View Full Version : Freddie and Fannie, circa 2004
Call this propaganda if you like, but it's pretty effective, nonetheless; as they say, seeing (and hearing) is believing.
The names and faces are still in play, pretty much; btw, the GSEs (Government Sponsored Enterprises) they refer to are Fannie Mae and Freddie Mac.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
clocker
09-29-2008, 03:47 AM
Two questions arise...
-In 2004, how polluted with junk mortgages were the two GSEs?
-Given that Republicans controlled Congress at that time, why didn't they pass the regulations they said were so necessary?
Two questions arise...
-In 2004, how polluted with junk mortgages were the two GSEs?
-Given that Republicans controlled Congress at that time, why didn't they pass the regulations they said were so necessary?
The hearings were called to look into Frank Raines' manipulation of Fannie's accounting as reported by the regulators, which manipulations were accomplished in aid of securing performance bonuses for Raines and his cronies.
Hell, even the New York Times had a handle on things - note the date:
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
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.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
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.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
As re: the Republican majority, I would say that that enough of them were of the weak-kneed variety to forestall the necessary changes; also, historically, the Republican party hasn't the sheep-like party unity of the Dems, who only break ranks if:
1- the party's ends can be achieved without a member's vote, or-
2- an election is pending.
clocker
10-05-2008, 12:11 AM
Not sure what "historically" means in this context but I'd posit that since Gingrich's 1994 "Contract With America", Republicans have mastered the sheep-like lockstep surpassingly well.
I'm also not sure what this article is supposed to prove.
Of course Fanny Mae/Freddie Mac were loaded with subprime mortgages- that's what they were mandated to do.
The problems started when regular and commercial banks decided to get in on the fun, make risky loans and then package them as "financial instruments". This fueled an unsustainable housing boom- investors and banks loved the profits from these instruments and houses were the fuel that fed them- a boom in which regular, theoretically "non-risky" buyers were encouraged to spend beyond their means. When these buyers started to default because the housing market stalled, things got bad real fast and, in one of the few examples where "trickle down economics" actually can be shown to work- the bottom dwellers (Fanny/Freddy) got crushed.
This whole house of cards toppled from the top down, not the reverse.
I recently dined with an acquaintance who has been a mortgage broker for 25 years.
He is firmly of the opinion that minority/low-income buyers had absolutely nothing to do with this mess. In his experience, they have at least as good a record- if not better- paying back loans.
The culprits are the middle class buyers who either were seduced or seduced themselves into housing affordable only through dubious means. When they started walking away from the McMansions, banks were screwed.
Think about it...20 years ago, houses in the $500k range were ALL custom built...a developer would build 5-10 in a small community and the elite would buy them. Today we have huge swaths of housing in that range, all built to cater to the middle class.
And increasingly, these whole communities are sitting vacant.
That's what killed the banks/investment firms.
Bob the Broker also pointed out that a default at the bottom end of the market- exactly the people that Fanny/Freddy were tasked with helping- was never a big deal because the underclass has always been so large. One immigrant walks away from his home, there are ten to take his place. We have no shortage of eligible applicants at the low end.
We have a major shortage of buyers in the middle.
Reports show that home sales in the ten million plus range have hardly changed- the truly wealthy have not been hurt (yet).
Homes in the $5-10 mil range have totally tanked (the wannabees face the cold hard truth) and subdevelopments with bottom end prices above $250k are soon to be plowed under and turned into corn fields.
The middle class is going to have to wake up to the fact that being middle class does not include five bedroom, four bathroom, three car garage houses.
Sorry folks, move into your Hummers.
All that may be true, but is also beside the point.
Freddie and Fannie are (and always have been) guaranteed by Uncle Sam, banks and other lending institutions to a lesser extent.
Freddie and Fannie get federal cover vis a vis the regulatory bodies, the other lenders see this, and decide that, if push comes to shove (and it has, hasn't it?), they deserve, and will receive, the same treatment.
This is precisely what has occurred, the only difference being that Fannie and Freddie are now fully acknowledged government organs - the only remaining question is whether they will still function as an extension of the Democrat party.
