MAILANDER’S MUSINGS - Every now and then, one of our Democratic brethren follows the populist herd and pitches such a bonehead idea that it is best snuffed on delivery. Asm. Bob Blumenfield of Canoga Park is the latest to deliver one such. (link)
In other words, he wants the government to get a pricey piece of any foreclosure action.
Regardless of the size of the home. Regardless of the size of the mortgage.
That's such a heartbreaking work of staggering idiocy that it almost doesn't bear repeating or reporting. But if it were to happen, here's how banks would handle it:
Of course, banks would amortize the cost of potential fine over the new loans they make, making loans even more pricey, especially to first-time owners.
More neighborhoods would be necessarily redlined. Fewer people than ever qualifying. People buying $100,000 homes in Palmcaster and Landale forced to pay the same kind of markup as people in million dollar homes.
It would be a hidden flat tax that made small home loans even pricier than they are now, and more exclusive of even more struggling would-be homeowners than they are now.
Banks need to be regulated better, of course--Bush made this collapse possible by deregulating, and Clinton helped. But here's what will happen with this particular legislation: the foreclosure fail rate will suddenly go down, dwindling the pool of potential homeowners still further.
We already have ever-dwindling amounts of first-time homeowners. This kind of legislation would shrink the amount of first-time homeowners to next-to-nothing. Absolutely a disaster.
Economic thinking like this is already why we have such a bad owner-occupied to renter ratio in Los Angeles and San Francisco, where we have enough missing rungs on the housing ladder already.
Blumenfield knows what he's doing: his district includes heavy presences of IndyMac and CountryWide, the two big foreclosure hoodlums. But people who went to real banks like Wells, BofA and Union for their first-time loans--fairly responsible actors--would have to pay fines that were earned by the phony banks in Blumenthal's own district, who promised too much.
If this bill were to become law, banks wouldn't pay the fine, consumers would, and the consumers who are borrowing the least--first time homeowners in the stix--will be obliged to pay most of all, as $20,000 represents far more to a $100,000 loan to a $400,000 one.
If would make far more sense to fine a bank if their failure rate were too high--say above 18%. But one-fine-fits-all also impacts all, and quite unfairly.
There's a saying in banking: if you don't make a bad loan every now and then, you're not in business.
But make too many, and you probably should be punished.
Not if you mostly make good loans, though.
(Joseph Mailander is a writer and an observer. He blogs at street-hassle.blogspot.com [[hotlink]] where this column was first posted.) -cw
Vol 9 Issue 32
Pub: Apr 22, 2011