A significant part of our economic nightmare can be traced to government interference in banking. Some would argue that Barney Frank and a few other knotheads were the engineers of the Fannie-Freddie fiasco by regulating banks into a position where they were required to make loans to people who had no ability to repay them.
Now, banks are even MORE over regulated. Many of the people who created this global problem are still at the helm, “fixing” it. The bankers who speak off the record are quick to say that the government is simply putting them out of business. Loans that make good sense can not be made because they don’t “fit” the criteria set by the bank regulators.
Regulators continue to create problems, further compounding our financial woes. Lenders and borrowers alike are placed in positions they should not be in, not because their deals are bad, but because regulators “say so”.
Let me give you a real life example of how our government and bank regulators are working together to destroy our economy. This is a real life, current day, story. There are no names of lender or borrowers, but the situation is real and the consequences are very typical in today’s banking world.
Investors own a very nice apartment complex in a community that is made up of newer homes. The property is in great condition, well-managed and maintained. All payments are current. The track record of performance on the loan is excellent. The loan has a renewal date for purpose of reviewing interest and terms. Now comes the renewal date, which coincides with a two-week visit by bank examiners to the lender holding this loan. This is not a special review of the bank, it is a regularly scheduled examination just like every bank has to go through.
The regulators classify this loan as “non-conforming”. Even though all is well, the bank is now placed in a position that makes it very uncomfortable to renew this loan. They chose to give a four-month renewal on this loan, which means it will mature again at that time.
Now, if the regulators had simply stayed out of the picture, the payments would continue to be made and the investors would continue to perform. Instead, the investors are now in a position where they must look for new financing, sell quickly or face foreclosure.
New financing is nearly out of the question, because the same regulators look at this investment and these investors at the new bank (if there were one). A quick sale is difficult because lenders are not quick to finance a new buyer, even when they have sufficient cash. Buyers who have cash are very cautious and only looking for “bargains”. Most people who have cash are sitting on it, confused and afraid to invest for fear of what the government will do next.
That seems to leave one option. Foreclosure. In that scenario, the investors lose everything. The market is negatively impacted because it creates a distress sale (foreclosure or not) which is now part of the market history used by appraisers and bank regulators to further devalue real estate, which creates more “non-conforming” loans, which creates more foreclosures and distress sales, which creates lower values, which creates more “non-conforming” loans, which… well maybe you get the picture.
It’s not a pretty picture. Our government has over-regulated our economy into a disaster. Now, the same leaders in the same government are “fixing” it. While much of America sleeps.
***Gordon Howie is a nationally syndicated author and CEO of Life and Liberty Media***
