board77

Oh, there's no question that the creation of slice-and-dice MBS's and a lax regulatory environment set the table- but it's also the case that Fannie and Freddie's collapse was foreseen at Treasury years ago and nobody took action. The result was fractional-reserve dominoes that fell in a tsunami of, in effect, cascading margin calls.

That's the tragedy here: there were plenty of warning signs, but few heeded them. As long as the gravy train (and the campaign cash) was rolling, the coming meltdown was ignored.

Geographically? What we find in those areas is that (1) high sunbelt growth rates combined with (2) very, very high rates of minority (Hispanic) subprime lending. In Southern California, in particular, La Raza was deeply involved in pressuring and/or suing lenders to increase their subprime portfolios in the name of 'fair housing.'

In the meantime, Countrywide and Golden West and all the rest came to believe that they could lend to unqualified borrowers risk-free, since in actual practice Fannie and Freddie would buy anything, completely ignoring their stated 8 in 10 rule: all the incentives at F&F in the early 2000s were to 'pump up the volume,' and the Congressional hearings revealed how F&F staff were encouraged through bonuses and 'production quotas' to rubberstamp every piece of junk paper that crossed their desks. So why wouldn't Angelo and the Sadlers push them? Let Uncle Sam hold the hot potato!

Soli, did you read what Lidless wrote????

Quote:

Fannie Mae and Freddie Mac expanded their subprime business in the late 90s, partially in response to the higher affordable housing goals established by the government. In fact their larger subprime role helped to reduce the level of predatory lending, since both FMs set clear guidelines about the types of loans that they will not purchase. They were limiting themselves to ratings of A- or above (about 8/10). So no, there was no dumping so long as the credit risk was not being deliberately underplayed by unscrupulous banks. But that’s a different issue.

Interesting that you state that the Hispanics were at fault. I have to say, being from California, having lived in the Central Valley (Sacramento area) for about six years and the Bay area for about three, (my brother still lives in Sacto and has an underwater loan, his house purchased for $420K is worth maybe $250K now), that it is not a problem mainly brought about by the Hispanic population. They were maybe buying super cheap tract houses. In fact they are almost universally renters. The players were the white folks, Soli. And I was there. And I am still connected.

What I would very much like to see is a few articles or maybe even TV programs of a documentary nature that show some "typical" house buyers that wound up in foreclosure. I keep being told here and elsewhere that it was all greedy, stupid, and poor ethnic minority people - but I suspect that isn't quite true.

Who are these people? Where do they live? Were they all buying McMansions? If so, where?
Where have they gone?

Americans always talk about "homes" when they mean "houses". I find that very weird. A home is where you live, not the kind of building it is, or is in.

Ellie, absolutely I read what Lidless wrote. And F&F's stated policy, which she cites, was a *lie.* Fannie and Freddie paid lip service to it, and ignored it. The shenanigans were all laid bare when Congress looked into the collapse.

She also talks about the 1990's, as if the the recklessness didn't get even worse in this decade:

The Washington Post wrote:

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers....The agency 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.

http://www.washingtonpost.com/wp-dyn/co ... 02626.html" target="_blank" target="_blank

As to 'blame": I'm not 'blaming' anyone, save the politically-driven emphasis on increasing the numbers of loans to minorities, with little regard to ability to pay. In Southern California (I don't know about N. C.), over half of defaulted subprimes have been for cash-out refi's, and two-thirds of those were to borrowers who claimed Hispanic status. This is not a condemnation of Latinos, but a condemnation of the mentality that created quotas which required high-risk lending to fill.

Quote:

I keep being told here and elsewhere that it was all greedy, stupid, and poor ethnic minority people

Not at all. And I'm certainly not claiming that it was "all" due to subprimes, since (as you ought to have noted) I agree with the other causes Lidless has pointed out. There is lots of blame to go around.

The subprime problem lay, not just with the poor or minorities, but with people of all income levels taking out loans they coudn't afford- whether a poor person who couldn't really afford a house at all, to a middle-class guy whose 75 grand salary couldn't possibly cover a million-dollar mortgage. Many of the worst offenders were cash-out refi's- people who already owned homes, with perfectly affordable payments, who foolishly decided to use their bubble-inflated 'value' as an ATM: take the supposed equity and, in far too many cases, blow it. And then the reality of the tripled monthly payment kicks in....

