The Road to Hell

by Thomas Stokes


The road to hell, it is said, is paved with good intentions.

The current economic crisis, resulting from the sub prime mortgage meltdown, is certainly a perfect example of this.

Politicians had the major role in creating the current problems, starting with the admirable intention of having low-income families own their own homes.

The Community Reinvestment Act, passed by a Democrat Congress in 1977 to reduce alleged discriminatory credit practices in low income areas actually encouraged lending to uncreditworthy borrowers. Amendments to the CRA in the mid-1990s, raised the amount of mortgages issued to otherwise unqualified low-income borrowers, and allowed the securitization of CRA-regulated mortgages, even though many were subprime.

Those who opposed this faced charges of racism from the more liberal politicians and activist groups like SEIU and ACORN (both of these organizations are international and no information is provided as to foreign funding of their political activities in the US).

In 1982, a Democrat Congress passed the Alternative Mortgage Transactions Parity Act (AMTPA), which allowed creditors to write adjustable-rate mortgages, including option adjustable-rate, balloon-payment and interest-only mortgages.

Approximately 80% of subprime mortgages were adjustable-rate mortgages.

By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.

When concerns arose in September 2008 regarding the ability of Fannie and Freddie to make good on their guarantees, Washington placed the companies into a conservatorship, effectively nationalizing them at the taxpayers' expense.

What has been the result of this?

The worst economic crisis since the Great Depression of the 1930's. In 2009, almost 3 million homeowners faced foreclosure. Huge drops in home values for those who manged to keep their homes with many now "under water" (values below the mortgage owed). Double digit unemployment, poverty levels higher than when President Johnson waged a "War on Poverty". This attempt to help people has not only hurt those same low-income families. but has also hurt each and every one of us.

In New Jersey, politicians have created the Council on Affordable Housing (COAH) which imposes mandates on communities, like Middletown, to provide low-income, high density housing at taxpayer expense. This has a major impact on services, especially schools, and the property taxes we pay.

Professional politicians, of both parties, always searching for more votes, ignore the unintended (but not unforseen) consequences of their actions. Yes, the road to hell is paved with good intentions.