Private sector loans, not Fannie or Freddie, triggered the economic crisis

Popeye

Well-Known Member
Joined
Sep 3, 2007
Messages
3,023
Location
Washington state
We've seen the Pubs, now that they're backed into a corner, attempt to hang the current crisis on Fannie Mae, Freddie Mac and the Democrats. Well, as they say...there are two sides to every story.

Private sector loans, not Fannie or Freddie, triggered crisis


WASHINGTON — As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.


Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.

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.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.


Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages.

"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.

Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.

About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.

Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.

Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

http://www.mcclatchydc.com/251/story/53802.html
 
Werbung:
Yeah Popeye I pointed the same fact out earlier in another thread (not as complete and document I must say).:)

But I presented the fact that only a tiny percentage of the Fannie/Freddie loans were low income situations.

But you know when you're a "one trick pony" you have to do the same thing over & over. The Republicans got away with this for years... taking their own weakness and before they could get branded by it project it over to their opponent.

You know as with the actual fighting overseas in theater Purple Heart and Bronze Star recipient John Kerry not an honorable warrior... the show up when he wanted drug test evading Texas Air National Guard George Bush... General Patton!:D

Just two problems with that now. First... everyone is hip to it now. Secondly... the McCain campaign moves at the lightning speed of a three legged sloth.

That's makes it very hard to get out of the way of your own shortcomings. But from their standpoint at least they tried I suppose.
 
And once again the libs are still trying to blame the gun, rather than the person that HELD the gun. The sub-primes, ARM's, and all the rest of them that Fannie and Freddie bought were due SOLELY to DEMOCRATS in Congrss, as well as DEMOCRAT Presidents, starting with LBJ, then Carter, and finally with Clinton, lowering the standards under which Fannie and Freddie bought them in the first place. You can try to deny it all you want to, but compelling these institutions to loan money (writing mortgages) to people who they KNEW had no way of paying them back, and then compelling Fannie and Freddie to buy them is a major cause of the current situation.

Thanks Dems, you've TOTALLY SCREWED THE COUNTRY, YET AGAIN!
 
The big bank bailout would not have been needed if it wasn't for the Democrats opposing the reform Bush proposed in 2003 and the bill McCain cosponsored in 2005. It was called the "The Federal Housing Enterprise Regulatory Reform Act of 2005" Look it up. And it was the lobbyists from those groups that pushed for the Democrat controlled Congress to pass the legislation to allow this mess. The President proposed an overhaul in 2003 that the Dems blocked and ridiculed. That proposal would have helped us avoid this mess. After the Dems blocked the proposal, their lobbyist friends poured money into their campaign accounts, Obama being one of the largest receipients.
 
Werbung:
.
sleepy-smiley.gif

.​
IT WAS ANOTHER TEXAN, ALRIGHT!!!
.
SEE: 4:45 thru 12:00
.
 
Back
Top