Sunday, January 19, 2014

Whatever Happened to the Human Race?

This week marks the forty-first anniversary of Roe vs. Wade and the legalization of abortion on demand in the U.S.  In the forty-one years since the Supreme Court ruling, over 50 million babies have been murdered through abortion--more than were killed by Adolf Hitler (nine million) and Josef Stalin combined (twenty-five million) combined.   To remember those who have been lost, I am reposting this post from last year:

In 1979, the modern Christian theologian Dr. Francis Schaeffer and the U.S. Surgeon General Dr. C.Everett Koop co-authored a book titled, Whatever Happened to the Human Race?. Published within the decade that saw the legalization of abortion on demand through Roe vs. Wade, the book explored the premise that acceptance of abortion leads to a general devaluation of human life on at all levels.  Abortion leads to infanticide, which leads to euthanasia, which eventually leads to genocide.  Schaeffer and Koop wrote,
We are concerned that there is not more protest, outcry, or activism in regard to these issues of life and death. We can even recognize that there are people who are led to starve children to death because they think they are doing something helpful for society. Lacking an absolute ethical standard, they have only the concept of what they think is beneficial for society to guide them. But we cannot understand why other people, those with a moral base--and we know there are many of them--do not cry out. We are concerned about this because, when the first German aged, infirm and retarded were killed in gas chambers, there was likewise no perceptible outcry from the medical profession or from an apathetic population.  It was not far from there to Auschwitz.

I read Whatever Happened to the Human Race over twenty years ago, but I have been reminded of it in the last few days watching the events surrounding the Kermit Gosnell trial.  Anyone who has followed this trial at all knows that Gosnell is the 71-year old abortion doctor and proprietor of the "Women's Medical Center" in Philadelphia who is on trial for murder of infants born alive and at least one adult patient.  Various workers in the clinics have testified that when infants survived the abortion procedure, Gosnell snipped their spinal cords or in some cases slit their throats.  Jack McMahon, Gosnell's attorney, argues that although Gosnell did perform abortions past the 24 week limit written into the state's statute, not one of the babies he is accused of harming was over 24 weeks and there is no evidence that any of them was born alive.  His arguments persuaded the judge in the case to throw out three of the infant murder counts against Gosnell for "Baby A, "Baby B" and "Baby C" as well as five counts of corpse abuse. (Apparently, babies were kept in jars and their feet and sometimes entire legs were severed and preserved as well. Multiple babies appeared in photographs which showed their upper spinal columns had been cut in order to snip the spinal cords.)  Four remaining counts of infanticide and one count of murder of an adult remained against Gosnell on Tuesday, April 23 after the judge's ruling.

Yesterday, in an apparent about-face, the judge reinstated the murder charge for "Baby C".  "Baby C" survived its abortion procedure, and according testimony by clinic workers, was laid on a counter where it lived for twenty minutes and moved its arms.  Workers testify that they "played" with the baby by pulling on its arms and watching it pull back before killing it.

The outcome of this hideous trial and Gosnell's ultimate fate remain to be seen but the reaction to it by our society reveals a lot about how far we have fallen morally.  The mainstream press has remained silent on a trial that is one of the most grisly, scandalous, and shocking of my lifetime.  I have seen photos of the empty courtroom seats reserved for the press.  When Gosnell announced this week that he would not take the stand in his own defense, Huffington Post actually made that a headline.  But when the judge reinstated the murder charge for a baby brutally murdered after twenty minutes of life, I saw the update on my Twitter feed because had covered the story.  The disgusting, macabre details of this man's crimes are the stuff of nightmares, but in a society where grisly, bloody violence sells almost as well as sex, and people will pay high ticket prices to see slasher movies like the "Saw" series, nobody wants to talk about Kermit Gosnell.

Why?  I have seen some conservative commentators speculate that the media does not want to cover the Gosnell trial because it shows abortion for what it really is--murder.  That's part of it; but it really is only a part of media black out of this story.  The other part is that our society is rapidly morphing into the society that Schaeffer and Koop predicted and feared--a society without compassion, without empathy, without concern.  We are fearsomely close to pre-Nazi Germany in our attitudes about the value of human life.

In 1949, Leo Alexander, a psychiatrist from Boston who had been consultant to the Secretary of War and had served with the office of the Chief Council for War Crimes in Nuremberg from 1946-1947, wrote a paper titled, "Medical Science Under Dictatorship."  He writes that before Hitler became the German Chancellor in 1933, a barrage of indoctrination had already begun against, "traditional, compassionate nineteenth century attitudes against the chronically ill, and for the adoption of a utilitarian, Hegelian point of view."  This propaganda spread everywhere, from mass entertainment, as in a German film called, I Accuse in which the husband of a woman suffering from life-long multiple sclerosis finally euthanizes her while a sympathetic colleague plays the piano softly in another room, to the public education system which included high school textbooks such as Mathematics in the Service of Political Education, 2nd edition 1935, 3rd edition 1936, which included "problems stated in distorted terms of the cost of caring for and rehabilitating the chronically sick and crippled.  One of the problems asked, for instance,  is how many new housing units could be built, and how many marriage-allowance loans could be given to newly-wed couples for the amount of money it cost the state to care for 'the crippled and insane.'" In other words, the German people were fed a steady diet of a philosophy that some lives are not as important as others, and that the less worthy lives were draining funds which could be used for the happiness of those more deserving than they.

