IndyMac's and Contrywide's quite conversion into a thrift charters means they now face less stringent oversight from regulators on how they define and account for troubled assets. It helps them avoid selling assets that are not performing. This is starting to look a lot like a repeat of the S&L crisis.

Now along comes the administration with mortgage industry bailout plan disguised as a homeowner a bailout plan. Why would congress want to let the mortgage lenders who made the "bad" stated income (LIAR LOANS) and sub prime adjustable mortgages make fat profits by refinancing their customers in to the new “rescue loans". For the most part Countrywide and IndyMac already sold and securitized and got theses problem mortgages off their books so they are fat and happy as pigs in poop that the government is going to let them get a second bite at the apple by refinancing people that the new expanding regulations permit. If the governments only goal is to help these “troubled borrowers, then limit the fee the mortgage company can make in these situations to $1,000.

It is not hard to figure out the drivers behind why the industry created this mountain of bad mortgages in the first place. These companies had these huge investments in back offices left over from the refinancing boom that they wanted to leverage. The industry saw a huge opportunity. There was this huge pool of “underserved” potential buyers. They shared one of three characteristics. They either had increasingly deteriorating credits scores (below 619) lacked a proper down payment or claimed to have more income than they could document. In many cases these borrowers would posses all three credits risks for a real sub-prime trifecta. These lenders were not blind to why the buyers choose a “Liar” stated income loan verses a loan where they properly documented their income. Countrywide and IndyMac sat back and counted their fat profits as they watched the spread between the reported average household income and the average sale price in those communities skyrocket. Check it out for yourself. Compare the National Association of Realtors annual price reports by MSA to the Census reports on household income.

You have to ask yourself where all the housing demand came from that pushed home prices up by double digits???? In 2005 total housing production exceeded household formation by 60%.

It came from IndyMac and Countrywide making loans they knew or should have known were going to be in trouble when the music stopped playing. This is a correction that these lenders knew or should have known was coming and is way overdue. Publicly they are crying that the music stopped but you have got to wonder if privately they are laughing because of all of their competitors who were forced out of the business when the music stopped playing and found that they didn’t have a chair. The rating agencies were of course the band that played along.

History Repeats Itself:
This is not a new phenomenon but rather just history repeating itself. Back in the late 70's and early 80's prices declined by 48% (peak to trough)and there was a lot of pain but we all survived.

If their lobbyist convince us to bailout the Countywide's and IndyMac's we are not really correcting the problem but rather just deepening the pain and prolonging the inevitable. You can't change the underlying fundamentals.
Prediction:
Mark your calendar for 18 months from now...this is a ticking time bomb that will only get bigger if the government does not step aside and let our free market system sort things out and get on with burying the dead. If the government insist on temporarily bailing the lenders out then you can bet that we once again be creating an entity similar to the (RTC) Resolution Trust Corp. for the sole purpose of liquidating thrifts that get in to trouble at tax payers expense.