Another Blast from the Past on the Government Created Crisis

[uscitizen]

Hmm a government agency making campaign contributions ?

study about fan and fred a bit String.

I make no claims to knowing much about them, but apparently I am ahead of you.

 

[Timshel]

Hmmm a private company receiving 6.5 billion annually in benefits. Libertarians and many conservatives have been arguing for years against these GSEs.

Desh, what was the point of your source? Nowhere does it say that GLB created MBSs.

 

[uscitizen]

sounds like you are learning string

 

[FUCK THE POLICE]

I agree. The government did create this crisis by abandoning its responsibility to regulate the financial industry properly.

 

[Damocles]

Note the word "encourages"

it forced them to do nothing.

It didnt become a problem until Gram Leach Bliely was passed and they could consolidate making it possible for them to package these loans in a way they could sell them off to unsuspecting buyers.

The "encouragement" was the hefty fines placed on banks who did not participate "correctly". It tended to be far more force than the wording portrays.

 

[Cancel 2016.2]

Note the word "encourages"

it forced them to do nothing.

It didnt become a problem until Gram Leach Bliely was passed and they could consolidate making it possible for them to package these loans in a way they could sell them off to unsuspecting buyers.

again.. the above is wrong desh... CDOs, CMO's etc... existed long before 1999. What GLB did was take down a firewall of due dillegence that used to exist.

Even so, the problem didn't manifest with GLB... it happened because rates were kept so low from 2001-2005 that damn near everyone qualified for I-only and low rate ARMs. Had the Fed not kept rates that low... we would not be in the mess we are in today.

As for the deregulation, the idiocy of the Fair lending act of 1995 played just as big a part in this mess as did the GLB act... if not more so. Because it was the 1995 act that "encouraged" more loans to low income individuals who otherwise would not have qualified. Had those people not qualified.... there would be little available for your 'evil wall street banks' to package together.

 

[Cancel 2016.2]

we need way more regulation than anyone is asking for. Companies insuring against a market fall with bank money. That's gambling.

We don't need 'way more' regulations...

We need one simple rule.... you qualify for a 30 yr fixed loan or you dont...

If you do, you can then explore options of going with ARMs, I-only's or you can take the 30/15 yr fixed.

If you don't...no loan.

 

[Bonestorm]

Funny that the "encouragement" had little effect on the subprime lending market:

I understand that the free marketeers of the world want to blame Fannie Mae and Freddie Mac, but it's just not the case.

 

[evince]

Hmmm the subprime default rate took a precipitous jump starting in 1999?

 

[uscitizen]

you know it looks to me like from the total bailout requested and the total subrime loans that we are talking about buying every last one of them that were made ?

 

[uscitizen]

Hmmm the subprime default rate took a precipitous jump starting in 1999?

yeah back in the politics.com days I got slammed for bringing that up.
I think Pathetic was one word used.
You can guess who that was.

 

[evince]

Behind every loan is a house and land.

 

[Cancel 2016.2]

Funny that the "encouragement" had little effect on the subprime lending market:

I understand that the free marketeers of the world want to blame Fannie Mae and Freddie Mac, but it's just not the case.

what are you smoking? The subprimes exploded once interest rates were held at historic lows. How many of them would have been created had the two events not occured? How many of those loans would have been made with PRIOR credit lending criteria? (meaning prior to 1995 'fair lending act')

 

[Cancel 2016.2]

Hmmm the subprime default rate took a precipitous jump starting in 1999?

No... it took a jump in 2000... as WHAT was occurring Desh? Oh yeah, the market was collapsing. Imagine that... people losing wealth and foreclosures going up at the same time.

THEN what happened? Oh yeah, the Fed cut rates to 1%. The stock market rallied. More people could "afford" loans at the low rates... housing market soared. Hmmmm... stock market rallies, home prices soar and foreclosures went down.

After THAT? Fed starts raising rates, ARMs reset, foreclosures start to rise again. Then housing bubble bursts... foreclosures skyrocket.

Imagine that.

 

[Cancel 2016.2]

Behind every loan is a house and land.

AND a person who should be able to afford to PAY for that house and land.

 

[Bonestorm]

what are you smoking? The subprimes exploded once interest rates were held at historic lows. How many of them would have been created had the two events not occured? How many of those loans would have been made with PRIOR credit lending criteria? (meaning prior to 1995 'fair lending act')

All I am saying is that the F&F pilot program that is the subject of the article int he original post had little to no effect on subprime mortgage lending. Instead, subprime lending exploded in 2003.

And look at what the pilot program actually did:

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Holy shit! Can you believe the irresponsibility of Fannie and Freddie!?! Backing loans to people with less than stellar credit for a 1% point premium that is dropped if all payments are made on time! How reckless!

It's not as if F&F were backing these creative interest only ARM liar loans that were all the rage. F&F stuck mostly to conventional loans and dabbled at the edges of "subprime."

Further, the FHA did nothing to ease lending standards unless lending standards included not giving loans to non-whites. All the FHA did was prohibit discrimination in mortgage lending on the basis of ccount of race, color, religion, sex, handicap, familial status, or national origin. Nothing more. It placed no affirmative obligation on anyone.

 

[Cancel 2016.2]

All I am saying is that the F&F pilot program that is the subject of the article int he original post had little to no effect on subprime mortgage lending. Instead, subprime lending exploded in 2003.

And look at what the pilot program actually did:



Holy shit! Can you believe the irresponsibility of Fannie and Freddie!?! Backing loans to people with less than stellar credit for a 1% point premium that is dropped if all payments are made on time! How reckless!

It's not as if F&F were backing these creative interest only ARM liar loans that were all the rage. F&F stuck mostly to conventional loans and dabbled at the edges of "subprime."

Further, the FHA did nothing to ease lending standards unless lending standards included not giving loans to non-whites. All the FHA did was prohibit discrimination in mortgage lending on the basis of ccount of race, color, religion, sex, handicap, familial status, or national origin. Nothing more. It placed no affirmative obligation on anyone.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

Clinton Administration Changes of 1995

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[4][5]

The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages." Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[7][8]


Now... the above, combined with the low interest rate environment caused subprime lending to explode in 2003-2005.

 

[Bonestorm]

Hey Dungheap, here is I wrote yesterday for which you said I was full of shit and an asshole.

""I don't believe she is attempting to blame the entire financial crisis on these relaxed mortgage standards in an attempt to help more poorer folk and minorities gain home ownership. But it did play a role."""

From the NYT article above:

""In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.""

It says the exact same thing I was saying.

No it doesn't. It says that Fannie Mae would buy certain types of loans in an effort to raise home ownership rates among minorities and low income consumers. You said that the lower standards that Fannie Mae employed in part caused the financial crisis. What is missing here is a causal connection between the two.

I'm sorry, but unless you can show me that Fannie Mae's pilot program to purchase loans of people that qualify for a slightly higher interest rate (technically subprime, but still A-, not B, C, or D) actually caused the financial crises you are still full of shit.

 

[Bonestorm]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

Clinton Administration Changes of 1995

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[4][5]

The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages." Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[7][8]


Now... the above, combined with the low interest rate environment caused subprime lending to explode in 2003-2005.

I think we're talking about two different things. I thought you were talking about the fair lending provisions of the Fair Housing Act which are merely anti-discrimination laws. Instead, you were talking about the CRA, something very different. My misunderstanding.