Hitler did not issue the first euthanasia order until 1939, after the German people had received a sufficiently steady diet of this philosophy to no longer object.  The organization that he established to kill children under the Third Reich was called Realm's Committee for Scientific Approach to Severe Illness Due to Heredity and Constitution.  Patients who were being killed were transported by "The Charitable Transport Company for the Sick" which billed their relatives for the cost of their extermination while falsifying the death certificates so that they would not understand how their loved ones had actually died.  Leo Alexander tells us, "It all started with the acceptance of the attitude that there is such a thing as a life that is not worthy to be lived."  From there, Hitler was able to kill more than 9 million people in Europe.

What does all of this have to do Kermit Gosnell?  Very simply, I believe that the media black out of the Gosnell trial has less to do with protecting the abortion industry than it does with an overall move to retrain our society away from respect for life and the sanctity of life and towards an overall apathy and callousness toward the deaths of others.  We are now seeing our own media propaganda in this direction.  In the last twenty four months, I have seen an episode of  The Mentalist in which a regular character who is dying of cancer decides to commit suicide and asks the show's main character, Patrick Jane, to stay with him while he dies so that he will not be alone.  Although Jane is at first very uncomfortable with this request, he does stay and performs sleight of hand coin tricks to distract the dying man until his life ebbs away.  Criminal Minds last year featured an episode in which the ex-wife of one of the main characters also finds out that she is terminally ill and decides to commit suicide and asks that her ex-husband stay with her while she is dying.  Again, he is uncomfortable, but she has already consumed a fatal dose of some toxin, and so he compassionately holds her while she expires.  I want to note that in neither one of these shows did the principle character do anything to actively kill the person who died or to actually assist in the suicide, but the overall message was that they were compassionate good people by respecting the other person's right to die and by being a friend and not interfering.  This is the first step in saying that death can be preferable to life.

There are going to be a lot of other steps.  Next year many parts of The Affordable Care Act  will be fully implemented.  This coverage was supposed to provide every American with full access to health care regardless of health issues or pre-existing conditions.  Are we still so naive that we really think that a government who can't manage to pay the air-traffic controllers in order to avoid long delays at the airport will be able to cover the cost of every American's healthcare?  Even Democrats like Max Baucus are now calling the Affordable Care Act a "train wreck".  What the Act will do is force Americans to think in terms of which lives are worth saving.   The oft mocked "death panels" are a necessity when a society of finite resources takes it upon itself to make health choices for every person. As Alexander points out, "It is important to realize that this infinitely small wedged-in lever from which all this entire trend of the mind [the German mass euthanasia program] received its impetus was the attitude towards the nonrehabilitable sick."  When we as a society have to start making these decisions what will we choose?  Should healthy young people not be able to get as many benefits from the government because public resources are being used to treat people with chronic illnesses, or seniors with cancer?  How many scholarships could be given to our best and our brightest if the money were not being spent caring for the "crippled and insane"?  And so it begins.

Whatever happened to the human race?  The Germans could have chosen not to listen to the propaganda.  They could have chosen to reject Hitler and his social engineering and ethnic cleansing in favor of respect for all life and protection for all people.  They didn't.  The choice is now ours.  Will more of us stand against Kermit Gosnell, not just for the sake of the 8 original infants he was charged with murdering and the many, many more who died as the course of his normal practice, but because we understand that more is at stake than the life of a 71 year old abortion doctor in Philadelphia and his victims?  Will we allow ourselves to be lulled into apathy ("Those babies weren't wanted anyway.  Who would have taken care of them if they had lived?")  Hitler succeeded in his genocide in large part because German people from every walk of life supported him and furthered his goals.  If the Germans had refused to participate, they could have stopped the Holocaust before it began.  What will we do?

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her newest novel, The Chosen, about one small group of Americans' fight to restore the Constitution and end indefinite detentions without trial, is available on Kindle and in paperback. For more information, visit her website at

Thursday, January 16, 2014

Just Enough to Keep You Poor

When the disappointing jobs numbers for the month of December were released last week, the media immediately began scrambling to defend the deplorable state of the economy and the labor participation numbers.  I learned of the jobs report as breaking news on MSNBC while I was at the gym. (No, I was not actually watching MSNBC, but it was airing on one of five screens filled with programming, and I happened to be on an elliptical directly in front of that particular screen.)  The MSNBC captions screeched the breaking news that only 74,000 jobs were created in December, followed by another breaking news caption announcing that unemployment had fallen to 6.7% but only because so many Americans stopped looking for work.