So I blame greedy and stupid people, full stop. By no means all of them were ethnic or poor. What I am saying, however, is that the bubble, and the willingness of lenders to write junk mortgages, was in part due not to poor minorities themselves, but the sort of 'caring' government action which thought that poverty or joblessness or lousy credit ought not interfere with the 'right' to a mortgage

I've got to say, though, that I'm rather torqued off that, as a responsible homeowner who scrimped and saved for the down payment on a house within my means, I'm now being dunned by the tax man to bail out the greedy and stupid from the consequences of their own fecklessness.

vison wrote:

What I would very much like to see is a few articles or maybe even TV programs of a documentary nature that show some "typical" house buyers that wound up in foreclosure.

Those pop around in the US media from time to time. I'll link one next time I see one. Usually, the faces involved are white. The only "person got screwed" story I've seen recently where the subject was not white involved an African-American single mother who had scrimped and saved to make a deposit for a rental house in an area with a good school for her kids, who was making her rent and paying her bills and living within her means but was getting evicted because her landlord was going bankrupt and getting foreclosed on. She can't even get her deposit back because the landlord has no money. Those are the really tragic cases. Not the homeowners that were stupid, but the renters with feckless, stupid landlords. There's almost no recourse for these people, and they were the ones who were doing the right thing - living within their means, making their payments, etc. Bleah.

ETA: soli, FYI, you're referring to Lidless as a "she". Lidless is a man.

Riverthalos wrote:

ETA: soli, FYI, you're referring to Lidless as a "she". Lidless is a man.

boy howdy that clears up Estel's ranking.

Quote:

I've got to say, though, that I'm rather torqued off that, as a responsible homeowner who scrimped and saved for the down payment on a house within my means, I'm now being dunned by the tax man to bail out the greedy and stupid from the consequences of their own fecklessness.

Tell me about it. My DH and I paid off our mortgage in 2005. We own our house free and clear. And we both work and let me tell you, the government takes a big ol' bite. Not only that, but the rocky canyon area that we live in voted for a bond issue to build a sewer system (under duress, the county was threatening to condemn houses for inadequate septic systems). Many of the properties were on too rocky and/or too small of lots for a modern septic system, vaults no longer being legal for year round homes. We had a legally permitted septic system, but we could not opt out. So we are part of the district and are paying $1200 extra a year in property taxes for the next twenty years for a sewer system that we don't even need.

But there you have it. We live in a community, and the community needed a modern sewer system. It will pay dividends for us by increasing property values and removing constraints on remodelling (since remodelling/rebuilding requires a legally permitted septic, something many of the properties didn't have). It'll gentrify.

I look at homeowner bailouts the same way. Yes, some people were stupid. But many got into trouble because they were unlucky (as in, there but for the grace of god, go I). My brother in Sacto being a case study. He is the most frugal and common sense person around when it comes to finances. But he relocated to Sacto in 2006 for a job (from Reno, NV) and wanted to buy a house to replace the one he sold. NOt that radical of a thought. So he did--and is sitting on probably $200K in losses. Is it his fault? Was he stupid? Probably he should have rented--but who knew? He's fine for now, and paying his mortgage (since it was well within his means and affordable for him. But--but but-- the jobless rate in California is over 10%. So far he's escaped the axe, but what if he doesn't? That's what I call unlucky. I see helping hiim and others like him part of our American "we're all in this problem together" and working together for a solution.

In contrast, I see a rich vein in the far right (and you, Soli) of "screw 'em, let 'em sink." I don't think of that as the kind of values that got us to be the country we are.

Ara-anna wrote:

Riverthalos wrote:

ETA: soli, FYI, you're referring to Lidless as a "she". Lidless is a man.

boy howdy that clears up Estel's ranking.

...and solicitr's research skills.

Sounds like some are attempting to make a large part of this about giving loans so people of color can purchase homes and the hated politicians who favor such programs. Over and over again they focus on the poltically convenient target of the Right and pay little attention to the greater problem of deregulation in so many areas. Rush Limbaugh does this. Sean Hannity does this. Glen Beck does this. Its a mantra.

The amount of money they claim to be paying in taxes because of Fannie and Freddy is a pittance compared to what you and we all are paying for the deregulation debacle from the worshippers at the altar of the free market. But some prefer to focus on the easy target of the common man instead of the corporate pirates who raided all of us because of their corporate greed. And all this ignores the great decrease in taxes that have occurred in this country over the last thirty years. Where have I seen any fiscal conservatives talk about having to raise taxes to normal historical levels to restore saniity to the federal budget and decrease the deficit?

Read the study I provided here. Its all there including several of the factors Lidless has discussed in this very thread. .

