Senate Committee Votes To Fingerprint Lenders

tjstork recommends a blog post up at Openmarket.org on the passage by a Senate committee of a fingerprinting provision in a foreclosure assistance bill. The provision would require thousands of people connected with the mortgage industry, even tangentially — possibly including part-time and seasonal real estate agents — to send fingerprints to the feds for storage in a database. No explanation is in evidence as to how this would help the problem of loan fraud. The measure passed the Senate Banking Committee by a bipartisan majority of 19 to 2. "The measure the committee passed states that 'an individual may not engage in the business of a loan originator without first... obtaining a unique identifier.' To obtain this 'identifier,' an individual is required to 'furnish to the newly created Nationwide Mortgage Licensing System and Registry 'information concerning the applicant's identity, including fingerprints for submission' to the FBI and other government agencies."

Knee-jerk

No explanation is in evidence as to how this would help the problem of loan fraud.

Uh, how about, so they can track the people making fraudulent loans regardless of what identity they assume? Maybe?

naturally

haven't you heard? when you can't find a way to solve the problem, you do the second best thing. Solve some other problem instead, and market it as a solution to the first problem.

Re:naturally

haven't you heard? when you can't find a way to solve the problem, you do the second best thing. Solve some other problem instead, and market it as a solution to the first problem.

I would just call it a knee-jerk reaction which is the typical operating and decision method of our Congress. Of course, if they actually stopped to think and get their facts straight, they would immediately be accused of not doing anything or not acting fast enough.

Re:naturally

You mean that the job of a politician involves problem solving and that it can be hard ? Maaan, we should better start to favor competence over ideology in politics then...

Re:naturally

If this is creeping for you, I guess your car's meter shows speed in fractions of c.

Re:Knee-jerk

When most loan fraud is done via identity theft, how does this initiative assist in finding the people committing actual fraud?

Well, consumer credit is a different thing. What they are dealing with is the home equity crisis. While it's not unheard of, it's hard to fence a house -- in the felonious sense of the word. So insiders who are inflating their sales and commissions by falsifying aspects of loan deals are a bigger fraction of the fraud being committed than in something like credit card fraud. So the idea is that this keeps a sharp operator from committing fraud, then skipping town and setting up shop in a different place under an assumed (or stolen) name.

Unfortunately 99% of this crisis fits the standard market bubble paradigm. The difference is that this hits people ... er... where they live. Once the irrational exhuberance is taken out of the market, the opportunity for fraud is greatly reduced.

In fact, we have the opposite problem: investors are spooked. Coming down hard on fraud might help a tiny bit, but primarily investors are spooked by their own collective insanity.

If it makes investors a bit less risk averse, it's worth doing, but I doubt it will. We need to get a bit more momentum going in the credit market. Financial markets have about a ten year memory, so the time to really come down hard on fraud will be in about five years.

Re:Knee-jerk

It's the start of a national database, where everyone's fingerprints will be on file.

With certain exceptions, including police, politicans, elite criminals and terrorists.

Re:Knee-jerk

Yeah the police don't like it when databasing is used to track them. [reason.com] The president of the California Police Chiefs association is petitioning the legislature for a law making sites like this [ratemycop.com] illegal.

Mirrored surveillance is no solution to this mess

Mirrored surveillance will never be a complete solution to the Big Brother problem, for the simple reason that power to act on the information is not equal on both sides. You can write a blog post about how unfair some cop busting you was, but you're still spending the night in jail and he's still at work the next day. The authorities, on the other hand, can abuse information to set you up, and you're still spending the night in jail and they're still at work the next day. Whichever side appears to have the information upper-hand, you're the loser.

Remember, you (assuming you're in the US) have a president who thinks your constitution is scrap paper and is busily ignoring it whenever it suits his purposes. We're not doing any better here in the UK: we have a Prime Minister who gained the office on an almost unbelievable series of political technicalities and has no popular mandate, who is busily trying to push through lots similarly abusive and unpopular legislation. Everyone who watches the news or reads a paper knows this, but what good does it do when there is now way to remove such people from office, or put them in a court where they must defend their actions or face the consequences?

Just like some other law I can think of...

No explanation is in evidence as to how this would help the problem of loan fraud.

... you mean, kinda like the PATRIOT act cutting down on terrorism?

Two men sit in a train...

..from New York to Philadelphia. One of them keeps throwing pieces of bananas out the window and after a while the second man asks why he does this.
Why, it keeps the elephants away.
-But there are no elephants here.
See how good this works?

Get the point? :-)

Seems to me..

that all the problems these days can be solved either by litigating or by making laws enabling the government to collect more and more personal information.

This panacea coming to the country near you soon.. stay tuned!

