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Gayle in MD
10-07-2010, 12:44 PM
<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body"> Don't blame Fannie and Freddie
The financial excesses of the housing bubble were not the fault of America's biggest mortgage lenders



Thomas Palley
guardian.co.uk, Tuesday 29 July 2008 21.00 BST
Article history
Many progressives now believe the age of Milton Friedman may be drawing to a close. Their hope is the current financial crisis has shown the costs and dangers of inadequate market regulation, thereby discrediting the anti- regulation philosophy of Milton Friedman and his Chicago School colleagues.

Evidence of the changing times is supposedly provided by public admissions from treasury secretary Paulson and Federal Reserve chairman Bernanke about the need for regulatory change.

Yet the reality is far more complex, and economic conservatives will not roll over and surrender just because of a financial crisis. Instead, if history is a guide, they will blame regulation for the crisis. That was Milton Friedman's modus operandi when he launched the modern era of deregulation and animus to government with his false claim that the Fed caused the Great Depression.

This tried and tested conservative tactic is already surfacing in the debate surrounding Fannie Mae and Freddie Mac, the giant mortgage financing companies. The conservative argument is government's provision of an implicit guarantee to Fannie and Freddie distorted the market by giving them subsidised finance. The implication is that this enabled them to pump up the housing bubble, while simultaneously making them the dominant players in the securitised mortgage market.

The conservative view makes Fannie and Freddie the fall guys for the bubble's financial excesses, when the true cause was failed macroeconomic policy and inadequate regulation of mortgage lending.

The insinuation that Fannie and Freddie were primary movers of the housing market excesses of 20042006 lacks even superficial merit. This is because since 2003 both Fannie and Freddie have had limited asset growth, and Fannie's assets actually fell significantly after 2003.

Moreover, the roots of the crisis lie in the sub-prime, Alt-A, and jumbo mortgage markets. That is where "no doc" and "zero down" mortgages proliferated, where loan originations exploded in volume, where losses started, and where the bulk of losses have been so far. Yet, Fannie and Freddie are prevented from financing such mortgage products by their charters.

These facts should make clear that Fannie and Freddie did not cause the crisis. Instead, it was driven by loose and negligent lending by banks and Wall Street. That behaviour was due to lack of regulatory oversight, combined with a failed incentive system that rewards management and mortgage brokers for pushing loans rather than prudent lending.

Such loan pushing was even promoted by conservative animus to Fannie and Freddie, as Wall Street was encouraged to muscle in on the former's business. That is why the Bush administration sought regulatory limits on Fannie and Freddie's asset holdings. However, unlike Fannie and Freddie, Wall Street has no legal restrictions on loan quality and opted for gorging on sub-prime.

The bubble's origins lie in failed macroeconomic policy that prompted the Fed to push interest rates too low for too long, combined with loose lending by banks and Wall Street. This inflicted a huge negative "pecuniary externality" on Fannie and Freddie, driving up house prices in the normally sound mortgage markets they serve. Consequently, they too have been battered by the bubble's implosion.

The bottom line is that Fannie and Freddie had little to do with the bubble. That said, conservatives raise a legitimate question of how to organise the securitised mortgage market.

Fannie and Freddie's implicit government guarantee has helped them lower the cost of mortgage finance, making home ownership more affordable to millions. In effect, the guarantee has made government's lower borrowing cost available to the public, which is good. The downside is it has made Fannie and Freddie overwhelmingly dominant in the securitised mortgage market.

This suggests that in addition to tighter mortgage lending regulation, there is a case for nationalising Fannie and Freddie on grounds that they are natural monopolies. That is the very opposite of the conservative okey doke opposing need for tighter regulation and proposing disbanding Fannie and Freddie. That would leave Wall Street unreformed, and make home ownership more expensive by removing the assist provided by access to government's lower borrowing cost.



http://www.guardian.co.uk/commentisfree/2008/jul/29/usa.mortgages
</div></div>

pooltchr
10-07-2010, 02:13 PM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Gayle in MD</div><div class="ubbcode-body"> That is why the Bush administration sought regulatory limits on Fannie and Freddie's asset holdings. </div></div>

I am shocked to learn that the evil Bush administration would attempt to impose regulatory limits.

