Goofus and Gallant Governments

Looks like Obama's hostile takeover of the banking industry continues unabated as news hits of the Justice Department suing Deutsche Bank for writing bad loans they promised were good.  According to the government, a third of their loans have now defaulted.  And so now the government is suing because the lender hadn't done due diligence and lied about it.

And that, of course, is good government.  Yes, the question remains why the government is backing bank loans anyway, as it seems like it'd be a lot cheaper and easier if the government lent the money themselves.  But that's a subject for a different post.

Here's the line that stuck out for me:

As far back as 2003, a HUD audit found that MortgageIT hadn't met basic standards of quality control. In response, the company assured the government that it had changed its practices. But, according to the complaint, that wasn't true.

And that, of course, is bad government.  The government identified a serious problem.  Told the bank about it.  The bank promised that they'd do better, without changing anything.  Seven years later and the taxpayers are bailing out the bank for $1 billion, while the bank gets to keep their profits.  Uh, no.  That's not working for me.  If a bank wants to make a loan, the bank needs to back the loan, period.  I see no reason why we need some greedy banker as a middleman, particularly not when his interests are so disaligned with our own.

Otherwise, I'd like to see HUD directly offering loans directly.  They could even work with Treasury to automatically deduct payments each month, and it'd include a small amount for mortgage insurance; in case the homeowner loses their job and can't pay.  It could even be tied directly to their unemployment benefits, with the homeowner having part of their unemployment garnished, but significantly less than the home payment would be.  This really shouldn't be too difficult.

And, hmm.  I wonder who was in charge when HUD blew it...