Prexisting Conditions & Insurance

[Mavric]

I'm not saying it was the only cause but I'm not sure you can argue that government didn't play it's part.

 

Washington Post:

[HUD] neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

...

In 1995, President Bill Clinton's HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans.

...

But by 2004, when HUD next revised the goals, Freddie and Fannie's purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

 

That year, President Bush's HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and "must do more."

...

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion -- 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.

 

The Wall Street Journal:

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

 

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

 

Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

...

 

The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

...

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable -- which they were as long as rising housing prices kept default rates unusually low -- their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.

[carlfense]

I'm not saying it was the only cause but I'm not sure you can argue that government didn't play it's part.

 

Washington Post:

[HUD] neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

...

In 1995, President Bill Clinton's HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans.

...

But by 2004, when HUD next revised the goals, Freddie and Fannie's purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

 

That year, President Bush's HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and "must do more."

...

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion -- 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.

 

The Wall Street Journal:

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

 

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

 

Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

...

 

The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

...

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable -- which they were as long as rising housing prices kept default rates unusually low -- their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.

You referred to "government mandated sub-prime mortgages." Please back that up. Government mandated implies that the government ordered private individuals or private companies to offer sub-prime mortgages. The fact of the matter is that roughly 76% of sub-prime mortgages (not to mention the most toxic) originated in the private sector and were bundled and sold without risk by the originator. Enormous profits were made. Greed, not altruism, led to this collapse.

 

 

Krill gave an excellent short summary here: http://www.huskerboa...post__p__907611

[Mavric]

You referred to "government mandated sub-prime mortgages." Please back that up. Government mandated implies that the government ordered private individuals or private companies to offer sub-prime mortgages. The fact of the matter is that roughly 76% of sub-prime mortgages (not to mention the most toxic) originated in the private sector and were bundled and sold without risk to the originator. Enormous profits were made. Greed, not altruism, led to this collapse.

I thought that's what I was doing. Perhaps there's some slight disconnect between presidents mandating affordable-housing quotas and Fannie and Freddie accomplishing that by buying sub-prime loans but I think you can connect the dots. I know Fannie and Freddie aren't technically part of the government but both articles were showing how they are responding to what presidents and congress were ordering. If not that, I guess you'll have to explain to me the difference between the examples I listed in the two articles and you saying the government didn't mandate it.

[redblooded]

You're arguing about rearranging the deck chairs.

http://www.youtube.com/watch?v=Dc3sKwwAaCU

 

It doesn't matter what freddie and fannie were doing. We live in a system of exponentially increasing debt as money, if it wasn't houses it'd be something else, property just happens to be actual collateral that they all thought was on a continuous upward tick. Then we bailed them out when they were wrong and let them own all of it anyways.

[Mavric]

You're arguing about rearranging the deck chairs.

If you're saying the situation can't be fixed, I sure hope you're wrong. We've been going to wrong way (debt-wise) for a long time and it'll take a lot to get it even pointed in the right direction.

[redblooded]

We have a system built on the fact that these huge banks can lend 100,000+ dollars to every 1000 real dollars or less and can print their own money, at some point it's going to come crashing down. There is no right direction ultimately in this money system, it's built so almost everyone will continuously owe a few.

[carlfense]

You referred to "government mandated sub-prime mortgages." Please back that up. Government mandated implies that the government ordered private individuals or private companies to offer sub-prime mortgages. The fact of the matter is that roughly 76% of sub-prime mortgages (not to mention the most toxic) originated in the private sector and were bundled and sold without risk to the originator. Enormous profits were made. Greed, not altruism, led to this collapse.

I thought that's what I was doing. Perhaps there's some slight disconnect between presidents mandating affordable-housing quotas and Fannie and Freddie accomplishing that by buying sub-prime loans but I think you can connect the dots. I know Fannie and Freddie aren't technically part of the government but both articles were showing how they are responding to what presidents and congress were ordering. If not that, I guess you'll have to explain to me the difference between the examples I listed in the two articles and you saying the government didn't mandate it.

My point is that even if I accept your premise that Fannie and Freddie's sub-prime loans were government mandated . . . they were still only one quarter of the total sub-prime market.