Rightwing radio is pushing a meme: Fannie Mae and Freddie Mac failed, precipitating the finance crisis, because of the federal law mandating loans to minority home buyers. It's a crock, people, and McClatchy has the proof!
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.
But the truth has never played well over the likes of Limbaugh's radio shows, has it?
According to the report,
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.
If you are lucky enough to have a McClatchy paper (or service client paper) show 'em some love -- write an LTE praising the reportage. They're on the ball still.
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I hate to break it to you....
but Fannie and Freddie were part of the secondary mortgage market -- in other words, they "bundled" mortgages, and the question of who issued the mortgaged itself is irrelevant to their involvement in the crisis.
In other words, the McClatchy piece (and apparently, you) don't understand the first thing about the role that Fannie and Freddie played in the current crisis.
(for a primer on the role played by Fannie Mae, try reading http://www.nytimes.com/2008/10/05/busine...)
The rightwing meme of minority home ownership
The mouthbreathers are saying that Fannie and Freddie are responsible because of the federal law mandating loans to minority home buyers. Only 15%of loans issued during the critcal time period were subject to the stricter laws governing bank lending institutions. 85% of the loans were issued by non-bank entities, which had no requirement to consider the minority status of the home buyer (or their ability to repay). So the program that the goverment created to increase home ownership by minorities was not responsible for the rash of defaults. In fact, those loans that were taken out under the stricter banking guidelines have a much lower failure rate that those issued by non-banking institutions.
Fannie and Freddie only participate in the secondary mortgage market. Their mission is to "provide liquidity and stability to the U.S. housing and mortgage markets". They did bundle these mortgages into securities and sell them worldwide. So they are also responsible for the mess that has been created by non-banking entities issuing iffy mortgages. However, the high failure rate is not the fault of government mandates that minorities be given access to home ownership, as conservatives are trying to push. It is the lending of the private sector entities that were driving the collapse.
does anyone have....
data on how much of the subprime market was "second mortgages"/home equity loans?
Here's something that I didn't know...and it may have had a significant impact on how this crisis came about...
As a second-mortgage holder, GSAMP couldn't foreclose on deadbeats unless the first-mortgage holder also foreclosed. That's because to foreclose on a second mortgage, you have to repay the first mortgage in full, and there was no money set aside to do that. So if a borrower decided to keep on paying the first mortgage but not the second, the holder of the second would get bagged.
http://www.washingtonpost.com/wp-dyn/con...
in other words, if you give someone a home equity loan and they are still paying off the first mortgage, if that person decides not to pay the second mortgage, there's nothing the second lender can do unless they come up with the cash to pay off the first mortgage.
And while the average mortgage holder may not have known that, professional real estate speculators would. So it would be smart to get a conventional mortgage with 20% down, then get a second "home improvement loan" using the 20% equity as collateral.... and I wonder how many "house flippers" and other speculators are sitting on the houses they own, paying off the first mortgage, and ignoring the second as they wait for the market to recover?
Just some 2006 data
According to a July 2007 report www.mortgagebankers.org/NewsandMedia/Pre...
By dollar volume:
- For the second half of 2006, 55 percent of subprime originations were for refinance purposes unchanged from the first half of 2006 (see Chart 1). Among subprime refinances, 87 percent were for cash-out purposes compared with 75 percent for the first half of 2006. However, in the first half of 2006, 12 percent of refinances were reported as "unknown" or "other purposes" and thus, the refinance for cash-out purposes in the first half of 2006 could very well be higher.
The results are different if you are looking at total number of loans issues, and the data seems somewhat contradictory in the report.
OMG.
The two men that helped set Fannie's future in motion with this:
So Fannie constructed a vast network of computer programs and mathematical formulas that analyzed its millions of daily transactions and ranked borrowers according to their risk.
Those computer programs seemingly turned Fannie into a divining rod, capable of separating pools of similar-seeming borrowers into safe and risky bets. The riskier the loan, the more Fannie charged to handle it. In theory, those high fees would offset any losses.
With that self-assurance, the company announced in 2000 that it would buy $2 trillion in loans from low-income, minority and risky borrowers by 2010 (heh)... helped supercharge Fannie’s stock price and rewarded top executives with tens of millions of dollars. Mr. Raines received about $90 million between 1998 and 2004, while Mr. Howard was paid about $30.8 million, according to regulators. Mr. Mudd collected more than $10 million in his first four years at Fannie.
Poor Mr. Mudd wasn't quite so lucky.
But Mr. Mudd, who lost millions of dollars as the company’s stock declined and had his severance revoked after the company was seized, often travels to New York for job interviews. He recalled that one of his sons recently asked him why he had been fired.
"Sometimes things don’t work out, no matter how hard you try,” he replied.
No, darling. You were the fall guy.
For emphasis:
Mr. Raines received about $90 million between 1998 and 2004, while Mr. Howard was paid about $30.8 million, according to regulators. Mr. Mudd collected more than $10 million in his first four years at Fannie.
10,000,000 dollars for a gazillion dollar headache.
I hope he invested wisely.
Nice NYT stuff
here.
As usual, too late to do any good.
Nice to see
someone paying attention to the Raines stuff. Where's he now? What's he doing?
One another front, my son(works at a gas station) tells me that the wholesale price for gas is under $2.50 this weekend in North Texas! This assures us of prices down in that neighborhood soon. We may get down near $2.00 yet!
Hmm
I dunno, Peter. I mean, I know two people who've traded in their SUVs for scooters at this point. But I don't think that many people will go that far and "driving less" isn't a long-term solution. I still think we'll see $8 gas by 2010.
But I still believe
And I will rise up with fists!!
Paul, the point I want to make is that brown people are not
the reason the financial markets are in the tank.
Thank you for missing that point so clearly.
We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! Knowing that we’re not going to kill today! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18
Sarah...
if you want to make a point, don't try and do it by using data that is not merely irrelevant to the point (there is a world of difference between the Community Reinvestment Act and Fannie & Freddie) but shows a complete lack of understanding of the subject at hand.
Paul, the point I want to make, which you insist on missing, is
that the right wing is lying about this.
Capice?
If not why not?
We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! Knowing that we’re not going to kill today! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18