nation’s homeownership rate has fallen ... and will plummet further next year.: Mozillo made $270 million in profits selling stocks ...

Wednesday, December 19, 2007 by The American Prospect | The Conservative Origins of the Sub-Prime Mortgage Crisis | Everything you ever wanted to know about the mortgage meltdown but were afraid to ask. | by John Atlas and Peter Dreier
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Make no mistake — it is a crisis. Since 1998, more than 7 million borrowers bought homes with sub-prime loans. One million of those homeowners have already defaulted on their loans. The crisis is likely to get worse. Financial analysts predict that at least a quarter of these people — over 2 million families — will default and face the financial pain and psychological grief of losing their homes over the next few years.

Bush, who once touted his administration’s goal as creating an “ownership society,” may now go down in history as the president on whose watch ownership declined. The nation’s homeownership rate has fallen during the last two years and will plummet further next year. Moreover, Bush’s unwillingness to take bold steps to regulate lenders, brokers, and investors will guarantee that the next president will inherit a much bigger mortgage mess.
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Mortgage brokers, the street hustlers of the lending world, often used mail solicitations and ads that shouted, “Bad Credit? No Problem!” “Zero Percent Down Payment!” to find people who were closed out of homeownership, or homeowners who could be talked into refinancing. They seduced millions of people into signing on the dotted line. Although sub-prime lending has been concentrated in minority and low-income urban areas, it has spread to the middle-class suburbs.

The sub-prime lenders didn’t hold on to these loans. Instead, they sold them — and the risk — to investment banks and investors who considered these high interest rate, sub-prime loans a goldmine. By 2007, the sub-prime business had become a $1.5 trillion global market for investors seeking high returns.

The whole scheme worked as long as borrowers made their monthly mortgage payments. When borrowers couldn’t or wouldn’t keep up the payments on these high-interest loans, what looked like a bonanza for everyone turned into a national foreclosure crisis and an international credit crisis. For millions of families, the American Dream of homeownership has become a nightmare.
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The executives and officers of some mortgage finance companies cashed out before the market crashed. The poster boy is Angelo Mozilo, the CEO of Countrywide Financial, the largest sub-prime lender. He made more than $270 million in profits selling stocks and options from 2004 to the beginning of 2007. And the three founders of New Century Financial, the second largest sub-prime lender, together realized $40 million in stock-sale profits between 2004 and 2006. Paul Krugman reported in The New York Times that last year the chief executives of Merrill-Lynch and Citigroup were paid $48 million and $25.6 million, respectively.
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Predatory loans sometimes involve a conspiracy between loan agents and unscrupulous home-improvement contractors, as well as appraisers who inflate the value of a house so that families will borrow more than the houses are really worth. Predatory mortgages often include last-minute, hidden second mortgages. Using bait-and-switch tactics, predatory lenders tout low interest rates in ads targeting the elderly and residents of low-income, working-class, and minority neighborhoods, without explaining the actual interest rates or that adjustable-rate mortgages mean that the rates will increase.
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And It All Started with Deregulation

There was a time, not too long ago, when Washington did regulate banks. The Depression triggered the creation of government bank regulations and agencies ...
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In 2000, Edward M. Gramlich, a Federal Reserve Board member, repeatedly warned about sub-prime mortgages and predatory lending, which he said “jeopardize the twin American dreams of owning a home and building wealth.” He tried to get chairman Alan Greenspan to crack down on irrational sub-prime lending by increasing oversight, but his warnings fell on deaf ears, including those in Congress.
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Those who profited handsomely from the sub-prime market and predatory lending, the mortgage bankers and brokers, are working overtime to protect their profits by lobbying in state capitals and in Washington, DC to keep government off their backs. The banking industry, of course, has repeatedly warned that any restrictions on their behavior will close needy people out of the home-buying market. Its lobbyists insisted that the Bush plan be completely voluntary.
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And wouldn’t it be nice to hear the next president tell the American people that, “the era of unregulated so-called free-market banking greed and sleaze is over”?

Former Chief Will Forfeit $418 Million ... first time regulators ... force executives to disgorge ill-gotten gains

Former Chief Will Forfeit $418 Million | By ERIC DASH | Published: December 7, 2007

In one of the largest corporate pay give-backs ever, William W. McGuire, the former chief executive of UnitedHealth Group, has agreed to forfeit at least $418 million to settle claims related to back-dated stock options.

The payback is on top of roughly $198 million that Mr. McGuire, an entrepreneur who built UnitedHealth, had previously agreed to return to his former employer.

