A recent Saturday Night Live skit satirized Herbert and Marion Sandler, whom bought a California thrift in 1963 and eventually sold Golden West Financial to Wachovia for $24B near the peak of the housing bubble in 2006, keeping about 10% of the proceeds for themselves. Here is a relevant quote I found dating back to 2005 via the Internet:
Their primary lending unit, World Savings, is now offering on owner-occupied homes 90% loan-to-value, no-income-verification, cash-out refinances into negatively amortizing, adjustable-rate mortgage loans. There is no liquid-reserve minimum, nor is there a stated-minimum credit score. This type of loan was not available even through the sub-prime private lending market just five years ago. Today it is being made available by the company that has built a reputation for soundness, ethics and character... Do ya think Herb and Marion know what is happening in their company?The mortgage industry does not fall into my area of expertise, but I think that the industry was pushing on a string when it started selling homes to people without verifying income, requiring no down payment and without checking credit scores. You have an enormous adverse selection issue, and I suspect that these homebuyers would have little problem with walking out on a mortgage and/or these were foreclosures waiting to happen. Why did the Sandlers resort to "Pick-A-Payment" loans? Rumor has it that GDW lacked sufficient size to attract a buyout offer from other large banks.
Anyway, the SNL skit displayed the billionaire couple, well-known for funding left-wing causes, with the subtitle "People who should be shot". Reportedly the Sandlers were livid, and the original skit was soon taken off the NBC website.
Who is at fault? I don't see the Sandlers giving their billions back to Wachovia and its stockholders. Wachovia wanted the deal to expand into the highly-desirable California market--just about the time as the overheated GDW California and Florida territories were readying to correct. So far, Wachovia has had to book about $14.3B in losses as it reworks the option ARM portfolio, over $100B worth, to more conventional loans. It's hard to see Wachovia as the bad or "Wall Street Greed" party here although one might certainly question if Wachovia did due diligence in evaluating its risks. I remember during this period reading news reports of buyers flipping Floridian condos sight unseen. This suggests that demand partially reflected speculation, and the higher price variance in the California and Florida markets implied sharper corrections.
McCain's approach, advanced at the second Presidential debate, looks at setting a beachhead at the estimated 10 million homes with negative equity in order to stabilize the housing market, a package estimated at $300B. In a sense, conservatives, including myself, were initially shocked because it was a market interventionist move that we didn't expect from McCain's economic liberalism. We don't believe that unworthy homebuyers should be bailed out at the expense of people whom saved up a deposit, made a loan with conventional vs. gimmick terms and have stuck by the terms, no matter what it takes to make that payment. It's also clear that some foreclosures are an unfortunate fact, even during a housing market upswing; we should not be bailing out fiscally irresponsible households.
But if you look at the plan, it is clearly not aimed at people whom fit the GDW "Pick-a-Payment" profile: the McCain plan requires that the homebuyer was documented creditworthy at the time of the loan and the mortgage was for a primary residence. What's particularly interesting is that McCain preempted Obama and a Rasmussen poll shows 52-35% public support for the proposal, with support actually higher from Democrats than Republicans.
The Obamanomicians have created a kerfuffle, based on a missing sentence from a next-day document which, in fact, had been discussed at the time of the debate: "For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages." That (Incompetent) One falsely charged that McCain was going to have the American taxpayer take the hit on the drop in market value from the principal of the loan in renegotiating a mortgage. Let's make it clear: The bank must recognize the loss. What this strategy does is let the market stabilize by not dumping additional properties on the market, driving down prices even further.
But as for That (Incompetent) One looking out for the American taxpayer, OH PLEASE! We are talking about a guy whom has submitted almost $1B in earmark requests, is proposing giving millions of Americans not paying an income tax tax credits while increasing payroll taxes on many small business owners, threatening a no-health-plan tax penalty and over $800B in new spending, despite record trade and federal deficits and a $700B bailout. When did Obama speak out again the Sandlers' option ARM's? When has Obama griped about the uncompetitive federal borrowing privileges for the GSE's, where their implicit guarantee put the US government disproportionately at risk for nearly half of the $12T mortgage market? McCain called out for regulatory reform on Fannie Mae and Freddie Mac in 2005; what did Obama do, beyond cashing their PAC and employee campaign contributions? In the week following a proposed federal bailout plan, McCain sensed a disconnect between House Republicans and a tentative Senate agreement and went to Washington; Obama decided to continue campaigning, refused to delay a Presidential debate, and decided it was enough to make calls to principals from the campaign trail. McCain called for a $300B Home Ownership Resurgence Plan; where was Obama's program? Explain to me--just where was That (Incompetent) One's leadership during an economic crisis? How in the world can the American people trust their economic future to someone whom has never seen a Democratic spending bill he couldn't vote for and whose raison d'etre is "I'm not Bush"?
