Banks continue to pay our politicians well to make sure they continue doling out special favors to the large banks. It is up to you, and your neighbors whether you hold politicians accountable for the actions they took to create the climate for the credit crisis and the huge favors granted (with your money) by politicians to those investment bankers. The bankers count on their money buying the politicians. I would have to say they are smart to believe that, though there is a small chance the invulnerability they feel is possible to pierce with enough foolish moves by the bankers and their friends (but in order for that to happen people would have to actually vote to elect ethical, intelligent and patriotic politicians instead of those who play the public for fools). I would put my money on the public again using their votes to elect those that will enrich special interests that pay the politicians at the expense of the country.
To protect themselves from getting piles of garbage loans shoveled their way when they buy mortgages, Fannie and Freddie require lenders or loan servicers to sign contracts requiring those firms to repurchase loans that don’t meet certain standards relating to borrower incomes, job status or assets. Loans that were extended fraudulently, or deemed to have been predatory, are also candidates for buybacks.
Surprise, surprise: banks don’t want to repurchase these loans. So when Fannie or Freddie identify problem mortgages and request repayment, a battle royal begins. Banks may argue, for example, that the repayment requests have flaws of their own.
But for us as taxpayers, watching this battle from the sidelines, one growing concern is how aggressively Fannie and Freddie will pursue their requests. If banks refuse to buy back flawed loans, taxpayers will have to cover more of the losses.
According to March 31 figures from Freddie, for instance, the amount of problem loans that it has asked other firms to buy back stood at $4.8 billion — up 26 percent from $3.8 billion just three months earlier.
Banks have been unwilling to mark all of the bad loans they have and mortgage securities they hold to their true values because that would require a loss,” said Kurt Eggert, a professor at the Chapman University School of Law. “But this is about banks trying to avoid losses and having the taxpayers absorb them.”
Michael Cosgrove, a Freddie spokesman, said that the company is aggressive about enforcing its right to recover on questionable loans because it has a duty to be a good steward of taxpayer dollars. “These reviews are more important than ever; there is no reason why taxpayers should pay for decisions that led to the sale of bad loans to Freddie Mac,” he said.
$4.8 billion? That seems amazingly low for all the fraudulent activity these banks are suppose to have engaged in. But so long as they can foist the problem loans into the taxpayers hands they can claim to deserve billions in bonuses for themselves. The staggering magnitude of the special favors bought by the bankers is amazing. The politicians have shown they are supporting their banking friends while saying a few tough words. And most likely the politicians and bankers will be celebrating another successful election this fall. If we want to change the outcome we can. But we don’t seem interested in doing so.
Related: Paying Back Direct Cash from Taxpayers Does not Excuse Bank Misdeeds – The Best Way to Rob a Bank is as An Executive at One – Sabotaging Regulated Financial Markets Leads to Predictable Consequences – Congress Eases Bank Laws – 1999