Obama: Subprime lending immoral, not illegal

Obama: “Subprime lending immoral, not illegal” http://ow.ly/6PE2P

Today the president took a question from a  reporter who asked him why his administration had failed to file suit or enforcement action against corporate leaders for the 2008 financial crisis that ultimately led to numerous bank, insurance, auto-maker and state bailouts. To that the president replied…

“If someone has engaged in fraudulent actions — if they have violated laws on the books, they need to be prosecuted,” President Obama said. “One of the biggest problems about the collapse of Lehman, the financial crisis and the subprime lending fiasco is that all of that stuff wasn’t necessarily illegal.”

The president used that question as a gateway to discuss theConsumer Financial Protection Bureau, and the agency’s role in fleshing out and enforcing rules that will affect mortgage, auto and other consumer lending practices.

What is ironic to this mortgage loan officer is that although the sub-prime mortgage industry was in fact a major contribution factor of Lehman Brothers collapse, it was not the so-called immoral behavior of either the lenders who were originating those loans. Remember that it was the really smart guys at Lehman Bros whose insatiable appetite for those high profit loans. What was unethical was how they packaged those sub prime loans into pools with prime loans and then sold those pools to investors who albeit were sophisticated and should have conducted their own form of due diligence did not.

Leading up to the 2007 sub-prime collapse is Fannie Mae and Freddie Mac continued to make loans to persons with FICO scores as low as 500 with as little as $500 down (essentially making those no money down loans) so long as AIG and PMI would issue Private Mortgage Insurance often at rates that were as high as 4.75% per year! Meanwhile the consumer who couldn’t qualify for  a sub-prime loan with say 5 or 10 percent down-payment was able to get a conventional loan with no money down!

Here’s is the ultimate irony;  Dodd-Frank, the legislation designed to “protect” Americans consumers from those really bad guys on Wall Street from ever doing this again…well it doesn’t even mention Fannie-Mae or Freddie-Mac once!