Over the past few days, the media has been speculating about how much of this drop in workforce participation is due to the aging of the American worker and how much of it is due to the weak economy.  In other words, if the jobs were available, how many Americans would actually get up today and go back to work?

On Tuesday I wrote about what I call a "lethal cocktail" of heavy regulations which are crippling businesses coupled with easy government incentives to not work.  I believe that both are poisoning our economy and our country.  Regulations, taxes and fines are choking small business owners and killing their incentive and ability to make a living.  But at the same time, we have an expansion of our "safety net" in the form of long-term unemployment, welfare and social programs unlike anything we have ever experienced and this expansion of easy money is just as toxic to our system as the regulations which are destroying jobs.
One such incentive is the Social Security Disability system. Since 2007, 1.8 million Americans have begun drawing Social Security Disability checks.  Although these checks are supposed to help people who are severely disabled and unable to work, the red tape of the Social Security system has led to an industry of attorneys who advertise for workers wanting to drop out of the workforce and draw disability checks. Since the government pays the attorneys for each case they win, this has become a hugely profitable area of legal practice with a very high success rate.  But as James Sherk of the Heritage Foundation recently told the Saint Louis Dispatch,  “There’s a lot of evidence that applications for disability insurance are substituting for unemployment in many cases..The huge problem with this is that once people go on disability insurance, they basically never come back.” 

When I was a loan originator, I did some mortgage financing for a group of attorneys who specialized in getting Social Security Disability checks for their clients, and they were happy to explain to me in detail how it works.  For those who don't know, this is basically the process:

A person who wants to get on Social Security disability applies to the Social Security Administration for disability.  In over 90% of cases, they are denied.  A young person who is seeking such a check must demonstrate that he is so disabled as to be completely unable to work.  Therefore, in most cases, the young guy who lost his leg in a motorcycle is not going to qualify, because although he does have a genuine disability, the nature of his disability does not mean that he can no longer work at any job; it just means that he is going to need to make some life changes to continue to be productive. Permanent disability is just that--permanent.

After at least two rejections of the claim by Social Security, the claimant can go visit an attorney.  Most successful applicants are between 50 and 60 years of age and have worked in day labor jobs.  They have back issues, diabetes, or other documentable health issues that, combined with their age, make them sympathetic to a judge.  The attorney collects the evidence of disability and files the case with Social Security.  The process takes two years, but the success rate is very high--the majority of those represented by the attorneys I knew were accepted in the Social Security system.  They start getting a permanent disability check--based on the assertion that they can never work again.  The attorney's fee is paid by the government.  The last time I spoke to my client-attorneys this fee was $4000.00 per case.

Because of the nature of the process, the Social Security disability system opened the door for attorneys to become millionaires.  As the managing partner of the law firm explained to me, the two-year window that it takes to get the cases approved combined with the heavy paperwork required shut out a lot of attorneys and created a field of legal expertise with guaranteed paydays and relatively little competition.  But for those attorneys who had the financial means to work through the system and get started, Social Security disability law led them to the land of milk and honey.  Attorneys who got established became multi-millionaires.  These law firms had both incentive and funds to advertise, which led to a steady stream of new applicants seeking a disability check from the government.

And their clients?  In exchange for a few hundred dollars a month, their clients traded away their ability to ever work again.  Few working Americans realize just how little free money it takes to keep people poor.  El Paso, Texas, is a very liberal city and I have met a lot of people drawing some form of welfare.  The funny thing about government assistance is that it eventually becomes an end in itself.  Fear of losing that "free" money becomes all-consuming; I have seen people who weigh every decision based on whether it will impact their government money.  What is supposed to be temporary assistance or "a hand up" in times of trouble becomes a crutch and then a life-style, and then eventually the family business as new generations are born into households where the parent or grandparents do not work but receive "free" money from the government.  Eventually, this "free" check costs the receiver his independence, his creativity, and the profits of any gifts or talents he might possess that he would have otherwise used to improve his own life and that of others.  

As Congress debates the budget and the Senate debates extending unemployment benefits, we in America need to take a hard look at the government programs and entitlements that we are bankrupting our country to secure.  We cannot fix the budget or the economy or the labor participation statistics unless we are willing to radically transform the way we handle welfare and social programs.  These programs are costing us more than mere money--they are draining our nation of its incentive, its creativity, and its opportunity.  We are creating a society that is content with receiving just enough to keep it poor.  And we are teaching the next generation that work is for suckers.

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.

