Sometimes the cure is worse than the affliction!

Former Connecticut Senator Christopher Dodd and former Massachusetts Congressman Barney Frank, the authors of Dodd-Frank, described it as “the needed remedy for a financial system gone haywire.” Former Clinton Treasury Secretary Robert Rubin and Federal Reserve Chairwoman as well as Obama and later Biden appointee, Janet Yellen still contend that it was a “necessary regulation.”

For small business and middle-class Americans, “it was the wettest of wet blankets.”

The blame is purely bipartisan! Former Texas Governor and later Energy Secretary Rick Perry was one of the first to point out the true causes of the 2008 financial meltdown. A Republican Congress worked with President Bill Clinton to repeal the Glass-Steagall Act.

Glass-Steagall prevented traditional banks from doing the riskier work of investment banking, stock market speculation, hedge funds, etc… It was repealed in 1999 under the “Financial Services Modernization Act.” For nearly 70 years Glass-Steagall had separated commercial from investment banking.

There continue to be those who remain in denial. They are mostly big banks boosters and Wall Street analysts who still can’t believe that the Act’s repeal had anything to do with the Panic of 2008. Yet evidence clearly suggests that it did.

The origin of Glass-Steagall and the motivations behind its repeal are separate subjects for a different post. But it is important to note the players and how they used the Panic of 2008 to craft legislation that hurt community banks, credit unions, small businesses and essentially, the American middle class.

Wasn’t it Yellen and Rubin’s friend, Rahm Emmanuel, who said, “don’t let a crisis go to waste?” This “crisis” lined the pockets of the few, to the detriment of the many. That’s how wealth transfers work.

Could it have been by design? I have never been big on conspiracy theories. But Dodd-Frank introduced the “Volker Rule” which prevented banks from “Propriety trading.” In other words, banks could not use their own money for speculative investing.

Sounds slightly Orwellian!

I never was a Paul Volker fan! He will always be remembered as Jimmy Carter’s Federal Reserve Chairman. Volker, Emanuel, Rubin, and Yellen have three things in common: They are card-carrying members of the Council of Foreign Relations. They are globalists. They are Democrats.

To stay in denial is easier than to admit the truth. If you continue to repeat a falsehood, people might eventually believe it. To admit mistakes at this level can bring about catastrophic, career-ending possibilities. The “safe route” was to “create a smokescreen” that pinned the blame on “the help.”

Dodd-Frank wouldn’t have happened with0ut the Panic of 2008 and the subsequent Republican meltdown. Until Senator Edward Kennedy’s death and Scott Brown’s surprising Senate victory, the Democrats held sixty Senate seats. Sadly, Brown’s Massachusetts orientation would not allow him to vote against Dodd-Frank.

It sounded marginally creditable, thanks to the endorsement of Wall State “gurus,” ironically responsible for the catastrophe! Especially to those who didn’t understand the intricacies of banking and most particularly, mortgage lending. Those who experienced Dodd-Frank firsthand described it as a “regulatory nightmare.”

Just imagine…You are attempting to refinance your home. You know that the loan that you took out in 2007 still had 15 years on it. Your rate is 6.25%, which wasn’t bad in 2007.  Now you learn that you’re eligible for a 3.25% loan that would shorten your payoff time by three years while reducing your payments!

You learn that the less desirable house across the street just sold for double what you paid for your home in 2007. You assume that you have sufficient equity to retire non-tax qualified debt, in favor of tax-qualified debt, coupled with both home improvement and long-term interest savings.

Prior to Dodd-Frank, this would have been a common scenario. Today, it’s not so easy, starting with seventy pages of redundant assurances most find more confusing than informative. Upon completion, you make a credit card payment to the lenders’ “appraisal management company.” This costs between $500-$650,” about twice the cost of a pre-Dodd-Frank appraisal.

Regulators say that the change prevents Mortgage Loan Originators from “coercing” appraisers. The ugly, behind-the-scene rationale amounts to the government doesn’t want people using their homes like an ATM machine.

Three appraisal management company members, in three different cities, admitted to witnessing efforts by HUD to promote overly conservative estimations of value. As a Cleveland-based AMC rep remembered, “These guys from HUD came into our office and simply said, ‘whatever the value, reduce it by 20%'”

More than slightly Orwellian!

