Although there were numerous bad actors during the bubble days of housing in mid decade, not all banks and lenders did bad things. Mainly it was brokers in places like southern California, Vegas, Florida and Phoenix who were pushed to just generate volume and not worry about quality. Getting paid for generating numbers of mortgages instead of quality mortgages led to much of the problems we face today. Young Wall St bankers, who actually convinced themselves that house prices in the US never go down, and who got big bonuses for generating more and bigger securitized pools of garbage, just added the fuel. When that was combined with Barney Frank refusing to rein in Fannie and Freddie, and covering up for the illegal actions of Franklin Raines and his cohorts, and the political push for making subprime loans and increasing home ownership under CRA rules, then disaster was a guaranteed outcome. Despite what the media and various politicians like to rant about, most of those people lost their jobs and lifestyle, and are doing something different today. Raines, of course, got his bonus and went on untouched. What occurred at the banks and Wall St was not criminal for the most part, just stupidity pushed along by reverse incentives against doing things right. In short the whole system was set to fail and Barney Frank was the one most responsible for the debacle.

That is now in the past. Unfortunately the administration and state AG’s think it is just great to go on a populist rampage against the banks and try to punish everyone other than Barney for the misdeeds of the past. The result is they are crushing the banks and the housing market. Bankers are now expecting the lawsuit of the day to show up. Elizabeth Warren set off a new deluge with her demands for a $20 billion fine against all big banks because they used robo signing to try to keep up with the overwhelming volume. The California AG is determined to blow that settlement. Classic California and New York political actions by uninformed lawyers. The lenders also invented MERS to be efficient, but judges at the state level are too dumb to even understand what MERS is. Reality is almost nobody who borrowed too much has been harmed by robo signing in foreclosure, and nobody lost his house due to MERS. They are in default and are not going to pay, so they need to be foreclosed to clear the market. In fact there are people I know who are in foreclosure and are knowingly dragging it out so they can live rent free for three years and just game the system. Of course judges and politicians-who are one and the same at the state level, have no idea how it really works or what the damage is that they are causing. Delaying foreclosures by another year only harms every person who owns a home. The longer this drags out, the more home prices decline and fail to recover. The more lawsuits there are over robo signing, or other supposed mistakes, the more the lawsuits from politicians and the less likely any bank will issue a new mortgage to anyone but the perfect borrower. Now we even have regulators from Washington and Illinois instituting suits claiming that banks need to be making more subprime loans, and that they discriminated by charging higher rates to people with lower credit and higher risk. What a novel concept- charging more for higher risk.

Even modifications are being harmed because almost nobody wants the perceived legal risk of subprime mortgages, even though that risk is removed by those who buy defaulted notes and properly document and reissue modified loans. So the result is many underwater borrowers cannot get a modification that they need to have to get back on track, stay in their home and repair their credit. As a result many blue collar workers are being harmed by the very politicians who claim they are there to protect these people.