Tuesday, January 14, 2014

The Real War on Women--The Life of Julia in 2014

When you were a child, what did you dream of being when you grew up? If you are a man, you might have wanted to be a politician, or a business owner, or a professional athlete, or an astronaut, or a doctor or attorney. If you are a woman, you might have wanted to be a politician, or a business owner, or a professional athlete, or an astronaut, or a doctor, or an attorney. Depending on how you were raised, you might simply have dreamed of being a wife and mother--still a very noble calling that many women choose. Whether you are a man or a woman, I am going to step out on a limb here and guess that you did not dream of being unemployed and broke, working part-time and living on government assistance. Children tend to have big dreams for their lives which are unsullied by the difficulties that achieving those dreams can pose, and they tend to view the world as a place of opportunity. It is only as we get older that we have a tendency to trade in our dreams for stability and then to continually lower our expectations until finally just getting out of bed in the morning becomes an accomplishment.

America has always been an aspirational society, full of hope and promise. Of course, we have always had poverty and inequality--and we always will. There are many factors that contribute to individual poverty, and many people go through periods of financial hardship at one point or another in their lives. But today, poverty and unemployment are increasing at a rate that far outpaces jobs in an atmosphere that is killing opportunity with a lethal cocktail of excessive regulation combined with welfare and government subsidies. These two factors--over-regulation and taxation that destroy small businesses and jobs, and the promise of government incentives to not work--are robbing this nation of any incentive to work, to take risks, to aspire to do anything.

Some of you may remember "The Life of Julia" the Obama campaign's cartoon about a fictional woman named Julia who is helped by the government her entire life. Julia is without family and although she does have a child she is without a man in her life. She works--she gets an SBA loan to start her own business as a web designer--but her true safety net is the government. The government guarantees her student loans, the government provides child care for her child, the government provides her retirement when she turns sixty-five. At no point does Julia to try to find a free market solution to any of her needs--or even apparently to get married--because dear old uncle Sam is there at every stage of her life to make sure that her basic needs are met.

The Life of Julia was a major part of the Obama campaign's re-election strategy in 2012. The campaign promoted the concept that there is a "war on women" waged by heartless conservatives who believe welfare and entitlements drain the society, marriage and two-parent households contribute to a prosperous and stable society, and every adult needs to use whatever skills she has been blessed with to her utmost abilities in order to improve her life and the general society around them. (And the same applies for men, but since this post is about the war on women I am using female pronouns.) The leftists insist that this worldview is sexist and cold, and that their approach of cradle to grave security provided by Big Government is the road to happiness whereas our road map of personal responsibility leads to some sort of moralist enslavement.

So how is all this big government working out for women? Apparently not too well. Labor participation for women in the U.S. today is the lowest that it has been for 24 years. The jobs numbers released last Friday show that only 74,000 new jobs were created in December of 2013.  The overall labor participation rate
(the number of Americans who have a job or want one) is at the lowest point in 36 years.  We have gone from a society that says women can "have it all" to a society that says, "Don't worry honey; the government will take care of you." (Liberals don't ever seem to think that the implication that anyone can be successful without the government is racist or sexist or demeaning.)

Nearly 90 million Americans are now unemployed in the U.S.. Americans who have not looked for work in the prior four weeks are considered to be no longer seeking work and are not counted in the Department of Labor's unemployment statistics. Nearly one-third of our workforce now falls into this category. In 2007 63% of Americans over age 16  held jobs; today only 58.6% do so according to an article this week in the Christian Science Monitor.  Traditionally, when Americans have lost their jobs and not been able to find  work, they start businesses of their own, but in the super-regulated climate of the Obama administration, this is getting increasingly more difficult to do. Obamacare has ensured that most businesses will not expand, and it is rapidly turning the U.S. into a society of part-time workers with no real opportunity. Small wonder that so many Americans are dropping out of the system and deciding that a small government check for which they don't have to work is better than a paycheck from a part-time job with no future.

In The Life of Julia, Julia's web design business succeeds throughout her lifetime.  In real life, when the economy is weak and labor participation is low, everyone suffers.  The small business owner may not be able to find enough clients to support her business when those clients are worried about how to pay for the rising costs of insurance and taxes that are hurting their cash flow.  These economic problems trickle down to everybody and the government subsidies do not make up for the loss of income through taxes or the massive costs to the whole society of programs like Obamacare. 

Yet the Obama Administration persists in insisting that Obamacare is a boon for women.  In November, Colorado ran a series of ads last fall promoting the benefits of Obamacare to women. More than anything else, these ads demonstrate the true sexism of the left who apparently see all women as mindless nitwits who don't care about the loss of our jobs, businesses and future opportunities as long as we get free birth control. My personal favorite of these was this ad which got a lot of play across social media for its offensive messages:

Women have an important role to play in our nation's immediate future. This year, that poster gal for unrestricted abortion on demand--Wendy Davis--is running for governor of Texas on a platform of promoting women. Texas' pro-business, pro-growth policies have made the state a model for what the rest of the country should be. Yes, it is run by good old boys. There is not a thing wrong with that. Good old boys gave us a state with no income tax, a state where businesses can prosper, a state where, in most areas, the housing market remains strong. Austin, Texas, topped yesterday's list of best places to seek work in the country. Texas is a state where women can succeed without big government interference--where they can work to reach their own individual potential instead of lowering their aspirations to those of "Julia."

