Skip to comments.Private sector loans, not Fannie or Freddie, triggered crisis
Posted on 10/11/2008 10:09:12 PM PDT by RushingWater
Federal Reserve Board data show that:
_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
(Excerpt) Read more at mcclatchydc.com ...
let me guess this was a research done by Anneburg foundation or Columbia, University of Chicago.....Ayers Research group.....
Even if this was true, you think the Dems would have allowed a law to be passed that required someone to have 20 percent down AND actually qualify for the loan. ID, proof of employment, etc.
And if those “private lending institutions” hadn’t made those subprime loans- they’d have been successfully sued by Obama for “red-lining”.
BS...I jave heard lenders on Talk radio state that Fannie / Freddie were telling them if you don’t follow our guidelines good luck with your business
How disintelligent does David Goldstein think Americans are.
He calls this “data”?
This is not Star Trek, but if your want Star Trek David, then let me say this:
There has been a policy link of Utopian dreams that “poh” folk who could not afford houses, between HUD, Fannie Mae, and Freddie Mac, would be accomodated. It was in effect a pyramid selling scheme doomed to failure when housing values fell, and interest rates made ARMs unworkable for those “ poh folk.” Again, well intentioned Utopianism has screwed the very people they were trying to help, and ruined the economy by doing it.
Our finance system exists to make PROFIT, David! You do not blame them.
And you and other socialists like you have tried to make our lending system dedicated to “Social Action.”
It DID NOT WORK.
Banks have NO BUSINESS being involved in so called “Social Action” or affirmative action mortgage lending.
It has nothng to do with your Star Trek Data.
And now these socialist policy makers, including Raines, Acorn and similar Organizations, Obama, Bahwney Fwanks and Chris Dodds, all need a swift ejection into the infamy they deserve.
Take the profit motive away from our financing system?
You won’t have any economy, which is what is happening now.
The continuing brain farts of people like David Goldstein are abominable, for they mean to shift blame away from the villains responsible for it.
We have a socialist housing policy that threatens to bankrupt the world economy.
Yes indeedy, it started with Jimmy the Peanut Carter and his Fair Housing Act, and continued to grow uncontrolled so that we have this present situation.
And Fannie and Freddie are STILL issuing subprime mortgages as we speak!
Shame! Its tantamount to treason.
No David, Captain Data, you are not!
Put your electronic glasses on, at least!!!
Then you will get to see the wrath descending upon you and your ilk, from America!!!
You’d better beam yourself up while you still can.
” theyd have been successfully sued by Obama for red-lining.
Like Citibank in 1995
Exactly . Another pile of crap from the hands that feed the machine.
2. The FMs were required to lower their standards for loans they would buy. Subprimes became a nice profitable asset for both the GSEs and for the banks. Without FMs' cooperation, the number of subprimes would have been much much less.
3. No one said that every subprime loan was in default. But having more than 10% in default is enough to bring down any bank, and it did bring down the FMs.
4. The Bee papers are liberal rags and print lies regularly.
I find it IMPOSSIBLE to believe that the 2.5% of US home mortgages that are in default have suddenly caused a worldwide financial crisis. I think there is something much more sinister than that going on here. These loans have been made in California for years. We didn’t just wake up a couple of weeks ago to this.
Fannie and Freddie didn’t issue the subprime mortgages, they guaranteed and bought them which was the carrot to the stick of the regulators who were pushing banks to make loans to people who couldn’t afford them under the CRA.
I live in Sarasota, FL. We have two papers available - I call one the “Socialist” choice and the other the “Communist” choice.
The Socialist choice is the Manatee Herald, owned by the McClatchy group. I used to read it but several years ago when a hot issue casting Dimocratz in a bad light was never even mentioned, and I was in touch with them asking when will you put it in the paper, and they never did, I switched to the Communist choice.
Socialists just act as if some issues don’t exist, have never existed and therefore you need not worry about it.
