I wrote a draft on Saturday which was intended for this post, but earlier today (09-06-2010) a Seeking Alpha article titled Was TARP a Success for the U.S.? written by David Hunkar caught my attention and I decided instead to express my opinion about the banking industry’s vigorous recovery; A strong enough recovery to repay most of the money borrowed from the US Government – otherwise known as you, the tax payer.
A short time after I noticed another story, also on the Seeking Alpha website which appeared to contradict the first one, so I read further. The headline in this article by Michael David White read “Pending Home Sales Reconfirm: The Market Is Crashing”, so there was really no contradiction, but rather a conveyance of what’s going on in the housing market from two different perspectives.
In the body of article two there were a number of statistics including this one; “The index of unclosed contracts to buy a home increased from 75.5 to 79.4.” This continued a trend from the two months prior to July. What this means to me is simply that loan applications are not closing.
Put another way banks are still not lending! So this is what I have decided to discuss today. First of all it must be pointed out that there are mortgage lenders that want to lend; not commercial banks mentioned in the last paragraph that control your checking, savings and money market accounts; but the lenders once known as licensed mortgage bankers that originate, process, underwrite and close loans (mostly FHA-insured mortgage loans) when they are able to assign those loans to larger banks known in the industry as investors, that purchase servicing rights from the licensed lenders.
At this point, knowing that they are mortgage lenders willing to lend,the following would be a reasonable statement: If they are willing to lend, then why don’t they? Here is the problem: They cannot lend (close mortgage loans) unless the investors to whom these loans are sold commit to purchasing the paper along with servicing rights, thereby providing funds to replenish the already closed loans. This replenishment permits the license lender to lend to another qualified borrower.
So the banks that are not lending (to anybody it seems) directly to consumers for home purchases, or to small businesses for expansion and hiring are also – indirectly – preventing loan closings from taking place in the offices of your neighborhood license lenders when they refuse to buy that paper, or restrict the guidelines in such a manner that origination to closing ratios are greatly reduced. Either way mortgage services consumers suffer in greater numbers than they would otherwise.
One “good turn” deserves another! Remember that old translation of the “golden rule”? It certainly does not seem to apply to the commercial banking industry! Based on the profitable businesses they are operating these days, all made possible by the $Billions borrowed from the taxpayer/consumer who are now experiencing undue (unnecessary) hardships as a result of lending – or non-lending – practices employed by these commercial banks. The same commercial banks that derived huge benefits (profits galore) from the good turn offered and accepted by this suffering taxpayer/consumer. So should the suffering consumer’s question be when will my good turn come? Or why haven’t I received my deserved “good turn” yet?
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If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?
As of July 1, 2009 a recent housing initiative was expanded to allow Las Vegas borrowers who are up to 125% underwater on their mortgages to seek mortgage refinancing. Thanks to the Making Home Affordable program!