I wonder why it didn't happen....



Steve

LWW
10-08-2010, 02:36 AM
The entire article is a false flag piece of propaganda.

In their initial incarnations both FANNIE and FREDDIE were sound and useful entities. There general loan criteria, from memory, were:

- A PITI payment of no more than 28% of gross monthly income.
- Total installment + revolving debt of no more than 36% of gross monthly income.
- No delinquent credit for the prior 12 months.
- No delinquent mortgage/rent payments for the last 24 months.
- Either 20%, or more, down or mortgage insurance was added to the loan.
- A bare minimum of 5% down even with mortgage insurance.
- An appraisal by an impartial appraiser to support the value.

When business was conducted in such a manner, the book of business was solid overall. It allowed lenders to make loans ... sell the loans as securities to replenish their funds ... and make more loans. The system worked well and stood the test of time for decades.

Then came the CRIA.

- PITI payments of up to 40% of gross monthly income were allowed.
- Total installment + revolving debt of no more than 50% of gross monthly income became a new standard.
- Delinquent credit was tolerated so long as the borrower wrote a "LETTER OF EXPLANATION" on the delinquency.
- Mortgage lates were allowed within the last year.
- People with prior foreclosures were allowed.
- Down payments went to 0% being the new standard.
- The GSE's allowed the highest of many appraisals to be used.

These changes were never legislated by congress ... they were self authorized by the leadership of FANNIE/FREDDIE.

Then, to make matters worse, they engaged in a massive accounting fraud to hide the true delinquency of the bad paper they were buying and guaranteeing.

This accounting fraud convinced other investors that this type of junk paper was actually capable of performing as A paper of the past ... thus creating the sub prime debacle where investors began making even riskier loans at higher rates, based upon the lies they had been told by the GSE's.

LWW

Qtec
10-08-2010, 03:40 AM
<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Regulatory changes 2005

In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[40] In 2003, researchers at the Federal Reserve Bank of New York noted that dramatic changes in the financial services landscape had weakened the CRA, and that in 2003 <span style='font-size: 17pt'>less than 30 percent of all home purchase loans were subject to intensive review under the CRA.</span>[68]

In early 2005, the Office of Thrift Supervision (OTS) implemented new rules that among other changes allowed thrifts with over $1 billion in assets to tweak the long standing 50-25-25 CRA ratings thresholds by continuing to meet 50 percent of their overall CRA rating through lending activity as always but the other 50 percent could be any combination of lending, investment, and services that the thrift wanted. The obligations to adhere to 25 percent for services and 25 percent for investments became optional and the means to securing a satisfactory CRA rating was left to the discretion of the qualifying thrifts instead (See the notes in the "2005" column of Table I. for the specifics).[32] <span style='font-size: 20pt'>In April 2005, a contingent of Democratic Congressmen issued a letter protesting these changes, <u>saying they undercut the ability of the CRA </u>to "meet the needs of low and moderate-income persons and communities".[69] The changes were also opposed by community groups concerned that <u>it would weaken the CRA.</u></span>[70] </div></div>

F&F bought mortgages in good faith. They got defrauded.
Yes, as usual, the directors operated in a manner that increased their own profits and went with the flow, just like Wall St.
The fact remains that those who sold these mortgages to F&F did not take proper care in selling that mortgage.
The sub prime mortgages that caused the collapse in the housing market were not even covered by the CRA.


<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[95] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[102] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[103]

However, many others dispute that the CRA was a significant cause of the subprime crisis. <span style='font-size: 14pt'>2008 Nobel Prize in Economics winner Paul Krugman states that the notion "has been refuted up, down, and sideways."</span>[104] He also noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[105] <span style='font-size: 20pt'>According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.</span>[100] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that <span style='font-size: 20pt'>"there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust",</span> relying partly on evidence that the housing bust has been a largely exurban event.[106] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[101] Comptroller of the Currency John C. Dugan,[107] Tim Westrich of the Center for American Progress,[108] Robert Gordon of the American Prospect,[109] Ellen Seidman of the New America Foundation,[110] Daniel Gross of Slate,[111] and Aaron Pressman from BusinessWeek.[112] </div></div>