Police states and the sad case of Fritz Thyssen

Those of you who think you can make a buck off a police state would do well to remember learn the fate of Fritz Thyssen [wikipedia.org]. He was an industrialist and early supporter of Adolf Hitler, in part financed by Prescott Bush [prlog.org]. He made plenty of money re arming Germany and he approved of racial purity laws. By the time he realized the Nazis believed all of the crazy things they said, it was too late for him to do anything about it. He was thrown into a concentration camp and was lucky to survive the wars he did not approve of. If you don't think the Neocons are just as crazy as the Nazis you have not been listening to them long enough [stallman.org].

Solves *A* problem

But it doesn't solve the kind of problem that makes a "foreclosure assistance bill" seem like a good idea.

What they should do is pass a bill that requires new loans to be made under the following term:

For collateral backed loans, turning over the collateral relieves the debtor's obligation.

That forces the banks to assume the risk of risky loans instead of the borrower. Which is right and proper because they'll have a better understanding of what those risks are, anyway. Of course, they'll have to charge more for their money, and that will mean that some people won't be able to buy the house they want (and housing prices will drop somewhat to accommodate *some* of those people), but those are the people that would have found themselves homeless with thousands of dollars of debt after a pretty-likely future foreclosure, anyway.

Re:Solves *A* problem

How would that ever work? The bank would effectively be assuming all risk for a decline in property values, but wouldn't share in any upside.

Re:Solves *A* problem

In order for it to make sense for a bank to assume the same level of risk that would be involved in a direct real estate investment, it would have to charge an interest rate so high that it stood to make at least as much money as it would make from a direct real estate investment. (A "direct real estate investment" here meaning the bank just buying the property in its own name, and probably renting it out while waiting for it to appreciate in value.)

Charging interest rates that high wouldn't just put home ownership out of the reach of a huge fraction of buyers, it would also remove a major incentive for home ownership. You'd be paying interest rates so high that they would, on average, offset any appreciation in the value of your property.

There would be virtually no takers for such loans. As a result, housing prices would probably drop significantly (there would be much less demand), but you'd basically have to pay for a house with cash up front. Financial institutions and those few individuals with hundreds of thousands of dollars or more in liquid assets would end up snapping up all the property at severely reduced rates, and everyone else would simply have to rent, ultimately resulting in a massive ongoing wealth transfer away from the middle class.

Oops.

There is no problem - really.

That plan would put owning a house out millions of people's reach, I'm afraid.

I volunteer helping some of those folks that were "victimized" by the "evil" mortgage industry. In every case, folks just bought too much house than they can afford. And a few times, they bought a few houses. Folks don't leave any wiggle room in their budget - at all. So if they lose a job, or they get sick, or a divorce, or any combination thereof, they get behind in their payments. There's nothing in their budget for savings.

A lot of those folks bought a house with one of those interest only loans counting on the house price increasing dramatically in the first couple of years, sell it for a huge profit, and buy more. Folks pyramided their profits with the expectation that home prices can go only up. The mortgage industry went long because these folks were able to make the payments. now, the economy slows, folks lose their jobs, and now they can't make their payments - bankruptcy and this current crisis.

Here's the real problem: in America we have this budget by payments mentality. In other words, we can afford something as long as we can make the payments and of course that's counting on having a job that gives raises every year and asset prices always increasing. Some folks actually lied on their applications - FYI.

There's no evil entity here to blame and there are no victims: just some folks who don't know how to mange their money and were too optimistic about the economy and the real estate market.

My suspicion

This just looks like a subtle way to destroy Prosper.com

Typical American Response. Ignore the real problem

Yes, Americans run out and throw away your privacy as fast as you can without thinking about it! The mortgage crisis was caused by a lack of fingerprints? Right!

You should have done what Canada and many other countries did DECADES ago to protect your citizens from the banks, protect your banks from your citizens, and to ensure the market could not be manipulated into such a crisis .... enact regulations that require a loan company to ensure:

- that mortgage applicants actually have the income needed to support paying back the mortgage! DUHHH!
- that a large enough down payment is made that if a small drop in the home's value happens, it won't eliminate the collateral the mortgage was secured on. (currently minimum 5% downpayment)
- that if a downpayment is not significant (under 25%), the mortgage applicant must have mortgage insurance.

Too many Americans still ignorantly believe that the mortgage crisis was accidental!

It was entirely predictable and preventable. It was entirely based on the greed of your unregulated banks!

Your housing market had prices that were rising so fast ... driven by easily obtained mortgages ... that your banks could make a killing by intentionally handing out mortgages to people who couldn't make the payments, forclosing on the mortgages and reselling the houses at a higher price to the next sucker!