Wendy Davis is hoping that we don't see that. She is planning to take a thirteen-hour filibuster in support of abortions after twenty weeks--a truly horrific cause if there ever were one--and turn it into a job as manager of an economy that is larger and more vibrant than that of many small European countries. She and her leftist counterparts are hoping that all Texas women are just as dumb as the one in the ad I shared above--that we don't care about opportunity or freedom, or traditional morality or marriage or building a stronger society in the future as long as the government will give us free birth control today and the opportunity for a late-term abortion tomorrow. She is hoping that we care more about personal ease today than what kind of world our children will inherit from us tomorrow, and that we would rather have a government handout than real opportunity for success. That's what I call genuinely sexist. Let's keep Texas red in 2014 make sure Davis doesn't succeed. 

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.

Monday, January 13, 2014

Eminent Domain, Senate Bill 1 and the Death of Private Property Rights in California

Lately California has been awash with scary ideas about private property rights and new uses for eminent domain. In September I wrote about Richmond, California's plan to use eminent domain to cancel mortgages and rewrite notes of underwater homeowners.  As I explained  in that post, this plan is extremely dangerous because it threatens private property rights and the rights of mortgagors and endangers the future of mortgage financing in any city where it is adopted.  At least, however, the Richmond plan pretended that it had the end goal of helping homeowners retain their property.

The National Real Estate Post is reporting today that the Richmond plan is fizzling out because the city and its private partner are unable to find investors to buy the municipal bonds needed to finance the confiscation of the properties.  This bodes well for the rest of the country--several cities across the U.S. have been considering adopting a similar plan, and the failure of Richmond's plan--if it does indeed fail--will discourage others from following suit.

Now, however, the California Senate is considering a bill so drastic that it makes the Richmond idea pale in comparison.  Senate Bill 1 will allow cities to set up bureaucracies to use eminent domain to confiscate private property, including private homes, for the purpose of setting up public transportation and sustainable communities.  In my novel The Planner, published in 2012, the government uses eminent domain to facilitate sustainable communities, so this is something of a case of life imitating art. is reporting that the bill will allow municipalities to use eminent domain not only to create public transportation but to confiscate homes within half a mile of that public transportation for sustainable communities.  Sustainable communities have been sweeping the country under the names "Smart Growth" "Smart Code" and "walkable" communities.  These are mixed use, mixed income communities where housing is tightly packed, neighborhoods are designed so that the housing does not have individual yards but rather relies on community parks, and public transportation is encouraged rather than the use of private automobiles.

What makes Senate Bill 1 unique is that the bill specifically allows governmental entities to confiscate properties where there is no traditional definition of "blight." The bill, "provides that an Authority is not required to make a finding of blight or conduct a survey of blight in a project area, but can rely upon the legislative findings in the bill to establish blight."  What that means to you is that you may live in the loveliest home in the loveliest subdivision in California, but if a bureaucrat decides that your neighborhood is consuming too much energy and needs to be transformed into a "walkable" community, you can lose your property.

And being outside the city won't protect you.  The bill allows counties to create similar boards to deal with unincorporated areas of the state to confiscate property and redevelop it as "sustainable development."

Other gems from this bill include:

1. Developing strict parking ordinances in sustainable communities to discourage the use of cars and encourage public transportation.

2. Requiring a residential construction plan for these newly created "small walkable communities" of no less than 20 units of residential housing per net acre.

3. Requiring that a certain number of units be set aside for extremely low, very low, and low income housing at all times.

Each plan for a sustainable community must include a study of the ways in which the community will conserve energy and water and reduce parking.

The use of eminent domain to promote sustainability strikes deeply at the heart of one of our most precious freedoms as Americans--the right to purchase and own private property without fear of government confiscation.  To abolish that right in an effort to build a new green utopia on the backs of private property owners is not only dangerous, it's morally reprehensible.

Read the summary of Senate Bill 1 here.

Understand what smart growth, and sustainable development really mean and why advocates believe private property is the enemy by watching this short video:

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.

Friday, January 10, 2014

The New Face of Subprime--Look in the Mirror; There's a 50% Chance it's You

In the last three and a half years, since July of 2010, four thousand pages of new regulations have been written governing mortgages in the U.S. Today is D-Day for two of them; today, January 10, 2014, the qualified mortgage and ability to repay provisions of the Dodd-Frank bill will take effect. Massachusetts Senator Elizabeth Warren, who helped write the rules and served as the interim director of the CFPB prior to the confirmation of Richard Cordray, spoke from the Senate floor this week praising the new rules saying that they will, "make a real difference for millions of families who own, or who hope to own, their own home” and “show once again that government can fix problems,” according to HuffPo.