Q

Gayle in MD
10-10-2010, 11:53 AM
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Qtec</div><div class="ubbcode-body"> <div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Regulatory changes 2005

In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[40] In 2003, researchers at the Federal Reserve Bank of New York noted that dramatic changes in the financial services landscape had weakened the CRA, and that in 2003 <span style='font-size: 17pt'>less than 30 percent of all home purchase loans were subject to intensive review under the CRA.</span>[68]

In early 2005, the Office of Thrift Supervision (OTS) implemented new rules that among other changes allowed thrifts with over $1 billion in assets to tweak the long standing 50-25-25 CRA ratings thresholds by continuing to meet 50 percent of their overall CRA rating through lending activity as always but the other 50 percent could be any combination of lending, investment, and services that the thrift wanted. The obligations to adhere to 25 percent for services and 25 percent for investments became optional and the means to securing a satisfactory CRA rating was left to the discretion of the qualifying thrifts instead (See the notes in the "2005" column of Table I. for the specifics).[32] <span style='font-size: 20pt'>In April 2005, a contingent of Democratic Congressmen issued a letter protesting these changes, <u>saying they undercut the ability of the CRA </u>to "meet the needs of low and moderate-income persons and communities".[69] The changes were also opposed by community groups concerned that <u>it would weaken the CRA.</u></span>[70] </div></div>

F&F bought mortgages in good faith. They got defrauded.
Yes, as usual, the directors operated in a manner that increased their own profits and went with the flow, just like Wall St.
The fact remains that those who sold these mortgages to F&F did not take proper care in selling that mortgage.
The sub prime mortgages that caused the collapse in the housing market were not even covered by the CRA.


<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[95] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[102] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[103]

However, many others dispute that the CRA was a significant cause of the subprime crisis. <span style='font-size: 14pt'>2008 Nobel Prize in Economics winner Paul Krugman states that the notion "has been refuted up, down, and sideways."</span>[104] He also noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[105] <span style='font-size: 20pt'>According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.</span>[100] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that <span style='font-size: 20pt'>"there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust",</span> relying partly on evidence that the housing bust has been a largely exurban event.[106] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[101] Comptroller of the Currency John C. Dugan,[107] Tim Westrich of the Center for American Progress,[108] Robert Gordon of the American Prospect,[109] Ellen Seidman of the New America Foundation,[110] Daniel Gross of Slate,[111] and Aaron Pressman from BusinessWeek.[112] </div></div>



Q </div></div>

<span style="color: #FF0000"> <span style='font-size: 14pt'>No matter how many time we post the factual, documentation, these sheep continue to try to float the stupid idea, that somehow, Barney Frank, and the Community Reinvestment Act, were responsible for the Wall Street Crash.

It just goes to show the power that a Republican Propaganda calbe channel has for leading sheep, who NEVER bother to search for the facts.

Unbelievable!!! I've been posting the truth on this stupid accusation, for four years, and they STILL don't get it.


It was NOT Democratics, it was Bush, and his blank check Republicans, and REPUBLICAN Alan Greenspan, who fueled the sub prime market, and crooked Wall Street shadow deals, with unjusitiably low interest rates, a total lack of oversight, and it was a done deal, by the end of 2006.

Have any of them even read a book, or watched a documentary on te subject, apparently NOT!
G. </span> </span>

LWW
10-10-2010, 12:47 PM
Dearest ... you have no knowledge of what a fact even looks like.

To buy into your spoon delivered ideology here one would have to accept the idea that the agencies who set the Federal guidelines for what was and wasn't an acceptable mortgage risk bear absolutely no responsibility for deciding what was and wasn't an acceptable mortgage risk.

Then you have to believe that Franklin Raines's agreement to retire ... and pay $3,000,000.00 in fines ... to avoid prosecution for cooking Fannie's books in no way is evidence that Fannie's books were cooked.

Yet, that's what is [put on the spoon and that's what you believe.

TRUTH (http://en.wikipedia.org/wiki/Franklin_Raines) ... kills spoonage on contact.

LWW