It doesn't seem particularly unreasonable that part of the reason for GSA's repeal was to allow more lending to low-income folks. I don't know how true that is but I wouldn'td be surprised if it was at least partially true. And if so it is an excellent example of the kind of unintended consequences that I always fear coming from that leftish-minded economic policies. The road to hell and all that.

Liddy wrote:

And since all they looked at with their computer programmes were the trends on the price, the price remained relatively stable and supported itself. ... Some financial instruments had become so exotic and complex traders did not fully understand them and had forgotten to go back to basics.

This is baffling to me. You throw money around without knowing where it's going cuz a computer program says it'll make you more money?? I'm a very pro-free-market kind of guy but this weird speculative side of our monetary system seems all kinds of wrong to me. The great thing about capitalism is that it encourages production and innovation and good work, but this stuff, it's nothing but gambling. And hell, I support legalized gambling but only with your own damn money.

Liddy wrote:

The inherent risk and impending losses were still within the financial community as a whole. One bank’s seller is another bank’s buyer. It was merely a question of who got caught with what and when on the day. As I said, think of pass the parcel. Will it be Freddie Mac caught with, say, a USD 100m loss from assets bought from Countrywide, or will it be Countrywide caught with the USD 100m loss when the bubble burst because they couldn’t sell those assets, or simply hadn’t yet.

Had those assets been correctly valued and assessed for risk at the outset, they would not have been sold on in the first place, because the seller would not have taken such a low price. And when the bubble burst, it would be them taking the hit rather than someone else.

Same loss had to be shown, just a different company.

Yeah, but isn't a huge part of the problem that self-inflating loop you described earlier? From what I'm understanding of your descriptions, accurately valued assets would've stopped the loop much earlier before it became an enormous industry wide epidemic. Once the banks couldn't find buyers to buy their crappy mortgage bundles they rein in the lending instead of just blindly plowing forward till they collapse. Some banks take a loss but nothing catastrophic or way out-of-whack. Just some banks taking some risks that didn't pan out - hey, that can happen at any company - and we all move on like before. No?

(edit to correct what I meant to say in that 1st paragraph...)

Quote:

It doesn't seem particularly unreasonable that part of the reason for GSA's repeal was to allow more lending to low-income folks. I don't know how true that is but I'd be surprised if it wasn't at least partially true.

It is not true. Tha had nothing to do with the reasons for its passage.

Perhaps this will show with better clarity how the banks didn't quite get their numbers right.

That is a classic Lidless. I think that same banker held a high position at one of the right wing think tanks and helped advise on the repeal of the Glass Steagal Act. Ma & Pa Kettle may have been on the committee staff.

Pa Kettle works for the Treasury, and Ma kettle works for the Federal Reserve. Junior's an Austrian Economist.

from CG

Quote:

Junior's an Austrian Economist.

Which explains why he was the obvious butt of the jokes in the films.

Just to denounce once and for all the Fannie and Freddie blame that has been posted here:

http://www.house.gov/frank/docs/great-e ... -hole.html" target="_blank

That is a great link Lidless. Thank you for it. It should by every measure of what is reasonable put the nails in the coffin lid for those still spouting such stuff. Of course, it will not. On the right wing, there is such an instinctive urge to blame all our social and even financial issues of their usual convenient targets that attacking poor people for wanting houses like everyone else is just too attractive to pass up. And the fact that the poor in America are disproportionatly people of color makes it doubly attractive. They will continue to cling to this as long as their leaders like Rush Limbaugh and Lew Rockwell spew it.

But I enjoyed reading it. Thanks again.

Lidless wrote:

Just to denounce once and for all the Fannie and Freddie blame that has been posted here:

http://www.house.gov/frank/docs/great-e ... -hole.html" target="_blank" target="_blank

A speech by noted economic ignoramus Barney Frank saying that anyone who blames programs he likes is automatically wrong is hardly a refutation.

If one takes the time to read the link in its totality, Representative Frank lays out a very concincing case with dates, names, events and the entire picture. Why do you think the Repubicans were so quick to try to shut him up in the middle of it? That is a rhetorical question and the answer is obvious.

But thanks for proving my point when I said

Quote:

It should by every measure of what is reasonable put the nails in the coffin lid for those still spouting such stuff. Of course, it will not. On the right wing, there is such an instinctive urge to blame all our social and even financial issues of their usual convenient targets that attacking poor people for wanting houses like everyone else is just too attractive to pass up. And the fact that the poor in America are disproportionatly people of color makes it doubly attractive. They will continue to cling to this as long as their leaders like Rush Limbaugh and Lew Rockwell spew it.