Much like the disastrous roll-out of Obamacare, what the QM's are really going to do is demonstrate once again the failure of big government. Remember that Dodd Frank was supposedly passed to end "too big to fail" bailouts and "predatory loans," just as Obamacare was supposedly passed to ensure that all Americans would have access to affordable healthcare. In October of 2013, many Americans discovered for the first time that their existing insurance policies were being cancelled and that they would no longer have access to the private insurance for which they had been paying. They also discovered that their new "free" healthcare was really, really expensive.

Much the same thing is about to happen today. Under the pretext of shielding borrowers from bad loans, the federal government has created a small but elite class of borrowers--those who meet the standards of the "qualified mortgage". These borrowers will have access to the best interest rates and financing available because only these loans can be sold to Fannie Mae and Freddie Mac. But about half of the borrowers who up until today were "prime" borrowers will not qualify under the new guidelines. Last February, Corelogic Credco completed a study of the qualified mortgage rules and found that under the government's proposed guidelines about 40-50% of borrowers who qualified to have a conforming mortgage in 2010 will no longer qualify under the new rules. This statistic was confirmed this week as Wells Fargo prepares a team to underwrite the non-qualified mortgages that it will keep and service itself. Wells estimates that 40% of its mortgages will not meet the qualified standards. If you have shopped for a mortgage loan in the last three years, you know that qualification standards were already tough, so to shut an additional 40-50% of borrowers out of a market which has already shrunk from a three trillion dollar industry to a 1 trillion dollar industry is significant.

What the government has really succeeded in doing here is creating a new class of subprime borrower out of borrowers who were previously eligible for low rate and fee mortgages. And the new rules are going to have a massive impact as consumers find themselves forced into non-prime portfolio loans.

Assuming that your credit score is above 700, what factors could keep you from getting a qualified mortgage? Below are a few:

1. You are self-employed. Even if you earn a good living and declare all of your income on your income taxes, the requirements are so strict that if your income has declined over the past two years, the underwriter may not accept part or all of your income.

2. Part of your income is bonus or commission. Let's say you have been on your job 15 years and in addition to a base salary you earn a substantial bonus or commission. You receive the bonus every year so you have always used it as income. Unlike base pay, bonuses and commissions are averaged over a two year period, so if your bonus has fluctuated you may not have a high enough average to qualify with the new 43% debt to income ratio requirements. If your bonus were less last year than the the previous year the underwriter might not let you use it at all.

3. You co-signed a loan for somebody else. Your sister just got divorced and is struggling to support herself and her three kids. She has gotten a job but she needed a car to go to work and you helped her out by co-signing for it. She makes all the payments with checks and you could prove that by getting copies of the cancelled checks. The problem is that Fannie Mae won't accept documentation that someone else is paying this bill, so you will have to qualify with her car payment, and even a small car payment could be enough to push you over the 43% DTI guidelines. (This is also true for business debt in your name under your personal credit.)

4. You are receiving child support for four children, the oldest of whom is sixteen, while you go back to school to get your nursing license. The child support covers all of your expenses and allows you to qualify, and in a year when you graduate from nursing school you will be able to go straight to work for a hospital. Unfortunately, child support can only be considered if it will continue for three years, and in the case of the sixteen year old it doesn't so even though you wanted to get that house now while the interest rates and home prices are still low, you won't qualify. You can either take the higher-priced non-qualified loan or you can wait and hope that when you get your nursing job you have not been priced out of the market.

The ultimate irony of the new rules is that it allows banks to profit from higher costs and fees to a newly created class of subprime borrowers who are actually a very good credit risk but can't meet the tight new requirements. Wells Fargo and others can create a set of products to meet this need that is greatly more profitable than the loans being sold to Fannie and Freddie and FHA and they can expect to have a large demand for them.

If you are one of the nearly fifty percent of credit worthy borrowers who can no longer qualify for a Fannie/Freddie conforming mortgage what can you expect?

1. Higher interest rates and more fees. The new rules say that a lender making a non-qualified mortgage must retain at least 5% of the balance of that mortgage for life. In reality, probably most of these loans will be "portfolio mortgages"--private label mortgages written to each lender's individual specifications which they retain for the life of the loan. By the end of 2014, mortgage rates are expected to be about 5%, so a portfolio mortgage might range anywhere from 5.5 - 7-5% or higher depending on the underwriting guidelines and level of risk. Keep in mind that they have to be more expensive because in addition to the cost of servicing the loan, the lenders have the added risk of not being able to foreclose if the loan is determined to be predatory at a later date.

