The REAL Cause of the Mortgage/Banking Crisis

[NHSparky]

Next time someone tries to tell you that Bush's policies and Paulsen's tenure as Fed Chairman led to the current mortgage/bank crisis:

CITY JOURNAL 2000 ARTICLE

[Chris]

Robert Reich, Secretary of Labor (1993 to 1997)

In the latter years of the Clinton administration -- when I was not there any longer, I should add -- there was an attempt by Alan Greenspan and Bob Rubin and a few others to deregulate financial markets, and they did.  They split commercial banking off from investment banking.  And many people say, "Well, that was the beginning of the problem," and then, of course, in 2003-2004, Alan Greenspan reduced short-term interest rates to the point where every single bank wanted to lend money.  I mean, if you could stand up straight you could get a bank loan because there was so much pressure to get that money out the door.  Money was so cheap.  So, yes, there is some responsibility on Democrats, some responsibility on Alan Greenspan and the Fed.

http://www.msnbc.msn.com/id/26744811/

[Chris]

Fannie Mae Eases Credit To Aid Mortgage Lending
Published: September 30, 1999

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.''

...

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.


(link...)

[Woody]

Wow, just... wow. 

Raines, risk, and the NYT all in one.  It's just... wow.

Woody the Speechless

[Chris]

Wow, just... wow. 

Raines, risk, Clinton, and the NYT all in one.  It's just... wow.

Woody the Speechless

fixt

[Woody]

LOL, thanks. 

[jtyangel]

Umm...I told you peeps this already. I just didn't have a fancy old link to back it up since I just listen to the other half involved in all this. Maybe you all will start listen to me about this NOT being a correction now too.

Oh and Obama and the congressional black caucus are neck deep in the mess. They helped pressure these regulations saying that not extending credit to bad credit risks(which could only equate to black's given the next thing I'm about to say) was racist. Again, Obama has people like Raines(maybe even Raines) on his economic advising group for his campaign. Yet he is FIT to do this job?

If anything, McCain is making the right move by exploiting this since this is a big deal and as much as liberals go on about Ken Lay and Enron, their guy was involved with such types where FNMA was concerned and Obama is an inner city lobbyist..I mean community organizer...you know...special interest pressure. He's one of them. If anything liberals should be disgusted by this guy, but they are so blind making lolly gag, rainbow, heart, and stars eyes at him to even give a damn.

Clinton and Greenspan's responsibility extends to the loosening of regulations. BTW, they had a chance to mend this in 2003. Obama was AGAINST putting regulation in place on this matter. Mortgage companies and investment firms seeing it was going to come to an end, did it even more in anticipation of its eventual demise they thought would happen eventually via policy and congress. Obama and others voting against tightening this up, helped proliferate it more.

The reason I have Obama peppered all through this versus Clinton and Greenspan is that C and G are old news; Obama is running NOW. This man's incompetence should be screamed from the rooftops. He will be a disaster in this office. Read carefully what I am about to say: blacks LIKE Obama are NOT ready for such a responsibility. Until they can pull themselves from the claws of special interest groups and their own desire to, as McCain said, 'game the system' as some kind of quid pro quo reperations, blacks will not be ready for the office. I'm sure the drips at DU will read that as racism because they can't wrap their minds about intricacies in arguments nor do they care about the welfare of this country and to them I say: Go **** yourselves and your hypersensitive knee-jerk bullshit--too much is at stake to gussy up an argument so it doesn't offend your sensibilities.  The bottom line is Obama is a disaster and we have to look no further from his involvement in the near(and lets hope it was only near since the bailout plan has to pass through congress) market collapse to know this. With this kind of resume, if the dems cared at all about this country they would pack their crap up and go home now and just mark it up to terrible decision making on their part when it comes to choosing a candidate.

[formerlurker]

I think it is a mixture of a lot of things -- the loan structures being the biggest problem.  Had Fannie Mae underwritten conventional loans then we wouldn't have the problems we have today as folks wouldn't have been able to afford the loan payments (regardless of what their credit history was).   The creative financing coupled with the adjustment in the real estate market (and note what we saw was an adjustment, not a crash -- when you have real estate markets that were priced 45% above market value you are going to see an adjustment, as it is Boston only adjusted down 25%, so it is still 20% above actual value).   

Creative financing of fluctuating interest rates/payments, loans given at 100% of selling price (which again was priced upwards to 45% above market value) makes no chance in hell of refinancing for a conventional loan when they established good payment credit of 2-3 years as they cannot get a loan for what they owe.   Mortgage finance companies made a hefty profit that they now are paying for -- or my bad, we are paying for. 

The bailouts will happen, prompting regulations, but the economy will adjust.   

     

[jtyangel]

I think it is a mixture of a lot of things -- the loan structures being the biggest problem.  Had Fannie Mae underwritten conventional loans then we wouldn't have the problems we have today as folks wouldn't have been able to afford the loan payments (regardless of what their credit history was).   The creative financing coupled with the adjustment in the real estate market (and note what we saw was an adjustment, not a crash -- when you have real estate markets that were priced 45% above market value you are going to see an adjustment, as it is Boston only adjusted down 25%, so it is still 20% above actual value).   