The Commies (The Sarasota Herald Tribune, owned by the NY Slimes) go ahead and include the issues. They lie about the ones they don’t agree with. Still, they sort of put the news out there.
The McClatchy group doesn’t put the news out.
Not to say that Socialism OR Communism is good, just a little different, one from the other.
“I’m Barack Obuma and I approve of this new story!”
I think OPEC overpriced oil so that it affected the global market. And no one was buying anything, or going anywhere. Business was way down in many sectors. That is what started this whole mess. There are always home foreclosures. That is not new.
No way to prove the markets are being manipulated, let alone who. Yes it is possible. But with ACORN we can pin the tail on the DONKEY. Lets not talk about pissing away the Golden Goose.
to funny.. anyone watching the Tampa vs Boston game....whats up with the bad music? Whatever happened to take me out to the ballgame?
It has been reported that Fannie and Freddie own 70 percent of the mortgages in the USA. Originally they would take mortgages, which met certain criteria, from lenders and package them into securities and sell them to investors. Towards the end of the 1990’s, they started accumulating these mortgages and just started selling debt to the markets. I remember when they passed 1 trillion in assets and Freddie passed 700 million. The excuse they gave was that they were simply managing their portfolios to maximize income. In reality they were making loans so toxic that they didn’t dare sell them to any investors as they would certainly be guilty of fraud. And yes Virginia, CRA caused many of these loans to be made in the first place.
It wasn’t the loans per se. The banks tried to protect themselves against defaults for the lowest cost, and to do that, they bought Credit Default Swaps from companies like AIG.
However, the CDS instruments were never regulated and AIG was not required to have enough capital to cover the policies in case of massive numbers of borrowers defaulting. No one thought that would ever happen.
Eliot Spitzer (the same idiot who had to resign later from the governorship of NY after he was caught with hookers) forced CEO Hank Greenberg out of AIG, and then the company went nuts with these policies.
As you probably know, AIG is being propped up by government loans. No telling if they will face any criminal prosecution.
CDS fraud is apparently in the trillions of dollars because they were written into the accounts as assets. They let the banks and brokerage houses lend even more money on high-return loans. The banks don’t have these CDS instruments on their books any more and are very reluctant to loan money to others, because the subprime “assets” are bundled as securities and will have to be unbundled, an extremely laborious process.
Read this article about Joseph Cassano and his infamous credit swaps.
What a mess!
the problem is that so many institutions began buying into “derivatives”, complex contracts that accompanied mortgage backed securities. These things were so complex but no one cared because at the time of the housing boom they were worth so much. Then many of these properties went way down in value as the housing boom died.
The banks had to write off any asset that couldn’t be immediately sold as mark to market accounting rules dictated, and therefore their balance sheets didn’t reflect reality
The number of foreclosures are concentrated in about five states: California, Arizona, Florida, North Carolina, and [Nevada?]. I see foreclosures all over the place here in Fresno. It’s sad.
THIS IS A TOTAL LOAD OF BULL HOCKEY!
Plus, banks have only a few investment opportunities and many of them bought stock in the FMs. The failure of the GSEs wiped out a lot of assets on the banks’ books, and now they are overleveraged.
Most of these mortgages were created by sleazy “sub-prime” shops that made really bizarre mortgages, bundled them and sold them to banks, who bought them because no one really cared during the housing boom because everything was going up in value by the day.
The people running these subprime shops were like the housing equivalent of a sleazy used car salesman, and many of them made a quick fortune and closed up shop. They were everywhere a couple years ago.
actually, the author is right on a lot of things. These mortgages were mostly created in “sub-prime” shops-—weird little places that popped up like mushrooms during the housing boom. They were sordid little places that made the loan, bagged the closing costs and then sold these mortgage time bombs to banks as quick as possible.
The lies by these Lefties are outright stunning! Folks, private organizations like banks, savings banks and mortgage companies ORIGINATE mortgage loans. But... over 85% of these loans are sold to Fanny and Freddie.