BTW-
Are we to dismiss the fact of Frank Raines and Jim Johnson being so heavily tied to Barack Obama, while Obama tries to make hay tying McCain to lobbyists? :whistling
clocker
10-05-2008, 02:56 PM
Yes, we are.
clocker
10-05-2008, 04:24 PM
Well Kev, I'm a maverick dontcha know, and that little tidbit doesn't fit my worldview and furthermore, I don't think Joe Sixpack cares.
And Ronald Regan.
Also.
Well, then, you probably can't muster an objection to this - a forward from the priest who married Mrs. J and I in 2000...
Body count in the last six months ...
292 killed (murdered) in Chicago.
221 killed in Iraq.
Senators. Barack Obama & Dick Durbin, Rep. Jesse Jackson Jr., Gov. Rod Blogojevich, House leader Mike Madigan, Atty. Gen. Lisa Madigan, Mayor Richard Daley.....our leadership in Illinois.....all Democrats.
Thank you for the combat zone in Chicago. Of course they're all blaming each other. Can't blame Republicans, there aren't any!
State pension fund $44 Billion in debt, worst in country.
Cook County (Chicago) sales tax 10.25% highest in country. (Look'em up if you want).
Chicago school system one of the worst in the country.
This is the political culture that Obama comes from in Illinois.
He's gonna "fix" Washington politics, or is what's happened in Chicago waiting for us all?
devilsadvocate
10-06-2008, 01:18 AM
The mess we see today in the US markets is a team America effort. Fortunately when it comes to pointing fingers you have one on your left and right hand and you can spin round 360 keeping them pointing straight.
The mess we see today in the US markets is a team America effort. Fortunately when it comes to pointing fingers you have one on your left and right hand and you can spin round 360 keeping them pointing straight.
Excuse me...do you mean to say that liberals share in the blame.
devilsadvocate
10-06-2008, 01:22 PM
Excuse me...do you mean to say that liberals share in the blame.
Was I being ambiguous?
precious bodily fluids
Excuse me...do you mean to say that liberals share in the blame.
Was I being ambiguous?
precious bodily fluids
Yes.
Please clarify.
devilsadvocate
10-06-2008, 09:01 PM
It means you can point in all directions and find accomplices.
It means you can point in all directions and find accomplices.
Oh, yes, now I see.
Accomplices.
Like...who?
devilsadvocate
10-06-2008, 10:10 PM
A small but not exhaustive list via factcheck.org
The Federal Reserve (http://www.business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf), which slashed interest rates after the dot-com bubble burst, making credit cheap.
Home buyers (http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824), who took advantage of easy credit to bid up the prices of homes excessively.
Congress (http://www.gao.gov/new.items/d051009sp.pdf), which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
Real estate agents (http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824), most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
The Clinton administration (http://thehill.com/leading-the-news/clinton-rejects-blame-for-financial-crisis-2008-09-25.html), which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
Mortgage brokers (http://www.pbs.org/newshour/bb/business/july-dec08/econtrouble_08-20.html), who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
Former Federal Reserve chairman Alan Greenspan (http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/), who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
Wall Street firms (http://www.pbs.org/newshour/bb/business/july-dec08/econtrouble_08-20.html), who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
The Bush administration (http://www.iht.com/articles/2008/09/20/business/prexy.php), which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
An obscure accounting rule (http://www.consumeraffairs.com/news04/2008/07/mark_to_market.html) called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
Collective delusion (http://www.business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf), or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
A small but not exhaustive list via factcheck.org
The Federal Reserve (http://www.business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf), which slashed interest rates after the dot-com bubble burst, making credit cheap.
Home buyers (http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824), who took advantage of easy credit to bid up the prices of homes excessively.