I spoke to a young up-and-coming American mortgage broker recently who was not just entirely blind to the damage his industry had caused to the American (and world) economy for a short term again, he was dumbstruck with adoration and respect for the professors of American business schools that had come up with the idea and was going to attend a conference hosted by them soon after! He referred to his favourite mortgage applicants as NINJA's ... No Income, No Job Applicants!!!

Once the market turned, and prices stopped increasing, the mortgage pyrimid scam became unprofitable. Suddenly your banks couldn't resell all their stolen houses, suddenly your banks were stuck with huge amounts of debt that they couldnt carry.

But instead of stopping and minimizing the losses, and preventing the ruin of the American economy, they kept going! They intentionally carried the scam so far that not only could they not be punished for it lest it destroy your banking system, you as taxpayers were forced to bail them out for your own protection!

So you got scammed into mortages you couldnt afford, got your houses stolen back by the scammer, and are now paying off the debts through your taxes! It's the great American way! Life, Liberty, and the pursuit of being a victim of fraud perpetrated by other Americans!

So go out and submit those fingerprints. It will solve EVERYTHING!

Re:Typical American Response. Ignore the real prob

- that mortgage applicants actually have the income needed to support paying back the mortgage! DUHHH!

A friend of mine is a mortgage broker and explained the problem. The Feds demanded the mortgage industry provide more loans to minorities. All too often, minorities applying for loans did not have sufficient income to qualify. If they turned them down, AS THEY SHOULD HAVE, they would have been accused of discrimination. This whole mortgage crises was created by the Feds forcing the industry to give loans to people who had no chance of paying them back.

A secondary problem was idiots rolling over interest-only loans, hoping the market would keep going up. Interest-only loans aren't much different from gambling.

Re:Typical American Response. Ignore the real prob

This is the excuse that the mortgage industry uses. It is why friends of mine, with six figure incomes, could not secure housing until they went to their proper part of town. It is why lawsuits were filed against financial officers at auto dealers for engaging in a pattern of offering loans at higher rates than equally qualified person who were of a more desirable color. The excuse still works, but is getting old given the median income in all racial groups is enough to own at least a modest home.

In any case, I don't think loaning to minorities is causing the current issues. For one thing, I don't think that so-called minorities are the primary people who speculated on property in florida, and other places, assuming that the price would go up by the time that development was finished and they could flip for a quick profit. Why banks would lend to such speculators, often with no obvious source of income, is beyond me. Furthermore, the NYT published a graphic on the largest foreclosures, and the cities are not those one associates with urban minority populations. Place like Merced, minneapolis, fort myers. Though these do have the minority population, and everyone has to take blame, the finance industry blaming it on government regulation is just weak.

This is why. Many years ago, Texas has a good regulation. The regulation was based on the idea that a persons home was not a liquid asset, but a vital possession. As such, texas allowed a person a great deal of protection to keep the home. The taxes would be fixed after 65. Your home could not be easily foreclosed or taken in a bankruptcy. In many jurisdictions taxes are easily disputed so people would not lose their houses due to excessive taxes. In exchange for these protections, Texans did not have the right to home equity loans.

That is until the financial industry bought out the Administration of George Bush and won his support to change the law. We now have a state of speculators instead of home owners. Prices went through the roof(tripled in 8 years) because the financial speculators wanted them to. Homeowner lost their house to due high taxes. Speculators moved in, borrowed against the house, and then moved out when they could not borrow leaving a blighted block. this was not due to government regulation forcing mortgage companies to loan to minorities. This was a calculated attack on the home owner back bone of america.

The sad thing is that the financial industry has made it bag of gold, and now is crying foul. Many of the mortgage holders are walking away, which they should, and the financial industry doesn't like it. Instead of renegotiating loans, they are begging the government for a bailout. It is sad. Those of us with eyes saw what was happening all those years ago, but all anyone else could see is free money. Now, as always, they are blaming it on regulation and minorities. The fact that the mortgage brokers were greedy bastards had nothing to do with it.

Re:Typical American Response. Ignore the real prob

OK, you're (or your friend's) fundamentally confused.

1) Most of the people defaulting on loans are not, in fact, minorities.

2) All the anti-discrimination provisions of federal housing law are public. Try http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea08.shtm [ftc.gov] for a start. None of it has anything in it about lowering standards, only prohibiting discrimination.

3) People can accuse of discrimination all they want; if they can't prove it who cares? There's no way defending those cases would be as expensive to mortgage companies as having the loans blow up.

So, sorry, but this problem cannot be blamed on the economic actors in the situation who had the LEAST control over what was happening. Aim Higher!

Re:

Good luck in getting Guido "The Killer Pimp" Loanshark to send in his finger prints...

Oh, I'm sure that Guido will be sending in fingerprints. They may or may not be his fingerprints, you understand ...

Re:goodluckwiththat

Warning, may contain traces of knuckles.

Re:

Chances are they are already on file.