I was suspicious that Congress would use the crisis to promote agendas other than getting past this Wall Street meltdown.
Boy was I right!
Here are some passages that caught my eye in the Draft Wall Street Bailout Bill. (via Phoenix Real Estate Guy.)
SEC. 103. CONSIDERATIONS.
In exercising the authorities granted in this Act, the Secretary shall take into consideration””
… (3) the need to help families keep their homes and to stabilize communities;
… (7) the need to ensure stability for United States public instrumentalities, such as counties and cities, that may have suffered significant increased costs or losses in the current market turmoil;
(8) protecting the retirement security of Americans by purchasing troubled assets held by or on behalf of an eligible retirement plan described in clause
Hey, I thought the goal was to add liquidity to financial institutions.
(b) ADDITIONAL CONTRACTING REQUIREMENTS. “”In any solicitation or contract where the Secretary has, pursuant to subsection (a), waived any provision of the Federal Acquisition Regulation pertaining to minority contracting, the Secretary shall develop and implement standards and procedures to ensure, to the maximum extent practicable, the inclusion and utilization of minorities (as such term is defined in section 1204(c) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1811 note)) and women, and minority and women-owned businesses (as such terms are defined in section 21A(r)(4) of the Federal Home Loan Bank Act (12 U.S.C. 1441a(r)(4)), in that solicitation or contract, including contracts to asset managers, servicers, property managers, and other service providers or expert consultants. [Emphasis mine]
At least it’s a politically correct Wall Street bailout.
SEC. 109. FORECLOSURE MITIGATION EFFORTS.
(a) RESIDENTIAL MORTGAGE LOAN SERVICING STANDARDS. “”To the extent that the Secretary acquires mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Home owners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures. [Emphasis mine]
It’s really a bit of a public housing bill because the government will own those mortgages and will soon want to promote social housing policies.
(c) CONSENT TO REASONABLE LOAN MODIFICATION REQUESTS. “”Upon any request arising under existing investment contracts, the Secretary shall consent, where appropriate, and considering net present value to the taxpayer, to reasonable requests for loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in the proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications. [Emphasis mine]
From the people that brought you Cabrini-Green, “affordable housing,” subprime loans, housing boom, housing bust and the current financial crisis.
(1) IN GENERAL. “”To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.
(2) MODIFICATIONS. “”In the case of a residential mortgage loan, modifications made under paragraph (1) may include””
(A) reduction in interest rates;
(B) reduction of loan principal; and
(C) other similar modifications. [Emphasis mine]
I think they want loan modifications.
(c) ACTIONS WITH RESPECT TO SERVICERS.””In any case in which a Federal property manager is not the owner of a residential mortgage loan, but holds an interest in obligations or pools of obligations secured by residential mortgage loans, the Federal property manager shall””
(1) encourage implementation by the loan servicers of loan modifications developed under subsection (b); and
(2) assist in facilitating any such modifications, to the extent possible.
Loan modifications seem to be a top objective of the legislation. It sounds like Treasury can buy up to $700 billion of mortgages but it must modify each individual loan after they buy it! Like that’s not going to lead to a corruption fest.
Tell me it ain’t so!
(b) USE OF MARKET MECHANISMS.””In making purchases under this Act, the Secretary shall””
(1) make such purchases at the lowest price that the Secretary determines to be consistent with the purposes of this Act; and
(2) maximize the efficiency of the use of taxpayer resources by using market mechanisms, including auctions or reverse auctions, where appropriate.
(c) DIRECT PURCHASES.””If the Secretary determines that use of a market mechanism under subsection (b) is not feasible or appropriate, and the purposes of the Act are best met through direct purchases from an individual financial institution, the Secretary shall pursue additional measures to ensure that prices paid for assets are reasonable and reflect the underlying value of the asset.
The Treasury should use auctions or reverse auctions unless they don’t want to.
The political pressure to make sweetheart direct purchases will be crushing.
SEC. 116. OVERSIGHT AND AUDITS.
(a) COMPTROLLER GENERAL OVERSIGHT.””
(1) SCOPE OF OVERSIGHT.””The Comptroller General of the United States shall, upon establishment of the troubled assets relief program under this Act (in this section referred to as the “˜”˜TARP”), commence ongoing oversight of the activities and performance of the TARP and of any agents and representatives of the TARP (as related to the agent or representative’s activities on behalf of or under the authority of the TARP), including vehicles established by the Secretary under this Act. The subjects of such oversight shall include the following:
(A) The performance of the TARP in meeting the purposes of this Act, particularly those involving””
(i) foreclosure mitigation; [Emphasis mine.]
The #1, top area listed for oversight is foreclosure mitigation which supports the idea that foreclosure mitigation is the top objective of the bill.
(H) The efficacy of contracting procedures pursuant to section 107(b), including, as applicable, the efforts of the TARP in evaluating proposals for inclusion and contracting to the maximum extent possible of minorities (as such term is defined in 1204(c) of the Financial Institutions Reform, Recovery, and Enhancement Act of 1989 (12 U.S.C. 1811 note), women,
and minority- and women-owned businesses, including ascertaining and reporting the total amount of fees paid and other value delivered by the TARP to all of its agents and representatives, and such amounts paid or delivered to such firms that are minority- and women-owned businesses (as such terms are defined in section 21A of the Federal Home Loan Bank Act (12
It started out as a 3 page draft and now it’s 101 pages.
SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.””The Securities and Exchange Commission shall have the authority under the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or order, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines
that is necessary or appropriate in the public interest and is consistent with the protection of investors.
Oh yeah. Accounting practice requires that assets be counted at their market value not some value pulled out of a hat.
Apparently Congress believes it’s good for the country if these financial institutions can better hide their loses from the public.
Arizona’s real estate market was very likely to bottom out next year. This bill could end up delaying that for many months or years.
If the boys at Treasury lived in Queen Creek, Arizona they would have had a bailout bill for home owners a year and a half ago. Now that their buddies are getting wiped out financially, they step in with a bailout bill for Wall Street.
Worst Case Scenario
- The Treasury buys zillions of dollars of mortgages then puts a moratorium on foreclosures while they do the mandated loan modifications (read; sweetheart deals).
- That leads to tremendous political pressure to outlaw all foreclosures temporarily (it’s already been proposed).
- Private financing for mortgages dries up because lenders now fear foreclosure moratoriums and stifling regulations.
- The federal government becomes the dominant mortgage lender in the United States and their lending programs soon become dominated by social engineering goals.
- Home prices continue to fall (well, at least that’s good for affordable housing!) since the private sector has become very skiddish about investing in residential mortgages.
- Only politically correct or politically connected people can get a mortgage and buy a home.
When I do a worst case scenario, I want to do a worst case scenario.