Congress (http://www.gao.gov/new.items/d051009sp.pdf), which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
Real estate agents (http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824), most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
The Clinton administration (http://thehill.com/leading-the-news/clinton-rejects-blame-for-financial-crisis-2008-09-25.html), which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
Mortgage brokers (http://www.pbs.org/newshour/bb/business/july-dec08/econtrouble_08-20.html), who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
Former Federal Reserve chairman Alan Greenspan (http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/), who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
Wall Street firms (http://www.pbs.org/newshour/bb/business/july-dec08/econtrouble_08-20.html), who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
The Bush administration (http://www.iht.com/articles/2008/09/20/business/prexy.php), which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
An obscure accounting rule (http://www.consumeraffairs.com/news04/2008/07/mark_to_market.html) called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
Collective delusion (http://www.business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf), or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
This whole thing is an arm's-length exercise for you, eh? :lol:
clocker
10-06-2008, 10:41 PM
This whole thing is an arm's-length exercise for you, eh? :lol:
What does that mean?
devilsadvocate
10-06-2008, 11:00 PM
This whole thing is an arm's-length exercise for you, eh? :lol:
There is plenty of blame to share, but without the other components nobody is the sole culprit.
It appears you wish to single out one component as the villain and remove the guilt of your party.
You even said
Call this propaganda if you like
So do you think your republican party has any hand in this?
I'll even do a preemptive rephrase and ask if you think any conservatives have a hand in it. Seeing as you want specific names named.
clocker
10-07-2008, 12:41 AM
http://img.photobucket.com/albums/v78/clocker/economistohfuck.jpg
This whole thing is an arm's-length exercise for you, eh? :lol:
What does that mean?
D.A. has an aversion to acknowledging there is such a thing as the liberal persuasion:
'There is the right, and then there is the mainstream'
There is plenty of blame to share, but without the other components nobody is the sole culprit.
It appears you wish to single out one component as the villain and remove the guilt of your party.
Your presumption is incorrect.
The tale of Fannie and Freddie begins and ends with the dems.
The republicans ignored their custodial duties, however, until it was much too late.
That they didn't absolutely hammer Raines and force transparency in '04 is certainly their fault.
I would regard the subsequent failings and mergers/buyouts, etc., as demonstrative of roughly equivalent culpability between the two camps.
You even said
Call this propaganda if you like
So do you think your republican party has any hand in this?
The video speaks for itself, though my past experience with you leads me to state you would view it as propaganda, as it is otherwise indefensible.
I'll even do a preemptive rephrase and ask if you think any conservatives have a hand in it. Seeing as you want specific names named.
I asked you first; preemption disallowed. :whistling
devilsadvocate
10-07-2008, 11:45 AM
What does that mean?
D.A. has an aversion to acknowledging there is such a thing as the liberal persuasion:
'There is the right, and then there is the mainstream'
I've never suggested there is no liberal persuasion. What I've argued is that there is more than just one or the other. You seem to think if one isn't a conservative, and your definition of that appears very exclusive and only includes those entirely in agreement with yourself, one has to be liberal. One or the other.
D.A. has an aversion to acknowledging there is such a thing as the liberal persuasion:
'There is the right, and then there is the mainstream'
I've never suggested there is no liberal persuasion. What I've argued is that there is more than just one or the other. You seem to think if one isn't a conservative, and your definition of that appears very exclusive and only includes those entirely in agreement with yourself, one has to be liberal. One or the other.
I will then take this opportunity to clearly assert that you surely have created that impression, and for no reason at all apart from your consistent criticism of republicans, conservatives, and/or their ideals, as opposed to your total (as far as I could tell, and I was paying attention, I assure you) avoidance of criticism of anything left of middle-right.
Feel free to prove me wrong; also feel free (for purposes here)to forego referencing your last few posts in this thread, because they are as close as I've ever witnessed you come to confessing the existence of anything amiss on the left.
If you truly feel that I hew so rigidly to your perception of what constitutes a conservative, feel free to scare up anyone on this board who would term me a racist, a homophobe, chauvinist...whatever you like.
Bottom line:
You don't agree with me on anything at all.
You disagree in such a surpassing and thorough-going fashion as to defy definition of any view you hold as conservative at any juncture in your tenure here.
All of this leads me to conclude your unremitting contrarianism is habitual, and, as I class myself as conservative, your oppositional stance places you by default as a liberal.
It's just the maths of the situation, you see; you are a victim of your own geometry.
Sorry. :whistling
devilsadvocate
10-08-2008, 01:02 AM
Which proves my point that you think there's only two options.
Which proves my point that you think there's only two options.
Not true.
Not true for other people, but not true for you, either.
For you, there is only one option.
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