Thursday, February 2, 2012

Richard Cordray and the Remaking of America

On January 4, President Obama used a recess appointment to make Richard Cordray the director of the Consumer Financial Protection Agency.  Most Americans who follow politics and the news now understand that the irony of the recess appointment is that the Senate was not actually in recess at the time but rather on a long weekend.  And since the Dodd Frank bill calls specifically for the nominee to CFPB director to be confirmed by the Senate, Cordray's appointment is illegitimate by anyone's standards.

What we witnessed in the Cordray appointment is the beginning of the remaking of the United States into a dramatically different society than the one in which we have grown up.  This remaking begins with an illegal appointment that disregards the rule of law in favor of expediency when the White House is frustrated at attempts, no matter how weak,  to thwart its efforts and it ends with an all powerful agency accountable to no one which is about to permanently transform how we live and work.

Cordray's stated primary goal for 2011 is enhanced regulation of non bank lenders--payday lenders and non bank mortgage lenders with a heavy emphasis on the latter.  Just two weeks after his appointment, he announced that his agency will have the qualified residential mortgage guidelines ready to implement this summer.  From what we have seen of the drafts of the Qualified Residential Mortgages, the guidelines for qualification will be so strict that only a tiny percentage of Americans will qualify for these new standards to obtain optimum housing financing at the lowest possible rates. Even the FDIC has said that these new standards are purposely strict because "Qualified Residential Mortgages (which will be the only types of mortgages that non-bank mortgage lenders will be allowed to make) are intended to be only a very small slice of the pie."  All borrowers who do not meet the stringent new standards will have to get a mortgage through a major bank which can afford to retain 5% of the balance of the mortgage for the life of the loan.  On a $250,000 mortgage loan, that would amount to the lender keeping a $10,000 interest in this loan for as long as the loan shall last.  And since the lender is taking on this additional risk, these mortgages will be substantially more expensive for the consumer. (Some estimates say as much as three times higher.)

With Cordray at its head, the CFPB is now fully empowered to implement whatever regulations it wants.  But this empowerment is coming at a time when the U.S. housing market is already severely crippled.  2011 was the worst year on record for new home sales and new home builder starts.  Last fall the Obama Administration announced that rather than dumping nearly 200,000 new foreclosures on the market and further causing housing prices to deflate, the Federal Housing Finance Authority would take bids from Wall Street private equity firms who might be willing to buy the houses that had been foreclosed on as a bundled group and keep them as rentals.  Even so, there is currently an estimated 800,000 home "shadow inventory" of properties which are in default and are expected to be foreclosed on and housing prices are expected to continue to go down.  So the real question is, why the big rush to further cut off access to mortgage credit and hamstring the housing market? And that leads us to the second question, Does anybody out there seriously believe that more regulation from the nation's newest consumer advocate is really going to make financing easier to obtain?  After all, 2012 is an election year--shouldn't our elected officials be trying to make things better, for this one year at least?

After carefully studying this situation, I have concluded that the fact that 2012 is an election year is precisely the point of Cordray's rushed appointment and his race to stalk and destroy as many providers of mortgage money as possible.  If Obama wins in 2012, then he can say that he has a "mandate from the people" to continue remaking our society.  But if he loses, this massive regulation will already be in place.  Campaign promises aside, dismantling huge government programs can often be a difficult and sometimes impossible process.  More importantly, as Cordray's agency drives mortgage lenders out of the market, new ones will not be able to easily come in to fill the void.  Faced with high expenses and punishing rules and regulations coupled with an extremely lethargic market, many entrepreneurs will decide that mortgage lending is too high risk and too low profit.  The owners and employees of the companies exiting mortgage lending in 2012 will find other jobs and move on with their lives, so that even if some future president is able to get all or even a substantial portion of the housing regulations repealed, they will not reenter the industry.

What that means in practical terms is that most consumers will be cut off from housing loans.  Right now, Americans are being systematically persuaded that homeownership is an old-fashioned, stupid idea.  Based on the number and tone of the comments I have received on my post "Suze Orman is Wrong--Don't Walk Away," about strategic default, I gather that a large number of Americans truly believe that walking away from their mortgage and letting their home go into foreclosure is an acceptable and desirable alternative to being inconvenienced by having to make the payment.  What these people don't seem to understand is that the house they are walking away from is very likely the last one they will ever own.  As our government cuts off access to financing on a national level, on a local level our governments are rewriting city codes to determine where we can build, how we can build, and where we are allowed to live and work and raise our families.  These new "Smart Codes" which are creating "Sustainable Communities" are driven by a green agenda that is part of the United Nation's Agenda 21.  They will transform us from a nation of homeowners to a nation of renters; from a nation with automobiles to a nation tied to mass transit; from a society which aspires to choose where we live and where we work to a society where the government makes these decisions for us.  

The problem that the ideologues who implement these sweeping changes to our society face is that most Americans are unwilling to voluntarily choose communities with narrow streets where they must rely on mass transit.  For that reason, when Sustainable Communities and Smart Growth are introduced into our cities, they overwhelmingly fail.  That's where Cordray comes in--by destroying mortgage lending he cuts off access to credit and lending which means that Americans can no longer choose to get a loan for a single family residence so they will to accept the Sustainable Communities.  And, after this generation is gone, the next generation will not have any concept of the standard of living that we once enjoyed in this country and they will accept government domination of every area of  their lives without questions.

We are truly in the process of the most insidious transformation our society has ever seen. 

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen.  For more information, visit her website at

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