining in of the lobbying industry in order to achieve a reining in of the lending industry.

But we also know that Washington played a role. At a time when non-bank lenders were offering new kinds of mortgage, the federal government should have made sure it was all being done on the level. Instead, our government failed to provide the regulatory scrutiny that could have prevented this crisis.

While predatory lenders were driving low-income families into financial ruin, 10 of the country's largest mortgage lenders were spending more than $185 million lobbying Washington to let them get away with it.

I think we also have to recognise what will happen if we reward the mortgage industry's lobbying: they will keep using the same kinds of deceptive practices to make a quick buck, no matter what the consequences to home buyers and their communities. Rather than correct what they are doing wrong, these companies will know that if things go badly, they can always lobby Washington to let them off the hook.
(...)
If we are serious about stopping this crisis and preventing much larger turmoil in US housing markets, Washington needs to stop acting like an industry advocate and start acting like a public advocate.


Beyond reining in lobbyist power in Washington, Obama offers a specific plan to bring more regulation to the industry and help borrowers avoid taking out loans that will almost inevitably lead to foreclosure.
The rules currently governing mortgages were written in the 20th century to make borrowing easier to understand for borrowers. We need to update these rules for the 21st century and enact the regulatory and disclosure laws that the mortgage industry has been lobbying against.

That is why I have proposed a Home Score system that would create a simplified, standardised metric for home mortgages - rather like the annual percentage rate (APR), the effective interest rate a borrower ends up paying on a loan - allowing prospective home buyers easily to compare various mortgage products so they can find out whether they can afford to make the payments.

Obama's proposal is indeed an aggressive plan to save affected families from financial ruin, penalize predatory subprime lenders, and bring sensible regulation to the industry, and was described as "radical" by the very publication that carried his piece.

The proposal is among the most radical yet from a leading Democrat and comes as Washington tries to respond to a growing wave of foreclosures and a crisis in credit markets.

It also comes amid greater discussion in Washington on whether the mortgage industry - including credit rating agencies involved in rating mortgage-related securities - should be more tightly regulated to prevent a repeat of the crisis

.
While many commentators, including some liberals, have been cool to a "bailout" for people they argue were unwise to enter a contract they could not fulfill, it seems that we could treat victims of subprime lending at least as well as the corporate counterparts who have made questionable financial decisions in recent years.

Obama's article today was the latest in a series of bold progressive policy roll-outs from his campaign, and was perhaps another step toward setting himself apart from Senator Clinton as the campaign enters the post-Labor Day homestretch. The two differed on the issue in the Des Moines debate earlier this month:

There were mixed responses to a question about the mortgage crisis. Clinton said that there needed to be protections for people facing foreclosures but that the answers weren't easy, and she declined to offer any. Richardson said there needed to be tougher government regulation of the credit industry. Obama used the question to take an indirect swipe at Clinton over her defense of paid lobbyists.

"The reason that we haven't had tougher regulation in part goes back to the issue of lobbying," he said. "This is where special interests have been driving the agenda."


Clinton's plan, introduced earlier this month, lacks the teeth of the Obama plan in that it doesn't propose fines on predatory behavior. While it will be difficult to compare the specifics of the candidates' mortgage industry reform plans until Obama's is up on his website, this does represent yet another divergence in philosophy between the top two candidates. Obviously, that is something Obama will need to continue to pursue as he tries to catch Clinton in the polls.

Obama's mortgage plan is a strong progressive policy that holds predatory lenders accountable while saving thousands of families from financial ruin. The issue of subprime lending is one that has, comparatively, not been as widely discussed on liberal blogs. I have to confess to only a rudimentary knowledge of the details of the crisis garnered only from recent newspaper articles on the subject and a meager amount of research. If anyone else with more expertise or a better understanding of the issue would care to leave a comment, I'd be very interested to hear what you have to say. If you're quite lost over what is going on with the subprime lending "meltdown,"here is a brief explanation.

Tags: 2008 Presidential Primaries, Barack Obama, subprime mortgage lending policy (all tags)

Comments

23 Comments

Re: Obama's aggressive stance on subprime lending

Well, okay, but the answers are not easy.  I hope no one is thinking of setting interest rates on mortgages, that would be a mistake.  Their lans sound very similar from what you have here.  I don't see anything "radical".

by bookgrl 2007-08-29 06:54PM | 0 recs
Re: Obama's aggressive stance on subprime lending

I doubt Obama would try any foolish regulation of interest rates. His top economic advisor is (the brilliant) Austen Goolsbee, who understands markets incredibly well. Goolsbee also generally favors market driven solutions to problems, where possible.