Where do Fanny and Freddie get the money to buy these loans? They sell bonds to stupid Swiss bankers at UBS (and other banks, too). They sell the bonds to the banks and use the proceeds to buy the crappy mortgages from the mortgage originating banks, savings banks and mortgage companies.
If people are ignorant of the facts, they will believe this story without understanding the truth. IGNORANCE MAY BE BLISS, BUT IT IS ALS FATAL! WAKE UP!!!
well, the fact that banking law was changed and they could spend 40$ for every 1$ they kept as insurance turned out to be not so good for long term stability.
No, the loans were sold, almost before they were written, to Fannie and Freddie and were "encouraged" under threat of legal action in federal courts.
My daughter is a VP for a company in this industry.
She says... If banks make loans that do not meet the Freddy/Fanny criteria, they can not sell the paper.
So this whole mcclatchydc.com thing is BS... (that’s not her speaking - It’s me)
The people running these subprime shops were like the housing equivalent of a sleazy used car salesman, and many of them made a quick fortune and closed up shop. They were everywhere a couple years ago.”
Spot on. But, you missed one step. The mortgage loan originators sold the mortgage loans to Freddie and Fanny and made an origination fee. Freddie and Fanny sold bonds to the banks and other investors and used the proceeds from the bond sale to buy the mortgages from the originators. Thus, Freddie and Fanny hold over 85% of the originated loans. This story is a lie and intended to deceive people who don;t understand how the mortgage market works. DON'T BE FOOLED!
Fannie & Freddie guaranteed these loans didn't they? If the banks didn't make these sub-prime loans they were sued by lawyers like Obama for red-lining.
Spot on! Its the credit swaps. The Fed has already committed more new money than all of the outstanding sub-prime mortgages. If you research the swaps, you'll puke. Greed beyond comprehension from the Wall Street Five! Seems every bank in the world has drunk the Kool-aid and is now stuck with worthless swaps! Like handing our free coke in every drug rehab house in the world.
Wow! How amazingly like this election!
She says... If banks make loans that do not meet the Freddy/Fanny criteria, they can not sell the paper.
So this whole mcclatchydc.com thing is BS... (thats not her speaking - Its me)”
Absolutely correct. Fanny and Freddie buy over 85% of the mortgages originated in this country. Sub-prime and prime. No bank or mortgage company would write a loan unless they could sell it to F or F. If they can't sell it, they are stuck with it “in the vault.” The originators won't take that risk. So they only write loans they can sell.
This story is a pack of lies designed to mislead ignorant people and get them to vote for the Messiah! IGNORANCE IS NOT FREE!
What I understand is this:
These mortgages were bundled with other mortgages so there were maybe some bad along with good ones, and this was then sold as a package to someone like Lehman, etc. who resold them to clients. Then, trying to assuage any worry the client might have, Lehman (or whoever) sold what was basically insurance to the client guaranteeing the safety of the package. This insurance was a self-insurance by the banker. So it became a double whammy when the securities started not being worth what everyone thought.
The other problem was that since these were bundled, no one could tell exactly where the rot was so the whole package became unwanted and therefore worth very little.
This is basically what I learned from reading about what 60 minutes had to say about this last week.
“Fannie & Freddie guaranteed these loans didn’t they? “
Freddie and Fannie actually buy these loans from the originators (not guarantee them). And Freddie and Fanny sell bonds to Swiss and other dumb bankers (all of whom were seen whining in Washington earlier today) to raise money to buy these loans.
Call it what you will. Fannie and Freddie got left holding wothless paper in their portfolio until it buried them and this was all encouraged by Barney Franks, Chris Dodd and Obama himself. McCain tried to pass a bill in 2005 and the RATS all voted NO. Might have saved us from this present crisis too.
Thanks....for an amateur this has been a learning process.
That's the most mixed metaphors I've ever seen in a single argument! But I agree with you. Too much detail or too many targets obfuscates the situation.
Obama is just another race-baiting opportunist taking advantage of unfair minority-favoring lending laws.
