Sunday, July 30, 2017

Dodd Frank: "The Ultimate Middle Class Killer"

Sometimes the cure is worst than the affliction!

Former Connecticut Senator, Christopher Dodd and Massachusetts Congressman, Barney Frank, the authors of Dodd-Frank, described it as "the needed remedy for a financial system gone haywire." Former Clinton Treasury Secretary, Robert Rubin and Federal Reserve Chairwoman and Obama appointee, Janet Yellen still contend that it was "necessary regulation."

For small business and Middle Class Americans," it was the "wettest of wet blankets."

The blame is purely bi-partisan! Former Texas Governor and current Energy Secretary, Rick Perry was one of the first to point out the true causes of the 2008, financial meltdown. A Republican Congress worked with President Bill Clinton to repeal the Glass-Steagall Act.

Glass-Steagall prevented traditional banks from doing the riskier work of investment banking, stock market speculation, hedge funds, etc..It was repealed in 1999 under the "Financial Services Modernization Act." For nearly 70 years Glass-Steagall had separated commercial from investment banking.

There continue to be those who remain in denial. They are mostly big bank boosters and Wall Street analysts who still can't believe that that the Act's repeal had anything to do with the Panic of 2008. Yet evidence clearly suggests that it did.

The origin of Glass-Steagall and the motivations behind it's repeal are separate subjects for a different post. But it is important to note the players and how they used the Panic of 2008 to craft legislation that hurt Community Banks, Credit Unions, small business and essentially, the American Middle Class.

Wasn't it Yellen and Rubin's friend, Rahm Emmanuel, who said "don't let a crisis go to waste?" This crisis lined the pockets of the few, to the detriment of the many. That's how wealth transfers work.

Could it have been by design? I have never been big on conspiracy theories. But,"Dodd Frank" introduced the "Volker Rule" which prevented Banks from "propriety trading." In other words, banks could not use their own money for speculative investing.

Sounds slightly Orwellian!

I never was a Paul Volker fan! He will always be remembered as Jimmy Carter's Federal Reserve Chairman. Volker, Rahm Emanuel, Robert Rubin and Janet Yellen have three things in common: The are card carrying members of the "Council of Foreign Relations." They are globalists. They are Democrats.

To stay in denial is easier than admitting the truth. If you continue to repeat a falsehood, people might eventually believe it. To admit mistakes at this level can bring about catastrophic, career ending possibilities. The "safe route" was to "create a smokes screen" that pinned the blame on "the help."

Dodd-Frank wouldn't have happened without the Panic of 2008; and the subsequent Republican meltdown. Until Senator Edward Kennedy's death and Scott Brown's surprising Senate victory, the Democrats held sixty Senate seats. Sadly, Brown's Massachusetts orientation would not allow him to vote against Dodd-Frank.

It sounded marginally creditable, thanks to the endorsement of Wall Street "gurus," ironically responsible for the catastrophe! Especially to those who didn't understand the intricacies of banking and most particularly, mortgage lending. Those who experienced Dodd-Frank first hand, described it as a "regulatory nightmare."

Just imagine...You are attempting to refinance your home. You know that the loan that you took out in 2007 still has twenty years to go before being paid off. Your rate is 6%. Not too bad, but you learn you're eligible for a 3.25% loan that would shortened your term by five years, while reducing payments!

You learn, that the less desirable house across the street just sold for double what you paid for your house in 2007. You assume that you have sufficient equity to, not only pay off $20,000 in credit card debt, but replace your roof.

This is "grassroots American entrepreneurship" at it's best! The homeowner is "taking earned equity to retire non-tax qualified debt, in favor of tax qualified debt, coupled with both home improvement and long term interest savings."

Prior to Dodd-Frank, this would have been a common scenario. Today, it's not so easy, starting with seventy pages of redundant assurances most find more confusing than informative. Upon completion, you make a credit card payment to the lenders "Appraisal Management Company." This costs between "$500-$650," about "twice" the cost of a "Pre-Dodd Frank" appraisal.

Regulators say that the change prevents Mortgage Loan Originators from "coercing" appraisers. The ugly, behind-the-scene rationale amounts to the government doesn't want people using their homes like an ATM machine.

Three Appraisal Management Company members, in three different cities, admitted to witnessing efforts by HUD to promote overly conservative estimations of value. As a Cleveland based, AMC rep remembered, "These guys from HUD came to our office and simply said, "whatever the value, reduce it by 20%."