I don't know how much influence Goolsbee has, but I assume he keeps Obama within certain bounds of reasonableness (plus, Obama is smart enough on his own to know better).

by DPW 2007-08-29 07:25PM | 0 recs
Re: Obama's aggressive stance on subprime lending

Yeah, answers are easy.  Maybe the DC doorknobs could stop doing a heck of a job brownie on everything they don't and do touch.  These loans should have been regulated and disclosed from the beginning.  People who have been victimized need to be helped.  They bailed out all of the financial institutions in the Jeb's S&L scandal but the "people", screwem.  HRC's candidacy foreshadows her reign.  She will continue to support her captains of industry lobbyists and avoid whatever can't be triangulated.  Sort of like bill.  

by dkmich 2007-08-30 01:32AM | 0 recs
Re: Obama's aggressive stance on subprime lending

Seriously, if anyone knows more about this, please put up a link or something directing us to relevant material about what's going on.

Also, did anyone notice the twin policy diaries from the Obama posters today? And I was about to use my post to write a poem about hope...

by Max Fletcher 2007-08-29 06:56PM | 0 recs
Re: Obama's aggressive stance on subprime lending

it was a common (yet unfounded) criticism of Obama for a long time that he was all about hope and light on policy

by Max Fletcher 2007-08-30 12:00PM | 0 recs
Good as always

by caroline becker 2007-08-29 07:32PM | 0 recs
Re: Obama's aggressive stance on subprime lending

Thank you for this diary. A refreshing read.

by leewesley 2007-08-29 07:35PM | 0 recs
Re: Obama's aggressive stance on subprime lending

I am so glad that someone is finally taking some leadership on this issue, and am not altogether surprised that that someone is barack obama.  it has really been getting under my skin recently that no one in power seems to mind at all that the fed is effectively bailing out lenders while at the same time basically doing nothing to help out the actual people who are/will be affected by these predatory loans.  big business has already started getting the help they need.  obama's plan sounds like it might strike a good balance by helping out homeowners as well.  

by bluedavid 2007-08-29 07:35PM | 0 recs
Re: Obama's aggressive stance on subprime lending

You know, it always seems like Obama is out in front on the big issues. I was considering Edwards for a while, but Obama keeps pulling me back in. He's just the only one who seems smart enough to foresee problems like this and come up with clear plans to thwart them.

by Pope Jeremy 2007-08-29 07:44PM | 0 recs
Obama joins Edwards

Here is the issue of subprime lending and predatory mortgages from John Edwards that has been on his website for quite a while.

http://johnedwards.com/issues/predatory- mortgages/

It is good to see Obama join Edwards on this important issue.  Edwards has concrete ideas of how to correct the problems.

Obama has a chance to be Edwards VP choice, especailly when he joins Edwards on important issues like the mortgage crisis in America.

by funphil 2007-08-29 08:03PM | 0 recs
Please be careful about subprime v. predatory

there are ictims of predatory lending.  There are not victims of subprime lending.

Subprime is simply a segment of the market.

by DrFrankLives 2007-08-29 08:12PM | 0 recs
Re: Please be careful about subprime v. predatory

Of course they're not synonymous, but in many cases the line has been pretty fine.

by Max Fletcher 2007-08-29 10:52PM | 0 recs
Re: Please be careful about subprime v. predatory

Obviously there are legitimate subprime lenders, and it is a necessary segment of the market. But the fact is, a lot of people were treated dishonestly. Many of these firms were doing things like employing cold-callers to try and rope people in. While subprime doesn't necessarily mean predatory, there is a lot of predatory behavior going on within the industry and it's obviously in need of regulation and reform.

by Max Fletcher 2007-08-29 11:08PM | 0 recs
The REIGN of Queen Isabella

is not the same as the RAIN in Spain or REINing in the imperial ambitions of Ferdinand and Isabella.

