At Least Government Has To Tell You When They Take Your Money

(4:33:07 PM)

Well, you can't say our home-builders aren't innovative. Faced with the collapse of their market's demand in the face of an over-built supply, they need cash, or at least an asset to leverage. (Don't we all?) The banks got theirs (from us), and ain't lending to no one, no way, no how. So where to get the cash, where to find an asset.

How about making one up out of thin air, or more precisely (and expectedly) out of your pocket or mine?

Developers have started tacking a 'commission' covenant onto the sales contracts for tract homes they've built. A covenant that says that every time that home is sold, for the next 99 years, that developer gets one per cent of the sale price. Nice, huh? Automatic inflation on homes, just to cover, not the builder's cost and profit margin, but his future cash needs, as insurance against another disaster caused by, umm, err, his housing industry.

Not outrageous enough? How's about this one: they don't even have to show you that covenant. Yep, they can write a covenant that says anything, and you won't know about it. Whether it says they get 1% of every sale of that home, or that the broker must always send a dozen roses to their sainted aunt to celebrate the sale, you won't know a thing about it. Isn't it nice to know that you are participating in a sale where you're not allowed to know all the terms. Doesn't that sound Republican?

Well, two can play at this game.

One of the reasons why the housing bubble disaster happened was that no one writing paper, whether the original mortgages or the the AAA ratings on bundles of mortgages, or the insurance on those securitized bundles, no one had to hold onto that paper. But, as the developers' covenant trick proves, we can track sales and corporations for almost a hundred years.

So how about stretching out those commissions over the life of the mortgage too?

Instead of the broker getting his whole commission the day the mortgage is signed, regardless of whether or not the mortgage ever is paid, how about a piece of each mortgage payment going to that broker's bank account? Smooths out his income, and more importantly, keeps the quality of the mortgages up, since the guy dioesn't want to do the work for a mortgage that won't be paying next year because the person goes bankrupt. If the mortgage gets paid off in a sale, he gets fully paid off from that.

Same for the securities that Fitch or Moody's rates. Maybe they should be required to take half of their fee in the offering they're rating. And have to hold those secutities or bonds for, say, two years before they could sell them. They'd be much more likely to be realistic about their ratings.

I can dream, can't I? But we know the house never rigs the game to improve the odds that every one does better, just so that the house does better. Kind of an Ayn Rand thing. Me first, screw everyone else. We can see how well that worked out for America, can't we?

In the meantime, I've moved my mortgage to my credit union. Not because I hate banks. Just because I'd like my mortgage to be held by the institution that wrote it. If that had been the rule across the board, none of this crap would've happened to begin with.

But those financial guys, well, you can't say they're not innovative. You just wish they were a little less gung-ho about it.
(04:55:07 PM)(05:04:18 PM)