Milestones
By Miles H. Barber

Everyone has an opinion. Even those who don’t have an opinion, reflect an opinion with their non-opinion and for every opinion there is someone else who sees the issue differently and argues their opinion.

Unfortunately, an excess of government legislation is passed based upon opinion rather than facts.

Let’s take a look at the housing collapse for a minute and review the facts.

For sixty years, America did quite well with the 80-20 rule.

When buying a home, owners were required to put up 20% of the down payment in cash and the bank would loan the balance of 80% over 25 to 30 years.

Then a few Congressmen, who had good intentions, declared their opinions vociferously before Congress in the late 1990s. They argued that more Americans needed the opportunity to share the American Dream and be able to own a home.

This charge led by Barney Frank and Maxine Waters, gathered feet. The argument sounded good, it had public appeal and it fit with the do-gooder philosophy of the left.

Banks were not only encouraged to accept more home buyer applicants, they were instructed to loosen the credit requirements for these buyers.

No longer were buyers of dubious credit required to make a 20% down payment. These buyers were now able to obtain a new home with as little as 3% down.

Credit scores of 620 were just fine as long as you were breathing.

Banks and mortgage companies began competing for this "new" market and aggressively created loan programs like the "no doc loan" and the 5 and 7 year Adjustable Rate Mortgage. All of this was to the satisfaction and approval of government regulators.

The banks were successfully doing what Mr. Frank and Ms. Waters had envisioned and they proudly stood behind this economic "boom" which in their opinion was giving all Americans their share of the pie.

Now, as we know, there was a problem brewing. Investment banks which bought these mortgages had to find investors to buy them. That’s when Wall Street stepped in by packaging large blocks of mortgages and selling off these blocks as triple "A" paper.

Their opinion was, "after all, who would default on their own home loan?"

Well, the answer is; about everyone who only had 3% of their own cash in the deal.

Of course it became worse than that when the collapse spread to every homeowner as the economy went south and unemployment soared north.

Now roll forward to the Dodd-Frank bill of 2010. (Yes, this is the same Barney Frank who lobbied Congress for credit liberalization in 1999.)

This bill has virtually handcuffed banks from doing what they are supposed to do and that is; make credit worthy loans.

Typical of a government who has a tendency to react based on opinion.

Folks would think that common sense would tell us that if we simply returned to what worked for six decades we could probably recover from this fiasco in three or four years.

We are now four years deep in this recession and there is not much on the horizon other than an excess of political opinion.

Miles Barber can be reached at Scweekly2011@yahoo.com