In 2012, FHA wording hinted that underwriting was encouraged to “look for ways to not approve mortgage loans.” No joke! It was actually in the continuing education material required for a S.A.F.E. Mortgage loan Origination license renewal.

The conventional side is even more rigorous than the government (FHA, VA, USDA, etc.) side.! Rates are typically higher. Underwriting requirements are more strenuous. Qualification for non-owner-occupied loans, utilized for rental housing, are more restrictive than ever!

Those who blundered ultimately bilked “main street” America for billions, if not trillions of dollars. They benefited while leaving “Joe-Six Pack,” who merely wanted a mortgage loan or to buy some rental house, holding the bag! Not to mention those small businesses who were in the business to facilitate him!

Those “too big to fail,” Wall Street fat cats will never admit the truth. Their greed led to the nation’s catastrophe. If you haven’t seen the movie, “The Big Short,” you should! Much comes to light regarding the Panic of 2008.

To airily blame “non-conforming” lending and mortgage brokers for the meltdown is like “chopping off the tops of weeds.” Banks created the loan products! Brokers were their “cheap help,” because they were not required to provide benefits, as they did for their “in-house” originators.

A former Correspondent Lender CEO explained the rationale: “Straight commission, on collection salespeople are the least expensive form of labor known to entrepreneurship.” These reduced labor costs were passed on to the consumer.

The appraisal management companies are seen by industry people as the “leeches,” making more than the appraisers for little effort. Appraisers are making less than they did 15 years ago. Many of the best ones have left the industry.

Title companies, another small business adversely impacted by Dodd-Frank, have struggled to stay afloat. Many have gone out; because the mortgage brokers who were feeding them also went out. Consumers seeking small loans suddenly have few options.

Closing cost caps dropped to five percent; from eight percent. It sounds good! But providers (appraisers, title companies, surveyors, government municipalities, etc.) must be paid from the 5%. Thus, if you are attempting to borrow $50,000, a lender’s fee cap is $2,500. appraisal, title and government fees, generally account for $1,500-$1,800. Then come the lender’s underwriting fees and processing fees, adding $1,000-$1,500 additional fees.

Did anyone expect this result?

Maybe not. It is reminiscent of a farmer who is angry with foxes constantly stealing his chickens. His retaliatory response is to “butcher his rabbits.”

A darker conclusion would entail a plot to eliminate lower end homeowners. Instead of working to facilitate reduced monthly housing costs, poor Americans are told to “turn to the government.” It is consistent with “encouraging the poor to rely on AFDC, section eight housing, food stamps and Medicaid as long-term sustenance.

Discouraging cash-out refinances, through manipulation of the appraisal system, is contrary to the American Dream! Government should be encouraging independent, entrepreneurial thinking! Dodd-Frank facilitates the opposite.

The big banks complained a bit. But they could afford the “scores” of staff lawyers necessitated by Dodd-Frank. As Kentucky Sixth District Congressman Andy Barr pointed out, “there were 1,500 Community Banks that went out in 2015, as a result of Dodd-Frank.”

Barr, who sits on the House Financial Services Committee, reminded that the “Consumer Finance Protection Bureau” is not funded by Congress. It is funded by the Federal Reserve. CFPB was another Obama initiative that conveniently avoided Congress!

Never forget! Those big bank players, such as Warren Buffett and Jamie Dimond benefit from the concept of “too big to fail!”

The Financial Choice Act did pass the House in 2017. Progress was in the works. Then came the midterms and suddenly a Democrat-controlled Congress put a halt on reform.

Tragically, the poor and uneducated remain in the dark, trusting their political leaders. They were told that Dodd-Frank would protect them. What it did was to make them lifelong renters.

Historically, young people buy starter homes, hold them for a few years, then sell them, taking the proceeds to invest in larger and better houses. Realtors refer to this practice as “playing work-up.”

Often that first house is a “fixer-upper.” The FHA 203k rehabilitation loan was hailed as the greatest real estate wealth creator ever devised. However, the increased FHA paperwork has all but ended its use!

Under Dodd-Frank, student loan debts in deferment are now counted in debt-to-income ratios. This is especially demoralizing for millennials attempting to buy their first home.

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Jeff Willis

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