2. Adjustable rate mortgages. Nobody is saying much about this yet, but the thirty year fixed rate mortgage (or the fifteen year fixed rate) is really a function of a government backed guarantee which is what Fannie, Freddie, FHA and VA provided. Portfolio loans often don't offer fixed rates. Often these loans are structured to be fixed for anywhere from 2-10 years and then the rate adjusts after that. This allows the lender to qualify the borrower at a lower initial rate and then adjust the rate upward at the end of the fixed term. Not being able to secure a fixed rate mortgage for the life of the loan is going to be a big surprise for a lot of Americans who have grown up in a world where this was standard. The irony is that the adjustable rate feature of many subprime loans was blamed for much of the mortgage crisis because as the rates adjusted homeowners could not pay the new costs, but now we can expect to see a resurgence of this product.

4. Higher down payments. The government toyed with requiring 20% downpayment as part of the qualified mortgages, but in the end they did not institute this. (If they had added a 20% downpayment requirement, according to the Corelogic Credco study, a full 60% of borrowers who qualified in 2010 would not have met the new guidelines.) Typically, though, portfolio loans require more downpayment than agency loans (agency loans are loans sold to Fannie Mae or Freddie Mac.) Lenders mitigate the risk of foreclosure by requiring more downpayment, and in a world where they have to service the loan forever that can be very helpful. Also, if a borrower does decide to take the lender to court because of a foreclosure action, the lender can argue more successfully that they followed conservative lending standards when they required more cash up front. In my experience, we should expect fifteen to twenty percent downpayments to become standard for the new class of subprime.

Elizabeth Warren says that the rules will show all Americans that the government can fix problems. In reality, these rules have not "fixed" anything. Just as Obamacare has caused millions of insured Americans to lose their coverage, so the QMs are going to force millions of Americans into subprime higher cost loans. Here's a message for Washington: Stop fixing things for us. We can't take much more of this.

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.

Wednesday, January 8, 2014

Dodd Frank--Protecting You Right into an 11% Mortgage

On December 19, 2013, I sold the office building which for 10 and a half years had housed my mortgage company. The closing was held at a "fee office" for one of the local title companies--this particular fee office is operated by a local real estate attorney who handles a lot of transactions for the local lenders. As we signed the closing docs, he chatted pleasantly about the surge in private equity lending that is happening and he expressed surprise at the quality of borrowers who are now using private money lenders rather than traditional mortgages. "You look at some of these people--they have great credit and great income and you think, 'Why is this guy taking an 11% mortgage?' But they do."

I left that closing and that conversation very sure that my decision to exist the loan origination industry nine months ago (on my company's fifteenth year anniversary) had been exactly the right one. In July of 2010, when Obama and the Democrats pushed through the Dodd-Frank bill--with the help of four Republican Senators--the bill was touted as a consumer protection bill that would prevent any more bailouts and end "too big to fail," as an excuse for squandering taxpayer's money. Three and a half years later we know for certain that none of those promises was true. None of the "too big to fail" issues has been addressed at all. What has happened is that the 858 page bill with its 398 regulatory requirements is generating massive new regulations that are squeezing ordinary consumers out of credit markets completely. So far, Dodd-Frank has generated 42 words of regulation for every word of text in the original bill, and only about 50% of the regulations have been written. Sixty-three percent of the regulatory deadlines have been missed. As with its big government counterpart Obamacare, it has delivered none of what it promised. What it has delivered is an enormous new bureaucracy in the form of the Consumer Financial Protection Bureau which has no Congressional oversight. Housed in Janet Yellen's Federal Reserve, the CFPB answers to no one but the president, but the agency has unprecedented powers not only to regulate and even close private businesses, but also to monitor and spy on Americans down to the last dollar in your bank account and that cup of coffee you charged on your credit card yesterday at Starbucks. This is the agency responsible for getting rid of all of the bad lenders and the bad mortgages and making sure that every consumer is treated fairly every time.

Part of this new regulatory landscape includes four thousand pages of new mortgage regulations. Two of the most anticipated (or maybe that word should be "dreaded") deadlines come this week: on January 10, the qualified mortgage rules and the ability to repay rules will both take effect. This is a deadline many mortgage lenders were hoping to miss, but repeated calls from the industry to CFPB director Richard Cordray for a stay of these rules were ignored.

The qualified mortgages provide strict guidelines for lenders in making residential mortgage loans. The consumer must have demonstrated an ability to repay, his or her total percentage of debt to income cannot exceed 43%, and the total points and fees on the loan cannot exceed 3% of the loan amount. The APR of the mortgage loan cannot be more than 1.5% above the annual prime rate. As long as lenders comply with these mortgage guidelines, they are protected, though not shielded completely, from borrower lawsuits alleging misconduct.

