Backward Banking (Guest Voice)
Backward Banking
by Michael Reagan
I don’t know if it’s Dodd-Frank. Or if it’s Barney Frank and Christopher Dodd themselves. Or if it’s just the big bankers.
But the reality is, our banking system is completely screwed up when it comes to getting a home loan.
The problem used to be that the banks, in collusion with a federal government, made bad loans to bad people. That’s what helped bring us the housing bubble and the inevitable bust that followed.
Today the problem is reversed. The banking system is so nuts it won’t even allow banks to make good loans to good people. An example of our new backward banking system in action is what’s happened to the daughter of a friend of mine.
She’s a 29-year-old schoolteacher. When she was 24 she went out and bought herself a townhome that a bank had ended up owning after a foreclosure.
The bank was buried in the townhome for $560,000. The schoolteacher got the house for $360,000 and put $110,000 down. Her interest rate five years ago was 6¾ percent.
Today the townhome is worth more than what the teacher paid for it and now she wants to refinance and get a low-interest loan. But she’s just been told by Big Bank that she doesn’t qualify for a 3 or 4 percent loan. They’ve even told her she shouldn’t have been able to qualify for her original loan.
Think about this: Here is a teacher who has never missed a house payment. She has her monthly mortgage payment taken out of her bank account automatically. She’s never missed paying her taxes. She’s never missed paying her homeowner’s dues.
Yet she is treated as though somehow she’d suddenly stop making her mortgage payments if the bank gave her a new loan at 3 or 4 percent. The schoolteacher is looked at by the bank as if she was a future criminal.
I come from a generation where people were allowed to have a personal relationship with their bank. I used to be able to go down and talk to my local banker about a loan.
I’d tell him what I wanted to do and how much money I needed. The banker would say, “Mike, I’ve known you for 30 years. I know you’re good for it.”
Now there’s no such thing as a personal relationship with your banker. The “local” bank is owned by a bunch of international mega-corporations and the management changes every 3 minutes.
Dodd-Frank has created a situation where only the large banks will survive. Small banks are essentially being outlawed. That means our ability to ever have a personal relationship with a banker is also being outlawed. And one bad result of that will be to create more people who become upside-down on their mortgages.
If we want to bring the U.S. economy back to life we have to do it through the housing industry. But there’s no way in hell housing is going to recover if banks are no longer even giving good loans to good and rightful people.
The big bankers and politicians co-produced the meltdown of the economy. They’re the criminals, not the honest schoolteacher looking for a better interest rate on her mortgage.
If we’re going to bring this country back, the Dodds and Franks of Washington are going to have to rewrite the laws so we can have personal relationships with local banks again.
Michael Reagan is the son of President Ronald Reagan, a political consultant, and the author of “The New Reagan Revolution” (St. Martin’s Press, 2011). He is the founder and chairman of The Reagan Group and president of The Reagan Legacy Foundation. Visit his website at www.reagan.com, or e-mail comments to Reagan@caglecartoons.com.©2012 Mike Reagan. Mike’s column is distributed exclusively by: Cagle Cartoons, Inc., newspaper syndicate and is licensed to run on TMV in full.
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Many of these are not “banks”, they are casinos. Since the demise of Glass-Steagal, things have gotten much worse- meaning more casino. The major “banks”, now including the likes of GS, can get money from the government at less than one percent and buy Treasury Bonds at say 3+%. Why “lend” money to schmucks and entail all that paper work?
I used to have my mortgage with one of the giant banks, but they were constantly messing things up (even though I never missed a payment, never was late) and I was constantly calling them to straighten things out. I was never able to talk with the same person twice and the problems were recurring. Finally I switched to a small hometown bank and things have been great ever since. If I have questions I get to talk with a local human being who knows who I am and is working for me. Amazing no?
Ok, so agreed the big banks have tightened their loan process to the point where average people needing loans can’t get them. Can someone explain to me how this is the fault of Dodd-Frank?
I have been very pissed off at the major financial institutions not just because they engineered the financial meltdown, but how they’ve handled thing since. They got a massive bailout from the taxpayers, yet they have frozen small loans for just about everything, houses, cars, small businesses. This is what drives the economy but they would rather invest in buying eachother out and bonds like dduck pointed out than make money the traditional way.
I needed a loan to start my business and ended up going with a local credit union because the big banks effectively shut me out. I still bank with Wells Fargo personally and they keep trying to get my business account over there. I actually enjoy telling them the story of how they shot me down for a loan and they will never get my business. Once I have about $30k saved up I’m closing it out, hoping they might feel a sting.
Financial sector has only gotten more consolidated since the meltdown. They’ve only gotten “Too Bigger To Fail” since 2008. This is my biggest disappointment with the President.
“The problem used to be that the banks, in collusion with a federal government, made bad loans to bad people. That’s what helped bring us the housing bubble and the inevitable bust that followed.”
Debunking this gets so tiring. I’m just going to link-bomb.
http://economistsview.typepad.com/economistsview/2010/06/it-wasnt-fannie-freddie-or-the-cra.html
http://www.project-syndicate.org/commentary/did-the-poor-cause-the-crisis-
http://www.theatlantic.com/business/archive/2011/12/for-the-last-time-fannie-and-freddie-didnt-cause-the-housing-crisis/250121/
Mud, From your links:
(1)”Fannie and Freddie weren’t driving the market. They were scrambling to keep up with private mortgage securitizers.
(2) The FCIC Republicans are right to place the government at the center of what went wrong. But this was not a case of over-regulating and over-reaching.”
(3) “I believe we should join with the more nuanced view taken by Rep. Frank, who has rejected the proposition that U.S. housing policies caused the financial crisis, while at the same time acknowledging that these policies were flawed and need major revisions.”
Their words, not the Reps, who also contributed to the mess.
The Frontline report showed it was clearly a non-regulated free for all of shady dealing (outright lying to) unwary, uneducated consumers by unscrupulous mortgage procurers.
The Freddies were only a small part of the total sub-prime scams. The major problem, of course, is the use of these sub-prime mortgages to raise enormous amounts of cash through credit default swaps. Which is where the $700 Trillion floating debt is located.
@mudlock: thanks for posting those so I did not have to.
As for the author: your dad deregulated the banks. Once that happened, it was both likely and inevitable that they would no longer (at least most of them) have personal relationships with their customers. They lacked incentive.
Ditto what @slamfu said, how is Dodd-Frank related to a critique of conglomerated banking? I have not heard that argument before, and there is no evidence offered in this piece.
I’m pretty sure banks were being bought out and consolidated long before 2009. What does Dodd-Frank do that makes it harder to be a small bank?