The leaders of the U.S. Senate Banking Committee, Sen. Tim Johnson (D., S.D.) and Sen. Mike Crapo (R., Idaho), released a draft bill on Sunday that would provide explicit government guarantees on mortgage-backed securities (MBS) generated by privately-owned banks and financial institutions. The gigantic giveaway to Wall Street would put US taxpayers on the hook for 90 percent of the losses on toxic MBS the likes of which crashed the financial system in 2008 plunging the economy into the deepest slump since the Great Depression.
Proponents of the bill say that new rules by the Consumer Financial Protection Bureau (CFPB) -- which set standards for a "qualified mortgage" (QM) -- assure that borrowers will be able to repay their loans, thus reducing the chances of a similar meltdown in the future. However, those QE rules were largely shaped by lobbyists and attorneys from the banking industry who eviscerated strict underwriting requirements -- like high FICO scores and 20 percent down payments -- in order to lend freely to borrowers who may be less able to repay their loans. Additionally, a particularly lethal clause has been inserted into the bill that would provide blanket coverage for all MBS (whether they met the CFPB's QE standard or not) in the event of another financial crisis. Here's the paragraph:
"Sec.305. Authority to protect taxpayers in unusual and exigent market conditions.
"If the Corporation, the Chairman of the Federal Reserve Board of Governors and the Secretary of the Treasury, in consultation with the Secretary of Housing and Urban Development, determine that unusual and exigent circumstances threaten mortgage credit availability within the U.S. housing market, FMIC may provide insurance on covered securities that do not meet the requirements under section 302 including those for first loss position of private market holders." ("Freddie And Fannie Reform -- The Monster Has Arrived," Zero Hedge)
In other words, if the bill passes, US taxpayers will be responsible for any and all bailouts deemed necessary by the regulators mentioned above. And, since all of those regulators are in Wall Street's hip-pocket, there's no question what they'll do when the time comes. They'll bail out their fatcat buddies and dump the losses on John Q. Public.
If you can't believe what you are reading or if you think that the system is so thoroughly corrupt it can't be fixed; you're not alone. This latest outrage just confirms that the Congress, the executive and all the chief regulators are mere marionettes performing whatever task is asked of them by their Wall Street paymasters.
The stated goal of the Johnson-Crapo bill is to "overhaul" mortgage giants Fannie Mae and Freddie Mac so that "private capital can play the central role in home finance." (That's how Barack Obama summed it up.) Of course, that's not really the purpose at all. The real objective is to hand over the profit-generating mechanism to the private banks (Fannie and Freddie have been raking in the dough for the last three years) while the red ink is passed on to the public. That's what's really going on.
According to the Wall Street Journal, the bill will...
"construct an elaborate new platform by which a number of private-sector entities, together with a privately held but federally regulated utility, would replace key roles long played by Fannie and Freddie.
"The legislation replaces the mortgage-finance giants with a new system in which the government would continue to play a potentially significant role insuring U.S. home loans." ("Plan for Mortgage Giants Takes Shape," Wall Street Journal)
"Significant role"? What significant role? (Here's where it gets interesting.)
"The Senate bill would repurpose the firms' existing regulator as a new 'Federal Mortgage Insurance Corp,' and charge the agency with approving new firms to pool loans into securities. Those firms could then purchase federal insurance to guarantee payments to investors in those bonds. The FMIC would insure mortgage bonds much the way the Federal Deposit Insurance Corp. provides bank-deposit insurance."
Unbelievable. So they want to turn F and F into an insurance company that backs up the garbage mortgages created by the same banks that just ripped us all off for trillions of dollars on the same freaking swindle?
You can't be serious?
More from the WSJ: "Mortgage guarantors would be required to maintain a 10% capital buffer against losses and to have that capital extinguished before the federal insurance would be triggered."
Ten percent? What the hell difference does 10 percent make; that's a drop in the bucket. If the banks are going to issue mortgages to people who can't repay the debt, then they need to cover the damn losses themselves, otherwise they shouldn't be in the banking biz to begin with, right?