Banking Mortgage System Collapsing Again? : Dodd/Frank Act Ensuring Failure

Who knew? If anyone that has even the slightest ability to understand the Chris Dodd and Barney Frank banking bill that was rammed through congress a few years back that purported to solve future melt downs like that occurred starting in 2007 and '08 where the housing market collapsed, they will know the new bill will not help. In fact the new Dodd/Frank bill only make things worse.

This article is correct. It's only a matter of time and the unwillingness to congress to action to stop it, just like the last time. President Bush and vice president Dick Cheney, and others, came to congress on 10 different times, starting as early as 2003, warning that something had to be done to stop the mortgage free fall that was occurring under the Community Reorganization Act that was instituted by Jimmy Carter and then accelerated by Bill Clinton's administration, spear headed by Barney Frank and enforced by the Department of Justice run by Janet Reno. 

Now that the progressive socialist liberals are still running the show, it doesn't take rocket science to understand why the entire mortgage banking system is headed for collapse again. It's who they are!

Another Housing Crisis on the Way?
Source: Charles W. Calomiris and Stephen H. Haber, "The Illusion of Reform and the Next Housing Crisis," Economic Policies for the 21st Century, February 25, 2014.
March 4, 2014

America will soon experience another mortgage-related banking crisis, say Charles W. Calomiris, the Henry Kaufman Professor of Financial Institutions at Columbia Business School, and Stephen H. Haber, the A. A. and Jeanne Welch Milligan Professor in the School of Humanities and Sciences at Stanford University.

Banking crises are not as unpredictable as central bankers and officials like to suggest. They are not random shocks. When banks take on large amounts of risk in loans and investments, and when regulators allow those loans to be backed with low levels of capital, you get a financial crisis.

Calomiris and Haber contend that this "toxic combination" is nearly always due to a political deal. The subprime mortgage crisis, for example, involved large banks that wanted support for their merger plans, activist groups that wanted subsidized mortgage credit for constituents, and Fannie Mae and Freddie Mac, which wanted lax regulation and the ability to repurchase and securitize loans backed by borrowed money. When politicians joined in, what resulted was a set of permissive underwriting standards and thin capital requirements, leading to the worst recession since the 1930s.

Since the crisis, has the United States made the kind of reforms necessary to prevent this kind of deal-making from occurring again? No, say Calomiris and Haber. The reforms that have been put in place are weak, indicating that deal-making has once again taken place.

• For example, the Consumer Financial Protection Bureau recently issued rules on "Qualifying Mortgages." The original proposal had strict standards, such as a 20 percent down payment and a housing-cost-to-income ratio of 28 percent. Those requirements were replaced with a total-debt-to-income ratio of 43 percent.
• Similarly, the Volker Rule was meant to prevent banks from using depositors' money to invest in securities. But as enacted, the rule exempts real estate-related securities -- the very ones that were involved in the subprime crisis.

In short, there has been no real reform in the mortgage industry and there is unlikely to be real reform anytime soon.