Fred Gwynne - comic actor and witty author once wrote a children's book playing with these words.  It showed a prototyoical King with a crown floating above the earth with rain pouring out from his regal garments.

by debcoop 2007-08-29 08:19PM | 0 recs
Re: The REIGN of Queen Isabella

thanks... i'll change that.

by Max Fletcher 2007-08-29 10:53PM | 0 recs
Re: Obama's aggressive stance on subprime lending

We are entering a major transformational period in this country's history both domestically and abroad, and of all the top candidates I think that Obama "gets" this the most and has the most progressive and impressive set of ideas to make sure that we're best positioned to deal with this. He's ahead of the curve compared to the other candidates from what I can tell, except for maybe Edwards. I wouldn't quite call him the next Churchill in terms of seeing what's coming down the pike and knowing how to deal with it, but I'm impressed. The old realities are changing and the old solutions just aren't going to cut it any longer. That goes for just about every issue. Obama appears to get this intuitively.

by kovie 2007-08-29 10:08PM | 0 recs
Re: Obama's aggressive stance on subprime lending

King George's 'Booming"economy.

 Panic after internet bubble bursts.Fed lowers interest rates pretty quickly(12-18 months)to 50 year lows to stimulate economy.  Home sales, and especially home prices, grow and more people can afford homes because low interest rates equal Much lower monthly payment.  IMHO this leads people to sell homes at increased prices with the same monthly payments as was required for homes during the previous decade.

 Greenspan, seeing rhat there are not enough suckers to buy with these artificial rates, starts hustling ARMs as "creative financing" to continue the housing boom.  More homes being built, more jobs for carpenters, plumbers, everybody who works in the housing industry, from laborers to the Whores pushing sub-prime loans.  Boy, isn't our economy just humming along great!!

 Fed starts raising interest rates back to historical levels, even though today they are still less than anytime before 2000.  But, the first ARMs are starting to become due, and those barely affordable monthly payments are now increased to Unaffordable payments.  The beginning of dramatically increased foreclosure rates.

 The Whore sub-primers start going belly up, and create a U.S. and international financial crisis.  To try to halt "easy money" in the housing market, Bernike starts to crack down on no down, no income verification loans.

 Guess what.  All the poor schmucks who could barely afford their initial mortgages, but figured they have equity or better salaries in 2-4 years, are all of a sudden surprised with the "tightening" of the credit market.  They are shit out of luck with finding any refiancing, are stuck with new payments they can't afford, and can't find buyers because new buyers are also being shut out with the new guidelines for home mortgages, which in reality should have been the guidelines all of this past 6 years.

Short version:  Get the suckers in with low interest rates and teaser interest rates.  Tell buyers tha home prices Always go up.  Real interest rates return, prices aren't going up anymore, and now homeowners do not qualify for new refinancing and neither do buyers.  Suckers screwed, home prices start to crash, and we have the start of a recession, which will only get worse.

 Heckuva job Georgie, Greenspan, and Bernike!!

by ocdemocrat 2007-08-29 10:45PM | 0 recs
Re: Obama's aggressive stance on subprime lending

So he proposes to "fine" some (or all) mortgage lenders in order to create a fund to buy mortgages (i.e. "help people refinance or avoid foreclosure") -- from mortgage lenders.  This is clearly just moving money from one set of pockets to another.

Also, there are already very clear disclosure rules regarding mortgage financing.  Look at your mortgage documents -- they clearly state APR, total amount financed, monthly payments, etc.  But people don't read that stuff and mortgage brokers don't push them to.

I also don't understand the reference to treating the "victims of subprime lending at least as well as the corporate counterparts who have made questionable financial decisions in recent years."  Who are these corproate counterparts you are referring to?

Clinton is right here.  There are no easy answers.  Any bailouts will primarily benefit mortgage lenders -- and lots of new regulations and restrictions will just further limit people's access to mortgage credit.  You also have the potential of providing relief to some homeowners while the vast majority of subprime borrowers are working hard and making all of their payments on time.

There is plenty of greed and misjudgment to go around -- both personal and corporate.  The best thing we can do is let the system play itself out.

by dchavern 2007-08-30 05:03AM | 0 recs
Re: Obama's aggressive stance on subprime lending

Just thought I'd point out that like the vast majority of his campaign, Obama here is acting in concert not just with the generic progressive agenda, but also his own history, from long before he was on the national stage:

In 2001, reacting to a surge in home foreclosures in Chicago, he helped push for a measure that cracked down on predatory lenders that peddled high-interest, high-fee mortgages to lower-end homebuyers.

harpers

Indeed, while that article seems to paint him as somewhat of an outsider/insider, the rundown of his history is somewhat startlingly progressive, given the "moderate" reputation he seems to have garnered amongst some of his critics on the left.

