Saturday, July 19, 2008

The FED Declares War on the Self Employeed

I have been following the "Housing Crisis", which as far as I can tell was largely triggered by lenders willing to lend money to anyone with a pulse for a transaction fee. Aided and abetted by the residential Real Estate industry and some political interest groups and politicians under a variety of excuses to expand home ownership.

The recent announcement by the FED to require "proof of income" is a major change and impediment to free markets. In effect the only "proof of income" will become a "proof of tax".

Taxes will set you free.

I am a victim of previous policies which discriminated against the self-employed. Prior standards implied that unless you had a "steady job", (which could end at any moment) you were a credit risk, regardless of your FICO score, your history of paying off loans or cash in your business, regardless of how long your business had been in operation (in my case more than 20 years). The whole process was/is stupid and offensive.

I wonder why employees of mine who have a year or less of tenure are able to get mortgages much easier than I can. It seems perfectly clear to me that if my business goes south, I am the last man standing. It also seems obvious that my history as a self-employed person is less important than anyoneelse's W-2.


oyster said...

The recent announcement by the FED to require "proof of income" is a major change and impediment to free markets. In effect the only "proof of income" will become a "proof of tax".

Your summary is correct, except that until about a year ago there was extreme, crazy lending available for folks like yourself (and myself). "No-doc(ument)" loans were the rage, which were (initially) meant to provide lending to underserved markets like self-employed people. However these No-doc, nonconforming loans were horribly abused by lenders and mortgage brokers who would use them for people who had bad credit histories and/or low FICO scores. Instead of addressing underserved borrowers, they became a way of getting deals done, that should never have been approved. Hence, the subprime market ballooned out of control, and the banks pretended the ginormous risks of these loans didn't exist if they chopped them up and securitized and sold them. After all, housing prices were rocketing upwards and hadn't decreased nationwide since the thirties...

We're seeing now, how that turned out. A magnificent sham, perpetrated by the Fed, Bush and easy money.

So now banks are cratering and lending standards are tightening considerably. It looks like Wall St. investment banks and perhaps reckless/ignorant homeowners who are "upside-down" in their houses (negative loan to value ratio) will get bailed out by... you guessed it... the taxpayers.

The responsible folks (like yourself) who played by the rules and saved their money and/or didn't get in on the subprime/alt-A/prime loan hysteria are currently getting screwed by low interest rates, a weak dollar, and high inflation... not to mention an economy that is near a recession after being artificially goosed by these extreme "bubble inducing" measures-- and even then the economy was never that spectacular , but that's another story.

I'll have a post up tomorrow quoting from an article that wonders why more people aren't outraged by this world-historic scam by Wall Street and the Fed.

mominem said...

The real culprits in this mess is the transaction fee based parts of the industry who would do anything to make a a fee and certain political factions who pressured lenders to make more loans to sub prime borrowers, by lowering lending standards. I think the political pressure put on the industry has largely been ignored.