Senate Committee Votes To Fingerprint Lenders

tjstork recommends a blog post up at Openmarket.org on the passage by a Senate committee of a fingerprinting provision in a foreclosure assistance bill. The provision would require thousands of people connected with the mortgage industry, even tangentially — possibly including part-time and seasonal real estate agents — to send fingerprints to the feds for storage in a database. No explanation is in evidence as to how this would help the problem of loan fraud. The measure passed the Senate Banking Committee by a bipartisan majority of 19 to 2. "The measure the committee passed states that 'an individual may not engage in the business of a loan originator without first... obtaining a unique identifier.' To obtain this 'identifier,' an individual is required to 'furnish to the newly created Nationwide Mortgage Licensing System and Registry 'information concerning the applicant's identity, including fingerprints for submission' to the FBI and other government agencies."

Comments

Police states and the sad case of Fritz Thyssen

[westbake]

Those of you who think you can make a buck off a police state would do well to remember learn the fate of Fritz Thyssen. He was an industrialist and early supporter of Adolf Hitler, in part financed by Prescott Bush. He made plenty of money re arming Germany and he approved of racial purity laws. By the time he realized the Nazis believed all of the crazy things they said, it was too late for him to do anything about it. He was thrown into a concentration camp and was lucky to survive the wars he did not approve of. If you don't think the Neocons are just as crazy as the Nazis you have not been listening to them long enough.

Re:Solves *A* problem

[znu]

In order for it to make sense for a bank to assume the same level of risk that would be involved in a direct real estate investment, it would have to charge an interest rate so high that it stood to make at least as much money as it would make from a direct real estate investment. (A "direct real estate investment" here meaning the bank just buying the property in its own name, and probably renting it out while waiting for it to appreciate in value.)

Charging interest rates that high wouldn't just put home ownership out of the reach of a huge fraction of buyers, it would also remove a major incentive for home ownership. You'd be paying interest rates so high that they would, on average, offset any appreciation in the value of your property.

There would be virtually no takers for such loans. As a result, housing prices would probably drop significantly (there would be much less demand), but you'd basically have to pay for a house with cash up front. Financial institutions and those few individuals with hundreds of thousands of dollars or more in liquid assets would end up snapping up all the property at severely reduced rates, and everyone else would simply have to rent, ultimately resulting in a massive ongoing wealth transfer away from the middle class.

Oops.

Re:Knee-jerk

[hey!]

When most loan fraud is done via identity theft, how does this initiative assist in finding the people committing actual fraud? Well, consumer credit is a different thing. What they are dealing with is the home equity crisis. While it's not unheard of, it's hard to fence a house -- in the felonious sense of the word. So insiders who are inflating their sales and commissions by falsifying aspects of loan deals are a bigger fraction of the fraud being committed than in something like credit card fraud. So the idea is that this keeps a sharp operator from committing fraud, then skipping town and setting up shop in a different place under an assumed (or stolen) name.

Unfortunately 99% of this crisis fits the standard market bubble paradigm. The difference is that this hits people ... er... where they live. Once the irrational exhuberance is taken out of the market, the opportunity for fraud is greatly reduced.

In fact, we have the opposite problem: investors are spooked. Coming down hard on fraud might help a tiny bit, but primarily investors are spooked by their own collective insanity.

If it makes investors a bit less risk averse, it's worth doing, but I doubt it will. We need to get a bit more momentum going in the credit market. Financial markets have about a ten year memory, so the time to really come down hard on fraud will be in about five years.