More than slightly Orwellian!

In 2012 FHA wording hinted that underwriters were encouraged to "look for ways to not approve mortgage loans." No joke! It was actually in the continuing education material, required for S.A.F.E. Mortgage Loan Origination license renewal.

The conventional side is even more rigorous. Rates are typically higher. Underwriting requirements are more strenuous. Qualification for non-owner occupied investment loans; utilized for rental housing, are more restrictive than ever!

Why does this matter?

Those who blundered, ultimately bilked "main street" America for billions, if not trillions of dollars. And mostly benefited! Left holding the bag was "Joe Six-Pack" who merely wanted a mortgage loan; or to buy some rent houses. Not to mention those small business' who were in business to facilitate him!

Those "too big to fail, Wall Street, "Fat cats," will never admit the truth. Their greed lead to the nation's catastrophe. If you haven't seen the movie, "The Big Short," you should. Much comes to light, regarding the Panic of 2008.

To airily blame "non-conforming lending and mortgage brokers" for the meltdown is like "chopping off the tops of weeds."Banks created the loan products! Brokers were their "cheap help;" because they were not required to provide benefits, as they did for their "in house" Loan Originators.

Former Empire Equity CEO, Ezra Behmann explained the rationale. "Straight commission, on collection, salespeople are the least expensive form of labor known to entrepreneurship." These reduced labor costs were passed on to the consumer.

The Appraisal Management companies are seen by industry people as "leaches;" making more than the appraisers for little effort. Appraisers are making less than ten years previously. Many of the best ones have left the industry.

Title companies, another small business adversely impacted by Dodd-Frank, have struggled to stay a float. Many have gone out; because the Brokers who were feeding them, also went out. Consumers seeking smaller loans suddenly had few options.

Closing cost caps dropped to five percent; from eight percent. It sounds good! But, providers(Appraisers, Title Companies, Surveyors, Government, etc.) must be paid from the 5%. Thus, if you are attempting to borrow $50,000, a lender is capped at $2500 for fees. Appraisal, title and government fees, generally account for $1500 to $1800, which are included. Then comes lender and processor fees; anywhere from $1000-1500 additional dollars.

Did anyone expect this result?

Maybe not. It is reminiscent of a farmer who is angered by foxes constantly stealing his chickens. Yet, his retaliatory response is to "butcher his rabbits."

A darker conclusion would entail a plot to eliminate lower end homeowners. Instead of working to facilitate reduced monthly housing costs, poor Americans are told to "turn to government." It is consistent with "encouraging the poor to rely upon AFDC, Section eight housing, food stamps and Medicaid" as long-term sustenance.

Discouraging cash-out refinances, through manipulation of the appraisal system, is contrary to our American Dream! Government should be encouraging independent, entrepreneurial thinking! Dodd-Frank facilitates the opposite.

The big banks complained a bit. But, they could afford the "scores" of staff lawyers necessitated by Dodd-Frank. As Kentucky Sixth District Congressman, Andy Barr pointed out, "there were 1500 Community Banks that went out in 2015, as a result of Dodd-Frank."

Barr, who sits on the House Financial Services Committee, reminded that the "Consumer Finance Protection Bureau" is not funded by Congress. It is funded by the Federal Reserve. CFPB was another Obama initiative that conveniently avoided Congress!

Never forget! Those big bank players, such as Warren Buffett and Jamie Dimond benefit from the concept of "too big to fail."

The good news is the Republican remedy, "The Financial Choice Act," passed the house, June 8th of this year. It is now working it's way through the Senate. There is no guarantee that it will bring about all of the necessary changes. But, it does have a chance. Especially if the Senate bi-passes the traditional 60 vote standard, in favor of a more doable 51 majority thresh hold.

Sadly, the poor and uneducated remain in the dark,trusting their politicians. They were told that Dodd-Frank would protect them. What it did was to make them lifelong renters.

What's especially damning with Dodd-Frank is elimination of the Middle Class practice of "playing work-up."

Historically young people would buy starter homes, hold them a few years, then sell them, taking the proceeds to invest in a bigger and better house. Often, their first house was a "fixer upper." The FHA 203k rehabilitation loan was hailed as the greatest "wealth creator" devised. But, the increased FHA paperwork has pretty much ended that!

Under Dodd-Frank, student loan debts in deferment are now counted in debt-to-income ratios. This is especially demoralizing for millennials attempting to buy their first homes.

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