The total — $618 million — includes money that Mr. McGuire will return as part of separate settlements reached yesterday with the Securities and Exchange Commission and UnitedHealth shareholders. The forfeitures are the first time regulators have successfully employed corporate governance rules put in place after the collapse of Enron that force executives to disgorge ill-gotten gains. ...

State Department Inspector General Howard Krongard ...decided to resign ... scrutiny for brother's Blackwater role ...

Official in Blackwater probe quits http://www.reuters.com/article/domesticNews/idUSN0732452720071207| Fri Dec 7, 2007 2:27pm EST

WASHINGTON (Reuters) - State Department Inspector General Howard Krongard, under scrutiny for his brother's link to the Blackwater security firm, has decided to resign, U.S. officials said on Friday.

Krongard, the State Department's top investigator, has been accused by current and former subordinates of thwarting probes into waste, fraud and abuse in Iraq, including alleged arms smuggling by Blackwater.

"We thank him for his dedication to public service and wish him well in the future," State Department spokesman Gonzo Gallegos said. ...

Krongard last month recused himself from Blackwater oversight after saying in a congressional hearing that his brother A.B. "Buzzy" Krongard, a former executive director of the CIA, had attended a meeting of Blackwater's advisory board. ...

FDA so underfunded, consumers are put at risk

Report: FDA so underfunded, consumers are put at risk | Updated 21h 11m ago | By Julie Schmit, USA TODAY

The Food and Drug Administration is so underfunded and understaffed that it's putting U.S. consumers at risk in terms of food and drug safety, an advisory panel to the FDA says in a report to be discussed Monday.

The report — developed in the past year by experts from academia, industry and other government agencies — delivers a scathing review of the state of the FDA, which regulates 80% of the nation's food, its drugs, vaccines and medical devices.

The report details a "plethora of inadequacies" in the agency, including:

•Inadequate inspections of manufacturers, noting that foodmakers, for example, are inspected about once every 10 years.

•A "badly broken" food-import system and food supply "that grows riskier each year." In the past 35 years, FDA inspections of the food supply have dropped 78% due to soaring numbers of products and inadequate FDA funding.
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William Hubbard, a former FDA associate commissioner who supports the Coalition for a Stronger FDA, says the report stands out because of the "intensity of the feelings" expressed by the subcommittee.

"These people were horrified by what they found," he says. While the subcommittee was supposed to look ahead to where the FDA needs to be, Hubbard says it came away concluding that "it cannot even do its job now."

Republican Senator Hagel: "This is one of the most arrogant, incompetent administrations I've ever seen personally or ever read about,"

Hagel: Bush administration is 'incompetent' and he would consider joining a Dem ticket | By: Mark Memmott and Jill Lawrence

"This is one of the most arrogant, incompetent administrations I've ever seen personally or ever read about," the always blunt and frequently quotable Sen. Chuck Hagel, R-Neb., said yesterday during an appearance at the Council on Foreign Relations in New York.

"This administration in my opinion has been as unprepared as any administration I'm aware of," Hagel added, "not only the ones that I have been somehow connected to and that's been every administration -- either I've been in Washington or worked within an administration or Congress or some way dealing with them since the first Nixon administration. I would rate this one the lowest in capacity, in capability, in policy, in consensus -- almost every area, I would give it the lowest grade. ...

Bush administration appointee "may have improperly influenced" several rulings: "Julie MacDonald's dubious leadership and waste of taxpayer dollars ..

7 Decisions on Species Revised | Fish and Wildlife Service Cites Possibility of Improper Influence | By Juliet Eilperin | Washington Post Staff Writer | Wednesday, November 28, 2007; Page A03

After concluding that a Bush administration appointee "may have improperly influenced" several rulings on whether to protect imperiled species under the Endangered Species Act, the Fish and Wildlife Service has revised seven decisions on protecting species across the country.

... MacDonald resigned from the department in May after she was criticized in a report by the inspector general and as she was facing congressional scrutiny.

In a letter dated Nov. 23 to House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.), acting Director Kenneth Stansell of the Fish and Wildlife Service said that the agency spent four months reviewing eight Endangered Species Act decisions made under MacDonald and is revising seven of them. Those rulings affected 17 species, including 12 species of Hawaiian picture-wing flies.
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"Julie MacDonald's dubious leadership and waste of taxpayer dollars will now force the agency to divert precious time, attention, and resources to go back and see that the work is done in a reliable and untainted manner," Rahall said. "The agency turned a blind eye to her actions -- the repercussions of which will not only hurt American taxpayers, but could also imperil the future of the very creatures that the endangered species program intends to protect." ...