Loans that do not meet these strict standards may qualify for a higher cost mortgage that still offers some protections under the ability-to-repay rule. If the lender has demonstrated that the consumer has the ability to repay the mortgage and that the total debt to income does not exceed 43% of the borrower's verified income, the lender can still argue that they have acted in good faith. Loans that fall outside of these boundaries are non-qualified mortgages. On a non-qualified mortgage, the lender must retain at least 5% of the loan for the life of the loan without ever selling it. In addition, if the borrower proves in court that his rights were violated, the lender has to pay back all of the interest and fees to the borrower and cannot ever foreclose. On a $200,000 mortgage, the lender would have to permanently retain at least $10,000 of the mortgage for the life of the loan--something many institutional lenders are not in a position to do. These are very high risk loans for the lenders, so they are going to be very expensive for the consumers. Since most banking entities are not going to take on this much risk, these loans will fall to private lenders who are willing to take the risk in exchange for an 11% interest rate and high fees. In addition to your local private money lender, Wall Street hedge funds are exploring the possibilities of making non-qualified mortgages because of the high yields in the form of interest rates and fees. (But wait--I thought hedge funds were among the evil entities the government wanted to stop.  Perhaps not.)

The attorney who was visiting with me said that he had made numerous phone calls to the CFPB in helping his clients get into compliance on the new rules. At first they were very responsive, but now they have "gone dark" on him and no longer return calls. The CFPB is apparently not very interested in providing regulatory guidance to those seeking to comply with the new rules. Why would they be? They have just written 4000 pages of regulations that will ultimately be interpreted by the courts. And in the meantime, they can order audits, including IRS audits on practically any lender, large or small, and impose fines and fees without restriction on anyone who violates the new rules.

The Obama Administration is pretending that the qualified mortgages will not restrict lending. They optimistically hope aloud that lenders will be flexible in their lending guidelines and that they will continue to look at loans on a case-by-case basis. The problem is that Dodd Frank's guidelines do not allow for this. As Jeff Taylor, managing partner of Digital Wire, points out frankly in Housing Wire, Dodd Frank "draws a hard line in the sand and removes all subjectivity so that lenders cannot consider compensating factors." That means that your lender no longer has the power to say, "you might be a little bit outside of the box, but you are still a good loan."

Bloomberg is reporting today that Wells Fargo projects that 40% of their loans will not meet qualified mortgage standards, and they have created a SWAT team of 400 underwriters to underwrite the loans they decide to portfolio themselves.   We can expect that Wells will price these loans considerably above the QMs but enough below the hedge funds and private investors to scoop up the choice borrowers who no longer qualify for optimal financing.

So who are the losers in this?

1. Consumers who don't quite fit into said tiny, narrow box. Mark Savitt, former president of the National Association of Mortgage Brokers, current president of the National Association of Housing Independent Professionals and a long-time mortgage veteran in West Virginia, is reporting that problems have already begun. In the Mortgage Professional's Association newsletter, Savitt explains that one of his borrowers was just declined by Fannie Mae for a mortgage loan because she was exceeded the guidelines of the qualified mortgage. (Even though the official start date is Friday, in practical terms lenders began using these guidelines weeks ago because of their deadlines for selling to Fannie Mae and Freddie Mac.) This woman, who has been on her job for twenty years, has a 732 credit score and was making a $79,000 downpayment on her new home purchase. She was financing only $50,000, but because her debt-to-income ratio was 47%, Fannie Mae declined the loan as being "high risk." As Savitt explained, the only way she is going to get that loan now is to get a non-qualified mortgage with considerably higher points and fees. Her cost of borrowing has just gone way up because of Dodd Frank's consumer protections.

2. The self-employed. The ability to repay provisions greatly favor W-2d employees. For the self-employed mortgages, are going to be increasingly more difficult to obtain and increasingly expensive if they can be obtained at all. Before I left the industry I began to see institutional lenders setting guidelines that would not accept any of a borrower's income if the income had decreased over the last two years. If you are one of those few lucky individuals who owns a business that has made more money over the last two years than in the past, I congratulate you heartily. If not, you are probably not going to qualify for a "qualified mortgage."

3. Sellers. All sellers. Why? If you want or need to sell your home, you need to find a borrower who can actually qualify to get a mortgage loan so that you can move on. Being able to sell your house may mean the difference between being able to relocate to a new city or being able to move to a new job across country. If your situation is dire enough, it may even be the difference between foreclosure and keeping your credit in tact. Cutting off access to mortgage credit can have major impacts on the society as a whole.

Who are the winners?

1. Wall Street. Wall Street can price the risk for these non-qualified mortgages into the new loans and they can afford attorneys to keep the homeowner tied up in court for years.
2. Big government. Unlike Obamacare, Dodd Frank does not have widespread public outrage. The government can sanctimoniously tell consumers that it is protecting them from "bad mortgages" they can't afford with very little opposition. And they can use the fines and fees they are extracting from businesses to continue to grow an agency whose average salary is six figures--all in the name of "saving the people."
3. The leftists in our society who increasingly fight property rights because private property ownership does not fit well into their new vision of what America should be. These activists want to see an end to single family homes, suburbs, private automobiles, and all of other traditional amenities of our society because our way of life is not eco-friendly. Their ultimate goal is to see all Americans living in densely-packed rental housing and taking public transportation. The qualified mortgage is just the first step.

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.