How The Fdic Made Some Of The Loans Currently In Foreclosure

By Author: Nick Adama
Total Articles: 197
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With all of the positive press about the new government plans to fix the housing crisis and work with homeowners to modify predatory delinquent home loans, one would think that the government could do modification programs better than borrowers and lenders working together. Unfortunately, the government has proven even more ineffective than the banks.

One of the scapegoats of the economic recession has been the subprime mortgage lending industry, which supposedly made countless predatory mortgages to unsuspecting borrowers in an absence of regulation and government oversight. Now, after the failure of the markets has been uncovered, government has to step in and solve the problem.

But the government regulators were aware of the subprime market long before the real estate boom turned into the housing bubble. In 2001, the Federal Deposit Insurance Commission (FDIC) closed down Superior Bank, FSB, in Hinsdale, Illinois. At the time, the failed bank was a subprime mortgage lender, originating loans with high interest rates to unqualified borrowers.

Rather than closing down the bank's subprime lending division, ...
... the FDIC kept it open and operated it. Usually when the government seizes a bank, it will shut down the operations completely, especially if they are of such shady nature as a number of subprime loans were. But the government kept the bank open and made subprime mortgages to new loan applicants.

Moreover, this was not just a temporary measure to complete the final loans Superior was working on before being seized -- the FDIC funded $500 million in close to 6,700 new subprime mortgages during the months it was operating the failed bank. So the government regulators played a direct role in inflating the housing bubble and providing predatory loans.

What if the government made better, more reasonable, more hopeful predatory loans than the average mortgage lender? Then the loans may be understandable and prove that the government has the compassion and business sense to generate positive results from what has been labeled a predatory business practice.

However, this is not what happened. The loans that the failed bank issued while under FDIC control were just as "predatory" as many other subprime loans, and had many of the same problems. Inflated values, lack of income verification of borrowers, and loans that should never have been made were just as common with the FDIC loans as private mortgage lenders.

The government either did not see how subprime mortgages were exacerbating the housing boom, or the regulators did recognize the problem but greedily decided to take advantage of borrowers in order to raise the government bank's profits. In either case, can we really trust these same regulatory agencies to solve a problem they did not see or saw but took advantage of?

Now we are told to put faith in the government's programs to help homeowners in foreclosure by subsidizing mortgage modifications. Are some of the same borrowers who received subprime loans from the FDIC eligible for this new program? Unfortunately, with the government relying on inflated home values and failing to prove income, probably not.

Most of the programs put in place so far to solve the housing crisis have proven to be complete catastrophes. The FHA Hope for Homeowners Program has helped one single borrower, despite having a budget over $300 billion. But each failed plan generates proposals for more plans that are remarkably identical to previous ones.

From the very top of the federal government at the Federal Reserve, down to the financial bureaucrats at the FDIC, the subprime mortgage market was fueled by artificially low interest rates and bad loans originated directly by the government. Now homeowners are supposed to trust the very same people which inflated the bubble and collapsed it to stop foreclosures and punish bad lenders?
Nick publishes articles for the ForeclosureFish site. These articles provide resources to homeowners dealing with foreclosure, describing various methods they can use to stop foreclosure. The site details numerous options, including loan modification, foreclosure loans, deed in lieu of foreclosure, filing bankruptcy, and more. Visit the site to read more about how the foreclosure process works: http://www.foreclosurefish.com/