Creative financing of fluctuating interest rates/payments, loans given at 100% of selling price (which again was priced upwards to 45% above market value) makes no chance in hell of refinancing for a conventional loan when they established good payment credit of 2-3 years as they cannot get a loan for what they owe.   Mortgage finance companies made a hefty profit that they now are paying for -- or my bad, we are paying for. 

The bailouts will happen, prompting regulations, but the economy will adjust.   

     

I think you are right, that with the hefty bailout and taxpayer infusion, it will adjust--both thefinancial markets and the housing markets. My point was that creative financing was spurned by political pressures: one namely being the congressional black caucus of which Obama was a vocal member of. Just an important issue to get across in an election year where one of those who helped support the market where it is now is running for the highest office in the land and will likely sit members from the failed FNMA on committees and in positions of policy in DC.

BTW, I have no problem with creative financing. Our first loan was done via FHA and we have a VA loan now. We have not now or ever defaulted in the 12 years we've had a mortgage on two different homes. We were scutinized though still and back then the situation seemed to me to be that you either had to have the money down or the credit to support the purchase. If you lacked both, then you could save up and come back later and apply. Those restrictions seemed to evaporate. I'd hate to see creative financing go alltogether, but likely it probably will and that's a shame because there are probably many who did the same as we have and have not defaulted on their loans when looking at the history of VA and FHA loans.

Either way, I hope the market corrects. We gotta some of these baby boomers retired and they can't do that with fixed income products earning essentially nothing at the moment. My mother is one of those and she's going to stop traveling for a couple of years out of necessity. Her account makes next to nothing because there is nothing out there earning anything at the moment. We watched her income go down over the last few years as this unfolded. Right now she's just hoping things stay stable. For God sakes though, Obama can not get in office. The guy is a disaster.

[formerlurker]

I think it is a mixture of a lot of things -- the loan structures being the biggest problem.  Had Fannie Mae underwritten conventional loans then we wouldn't have the problems we have today as folks wouldn't have been able to afford the loan payments (regardless of what their credit history was).   The creative financing coupled with the adjustment in the real estate market (and note what we saw was an adjustment, not a crash -- when you have real estate markets that were priced 45% above market value you are going to see an adjustment, as it is Boston only adjusted down 25%, so it is still 20% above actual value).   

Creative financing of fluctuating interest rates/payments, loans given at 100% of selling price (which again was priced upwards to 45% above market value) makes no chance in hell of refinancing for a conventional loan when they established good payment credit of 2-3 years as they cannot get a loan for what they owe.   Mortgage finance companies made a hefty profit that they now are paying for -- or my bad, we are paying for. 

The bailouts will happen, prompting regulations, but the economy will adjust.   

     

I think you are right, that with the hefty bailout and taxpayer infusion, it will adjust--both thefinancial markets and the housing markets. My point was that creative financing was spurned by political pressures: one namely being the congressional black caucus of which Obama was a vocal member of. Just an important issue to get across in an election year where one of those who helped support the market where it is now is running for the highest office in the land and will likely sit members from the failed FNMA on committees and in positions of policy in DC.

BTW, I have no problem with creative financing. Our first loan was done via FHA and we have a VA loan now. We have not now or ever defaulted in the 12 years we've had a mortgage on two different homes. We were scutinized though still and back then the situation seemed to me to be that you either had to have the money down or the credit to support the purchase. If you lacked both, then you could save up and come back later and apply. Those restrictions seemed to evaporate. I'd hate to see creative financing go alltogether, but likely it probably will and that's a shame because there are probably many who did the same as we have and have not defaulted on their loans when looking at the history of VA and FHA loans.

Either way, I hope the market corrects. We gotta some of these baby boomers retired and they can't do that with fixed income products earning essentially nothing at the moment. My mother is one of those and she's going to stop traveling for a couple of years out of necessity. Her account makes next to nothing because there is nothing out there earning anything at the moment. We watched her income go down over the last few years as this unfolded. Right now she's just hoping things stay stable. For God sakes though, Obama can not get in office. The guy is a disaster.

I have no problem with FHA and VA loans as they are conventional loans for the most part with the borrower being credit worthy.  The VA loan is pretty essential to those in the military who move every 2-3 years as they are never in their homes long enough to build equity so they usually just break even when they sell, necessitating the loan guarantee by the VA for their next purchase.   

I was referring to the interest-only-balloon-payments type of loans.  It was sold to consumers with questionable credit that they can get the loan, pay on it for several years to establish good credit, and then refinance for a conventional loan before their payments goes up.    The consumer never realized though that real estate markets are in constant fluctuation and that they may not be able to refinance when the balloon comes due as the value of their home tanked.    At the end of the day it is always consumer beware, but it happened and here we are. 

The market will adjust also for us, but for those your parents age it is very serious as they don't have the time to sit back and wait for it to do so.    Totally stinks, I agree.