Obama is a puppet and the man behind the curtain is pulling his strings.
65 trillion dollars in outstanding credit default swaps is the reason. THAT figure is big enough to create a worldwide financial crisis.
There’s an excellent discussion of this at
http://www.record-bee.com/ci_10683519 “Credit default swaps and those who issued them are to blame for crisis”. While Fannie and Freddie played some role, theirs was not the primary cause. Subprime mortgages that were heavily marketed and issued between 2002 and 2006 are the ones that are currently defaulting - the adjustable-rate mortgages that were supposed to allow you to “cash out the equity in your home”.
Didn’t anyone else here get the pitches, the phone calls, see the endless ads during that period? “Consolidate your high-interest credit cards debts with a home finance loan from BlaBlahBlah!” Low teaser interest rates, or mortgages with payments that were interest-only? These weren’t marketed to poor people, but to any American with a smidge of home equity. In the middle of this decade, home prices seem to shoot through the roof. You were called a fool if you didn’t take advantage of the “rise in your home equity” with a refinance that was supposed to let you do a remodel (granite kitchen countertops, anyone?), pay down other debts, or just “take that vacation you deserve”.
Not all of us took that bait. But plenty did. Their ARM monthly payments with those low interest rates shot through the roof, often tripling or even quadrupling. Those of us who stuck to those boring 30 year fixed-rate mortgages found out our caution paid off. But many, many middle-class Americans simply trying to move up in the world found out that they had to move out, instead.
The fact that the Fed voted in 2004 to let the five major investment banks loan out up to 30 times the value of the underlying aggregated mortgage securities meant that these firms faced bankruptcy if as little as 4% of these mortgages defaulted.
Perhaps all of us here know far more than all the economists in and out of the government and Wall Street, but even Henry Paulson isn’t pinning this all on mortgages underwritten by Fannie and Freddie. The fact is that the 5 largest investment banks were allowed to issue billions of dollars in paper based on their good name alone - the fact that they were so big that it was considered that it was impossible for them to fail. And the ARMs that were issued in mid-decade were fiscal timebombs that exploded in the slim mortgage portfolios that the banks used as the ostensible reasons to float all those credit-default swaps to begin with.
As much as we might like to say that it is all Fannie and Freddie and the Dems’ fault, that fact is that it was much more the sheer greed of Wall Street that has brought us to this debacle. A defaulted mortgage used to be a tragedy for the homeowner and perhaps the issuing bank. Now it is a tragedy for the entire world, because banks loaned out so much money against the value of the “mortgage-backed securities” - a compilation of mortgages that included the one that went bad along with all the others that were still being paid.
65,000,000,000,000 in outstanding credit default swaps. There is simply no way that this number could be the result of Fannie and Freddie alone. The bulk of defaulted mortgages weren’t even insured by those two corporations. This horrorshow is simply too big to be their fault.
Great link. Thanks
CDS fraud is apparently in the trillions of dollars because they were written into the accounts as assets.
Just to add, that because they were treated as assets on the books, it allowed the institutions (like AIG or any SIV funds) to compound overall leverage on these "assets" even further, to inflate their profitability. As you pointed out, no thought was given to the [fixed] liabilities on the balance sheet, as long as the [real estate] assets kept inflating. In many ways they were not that different from many "flippers" who bought the homes at ridiculous prices only to sell it to the "greater fool".
Maurice "Hank" Greenberg himself lost over $6B just since May in the collapse of company he spent 35 years building, and he was not even in a position to know the real damage caused to AIG by new management in the 3 years of his absence, forced out by Spitzer's vindictive corporate blackmail of public financial firms. By the time he unsuccessfully tried to retake control and management of the company, the damage was already done and it was already too late to save the company, let alone the market.
I may have missed something. I do not remember reading that these two GSE's operated an insurance department.
What am I missing?
My bad. I should have used the word “securitized”, rather than “insured.”
No more posting at 3 AM. Thanks for reading, at least.