Just this passage highlights how ridiculous (and amusing) it is to suggest that Obama is being lead by anyone on the issues of healthcare, poverty, lobbyist reform, predatory lending, whatever your choice:

A man more suited to the tastes of reform-minded Americans could hardly be imagined: he is passionate, charming, and well-intentioned, and his desire to change the culture of Washington seems deeply held and real. He managed to win a tremendous majority in his home state of Illinois despite rhetoric, and a legislative record, that marked him as a true progressive. During his first year in the state senate--1997--he helped lead a laudable if quixotic crusade that would have amended the state constitution to define health care as a basic right and would have required the Illinois General Assembly to ensure that all the state's citizens could get health insurance within five years. He led initiatives to aid the poor, including campaigns that resulted in an earned-income tax credit and the expansion of early-childhood-education programs. In 2001, reacting to a surge in home foreclosures in Chicago, he helped push for a measure that cracked down on predatory lenders that peddled high-interest, high-fee mortgages to lower-end homebuyers. Obama was also the driving force behind legislation, passed in 2003, that made Illinois the first state to require law-enforcement agencies to tape interrogations and confessions of murder suspects. Throughout his campaign for the U.S. Senate, Obama called for social justice, promised to "stand up to the powerful drug and insurance lobbies" that block health-care reform, and denounced the war in Iraq and the Bush White House.

Since coming to Washington, Obama has advocated for the poor, most notably in the aftermath of Hurricane Katrina, and has emerged as a champion of clean government. He has fought for restrictions on lobbying, even as most of his fellow Democrats postured on the issue while quietly seeking to gut real reform initiatives. In mid-September, Congress approved a bill he co-authored with Oklahoma's arch-conservative senator, Tom Coburn, requiring all federal contracts and earmarks to be published in an Internet database, a step that will better allow citizens to track the way the government spends their money.

The amazing thing has been the consistency of the message.  Obama right now is running as...Obama.  He's running on his record.  Which makes the "inexperienced" and "he's following Edwards" criticisms so ridiculous.  Not only does this latest proposal seem right in line with my values and seem to be an overall good policy, it is also a natural out-cropping of policies he's pursued against predatory lending in the past.  Much like the rest of his campaign.

I'd also like to say that Max and psericks are doing great work here on myDD, putting the lie to the claims that Obama is "all sizzle, no steak" or that his policies somehow reflect a level of inexperience.  Kudos.

by mopper8 2007-08-30 06:34AM | 0 recs
Re: Obama's aggressive stance on subprime lending

Obama has good ideas here, but they are mainly longer-term. What can we do now?

As a complete nonexpert, let me offer a thought on how the government can help both banks and borrowers.

Set up a joint venture of 3-5 banks and have the venture negotiate to purchase non-performing loans from the current owners and then do the work-outs with the homeowners. The government could help with funding and guarantees for the homeowners and the banks but there should be incentives and oversight for the joint venture to do a fair and efficient job.

I know that this proposal is simplistic and it surely has holes and dangers , but I hope that action along these lines are being explored by those with the expertise and influence to make an operation like this work.

homer   www.altara.blogspot.com

by Homer 2007-08-30 06:43AM | 0 recs
Walking back the cat

It's good to see Obama joining Edwards in going beyond the need to respond to the immediate problems we face, and addressing the need to deal with questions of power and influence as well.

by RT 2007-08-30 07:04AM | 0 recs
Re: Walking back the cat

It's amusing to see some of the Edwards supporters on this site adopting the Rovian technique of "if you repeat it over and over, it will become true" persuasion.  

Obama isn't "joining" Edwards.  If anything, Edwards is joining Obama.  Not only has fighting lobbyists been a central premise of Obama's campaign since he announced, he ran for the Senate, and his office in the state legislature, on the issue, and has an extensive record on actually passing legislation that curtails the power of lobbyists.

So please.  Engage with reality here.

by mopper8 2007-08-30 11:41AM | 0 recs
Re: Obama's aggressive stance on subprime lending

Some of you are absolutely right.  I don't understand why subprime lenders are being grouped in with predatory.

Why must we create a new social program which rewards poor financial planning?

I wrote about my frustration and would like to here yours:

http://councilofnicea.blogspot.com/2007/ 08/busting-predatory-lending-myth.html

by Rybupsp 2007-08-31 07:39AM | 0 recs

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