Stimulus Plan a scam to benefit the rich

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Stimulus Plan a Scam to Benefit the Rich

Higher loan limits will lead to Fannie Mae, Freddie Mac bailout

Congress is about to sell us the biggest fraud in American

history.

It's been highly touted as an economic stimulus bill that will help

millions of Americans - and has the backing of both President Bush and

House Speaker Nancy Pelosi. In the coming year, individuals would receive

rebates of up to $600 and families up to $1,200. There are other goodies,

too, including tax write-offs for small businesses and an expansion of

the child tax credit.

But, as the old adage goes, nothing comes for free. As part of the

bill, Congress is set to rush through an increase in the mortgage loan

limits for Fannie Mae and Freddie Mac (and Federal Housing Administration

insurance, too) - from $417,000 to $729,750 - the first step toward a

massive financial disaster in which taxpayers will end up paying through

the nose.

Here's how we got to this point. Domestic and international investors

hold hundreds of billions of dollars in bad debt, because U.S. investment

houses sold them junk securities based on often fraudulent mortgages.

Many of these mortgages were sold to unqualified buyers under terms that

made widespread foreclosures a certainty once the housing market began to

fall.

Investment banks and bond rating agencies sat down and tried to figure

out how to describe Americans with insufficient incomes and little for a

down payment as great credit risks on loans too big for their incomes.

The new rules focused on credit scores, because it was a good excuse to

avoid looking at income and down payment, factors that would have

restricted this moneymaking fiasco.

Now, thanks to Congress, junk bond investors will be able to pawn off

their bad debt to Fannie and Freddie, instead of suing the big investment

houses for ripping them off. This shift will certainly doom Fannie Mae

and Freddie Mac, so don't be surprised if we, the taxpayers, have to bail

out poor Fannie and Freddie - to the tune of more than $1

trillion.

Why more than $1 trillion? If Goldman Sachs is correct in its recent

projections that home prices in California are going to drop 35 to 40

percent, the state's losses alone would top $2 trillion, because

California has a disproportionate number of jumbo loans. The irony here

is that the collapse in housing prices could make Fannie insolvent even

without raising the loan limit. Increasing Fannie's limit is like going

on a spending spree with your credit cards because you know you are going

to file for bankruptcy in a few months. Only here the taxpayer is left

holding the bag. Our children will pay interest on this debt in

perpetuity. It is our debt. It is inescapable.

In the coming months, Fannie and Freddie will buy up mortgages based on

old, fraudulent appraisals and on loans with bogus inflated incomes.

Unfortunately, many of these loans will still default.

But that's just the start. Brace yourself for another wave of faxes,

phone calls and junk mail urging you to refinance at only 1 percent. With

zero new regulation, the same bad actors that caused this crisis can once

again inflate property appraisals and begin a new cycle of

fraud.

There are firms that rent assets to people to help them fraudulently

qualify for a mortgage - like loaning them money to keep in their bank

account for a couple months so they can fool the lender with documented

savings that evaporate the day after the mortgage is signed. Another

popular ruse: The borrower pays an employer to pay him a lot of money in

a fake job for a month or two so he can show a fat paycheck in his loan

docs. Some real estate agents and mortgage brokers actually refer buyers

to these services.

Contrary to popular myth, Fannie holds a lot of subprime debt, option ARM

debt and other dodgy securities. Fannie and Freddie owned or guaranteed

almost 45 percent of all mortgages in America last year. BusinessWeek

noted in 2007 that Fannie and Freddie have " moved more prominently

into low-documentation loans, which require little or no proof of the

borrower's income. " Expansion of Fannie and Freddie's reckless

lending is exactly what Congress wants because it's plausibly deniable.

Teary-eyed lawmakers can take to the airwaves a year from now and

declare: " We had no idea Fannie could go under, but we can't cut and

run now. We have to bail out Fannie and Freddie for the good of

America! It's going to be a tough slog, but you're getting used to those,

no? "

Those same lawmakers won't mention the fact that they get paid far

more by real estate lobbyists than they do from our Treasury.

I've spoken with borrowers who stopped making mortgage payments seven

or more months ago. None has received a default notice. Defaults may be

much higher than banks are letting on. The data lags are growing

suspiciously long. Nobody knows what's going on. Seven months without

making a single payment! Will Fannie guarantee those loans because they

aren't in formal default yet? Nobody wants to know, because if they know,

they might be called to testify next year. That's why lawmakers want to

raise the limits now and ask questions later.

This shortsighted plan poses a terrible risk to every American

taxpayer, especially retirees, because Social Security money will be

needed to bail out Fannie and Freddie. And even if you live in

high-priced San Francisco, Los Angeles or New York - and stand to benefit

from the increased loan limit - this is a horrible fraud on you, too,

because raising the limit to $730,000 risks a systemic crisis that will

cost far more than any temporary rebate check.

In support of the economic stimulus bill, Bush will have to face

" working American families " and explain that some of their tax

money is going to be spent guaranteeing $730,000 mortgages on $1 million

homes. It's like some sort of upside-down communism where the poor pay

the rich welfare. Why should taxes from families earning $48,000 a year

be used to support expensive mortgages in New York, Los Angeles and San

Francisco? Welfare for the hungry and homeless is evil, but welfare for

million-dollar homeowners facing a tough refi ... well, that's called

" helping the economy. "

I can imagine the president's radio address playing in the heartland:

" We have some families with million-dollar homes on the coasts who

are really hurting and so we need you, the working families of America,

to stand together with them and help them avoid the kind of home price

depreciation that might leave them without a new Lexus for

years. "

I guess Congress' hope is that median-income families will be too busy

using their rebates to buy much-needed groceries to notice that the rich

folk are getting way with a new scam.

Several months ago, economist Nouriel Roubini of New York University's

Stern School of Business suggested that the housing market has been

effectively nationalized. At first it seemed crazy, but now it's fairly

obvious. In August alone, Fannie and Freddie increased their loan

portfolios by $62 billion, and the Federal Home Loan Bank by $110

billion. That total of $172 billion would come to just over $2 trillion

annually - not much less than the entire federal budget.

Everyone seeking a loan, securitizing a mortgage, and buying or selling a

mortgage security will now be dealing, in one way or another, with the

U.S. government. This type of intervention is very expensive and will eat

everything in its path, including Social Security.

If we're going to have a government-financed intervention, it should be

to make sure that Social Security benefits go to those who paid for them,

that the poor are fed and housed, or that the army of uninsured receive

health benefits. If, as they say, we don't have enough money for those

important things, then I think we don't have enough money to bail out

banks and bond investors.

Don't let me down, my fellow Americans. Let's vote out anyone who

dares to vote for this scam.

Sean Olender is an attorney in San Mateo, California.