Boycott Watch
October 2, 2008
Op-Ed: Bailout Doomed to Failure
Bailout Doomed to Failure 
By Fred Taub
Boycott Watch

    As we watch Congress bail out Wall Street over the mortgage crisis, the pundits are forgetting the two root causes of the problems we face today - lies by mortgage brokers and people who can't pay their mortgage bills. Boycott Watch believes Congress is ignoring the root problem, thus the bailout is just a temporary patch, and unless we address it, the economic pain will just increase in the future.

    Let's examine the root of the problem.

    People who could not get mortgage loans from banks would go to small mortgage companies to get loans, as in many cases these companies would do things banks would not - help people lie on mortgage applications. Typically, someone who could not get a home loan would suddenly have an advocate who would look for things like "babysitting income" to inflate the income of the applicants. Then, these mortgage companies would use independent appraisers to value the home, but only ones who would play along and inflate the value of the home, despite that being illegal. Appraisers knew that if they don't play along, they would not have work.

    So, people who did not have the money to make the mortgage payments would get loans based on 70% of the appraised value of the home with an inflated income. In the mean time, because of the 30% spread, the mortgage companies could tack on all kinds of fees, including things like $1,000 signature fees, meaning you pay $1,000 for someone to sign their name. In many cases, people would pay twelve or more points on their mortgage loan to the mortgage company, fees that were split between the company owner and the salesman. After these fees, the mortgage companies would present attractive loan packages to lenders, knowing the numbers were not legit.

    Processing of the titles and loans would often be done by people directly associated with the mortgage broker, but separate enough not to cross any legal lines. Still, the transactions were easily kept within one business family. So, after putting in an average of eight hours per sale, for example, the people involved could bring in $8,000, or $1,000 per hour per person involved. The mortgage companies would make big money putting people in homes they could not afford, and then not telling the people that by being a home owner, they no longer had anyone to fix the leaky faucet as part of their rent.

    Even with a bailout, Washington is forgetting one important factor - people still can't afford the homes they live in. They were scammed into buying a home they should have never received a loan for, simply because increasing home ownership made politicians feel good so the politicians encouraged impossible loans for a short-term boost in the pools. Moving these mortgages around is not going to solve problems for these people when then numbers just don't add up.

    Everyone knows that investment involves risk, and people who go to Las Vegas don't get reimbursed for their risk. Regardless of the validity of these arguments, Congress is not assuring people what they want to see.

    1) Any home mortgage taken over needs to be refinanced so people can start a new payment plan that is manageable.
    2) Any home in which mortgage re-financing is not viable needs to be sold to a new owner who can keep the existing family in the home an convert their former mortgage deal into a rental agreement, thus avoiding flooding the market with more home for sale or homeless people.
    3) Americans want reassurances that they are not giving charity to millionaires who can afford to lose money in the bailout. Americans are charitable by nature, but not stupid.

    While Americans see the importance of government involvement in solving the problem, Americans, both liberal and conservative, also want an intelligent solution, not a blanket bailout. Still, we are seeing Congress focus on pork-barrel politics rather than the needs of the consumer, as evidenced by the placement of specialized tax shelter renewals in the bill, as opposed to concentrating on consumer protection.

    In the mean time, the FBI needs to seek prosecution for fraud in the mortgage market and the problems that created the current mess. Let's face it - the middle class runs the economy, so consumers will only regain confidence in the government bailout plan and the economy when they see those who created this economic mess prosecuted, be it Wall Street executives or people who lied or knowingly signed, processed or facilitated false information on mortgage applications, not to mention mortgage sales people who scammed the poor into paying, for example, large fees for someone just to sign their name.

Fred Taub is an expert in consumer issues, boycott consultant and is the President of Boycott Watch ( which monitors and reports about consumer boycotts.

    © Fred Taub, 2008
 ©2008 Boycott Watch