Monday, November 03, 2008

Why The Mortgage Crisis Happened: The Timeline

The timeline of the crisis, starting in:

1933-1938: President Franklin D. Roosevelt initiated "New Deal" reform programs designed to affect the mortgage market and homeownership. Fannie Mae, the Federal National Mortgage Association, was established to facilitate liquidity among lending institutions.

Ending with:

Today 2008: The narrative is of another failed socialist experiment, this time a massive federal effort imperiling the whole U.S. banking industry.

Top recipients of contributions from Fannie Mae and Freddie Mac since 1989:
• Sen. Christopher Dodd, D-Conn.: $165,400.
• Sen. Barack Obama, D-Ill.: $126,349.
• Rep. Barney Frank, D-Mass.: $42,350.


Condensed version
here in IBD, full version here.

18 Comments:

At 11/03/2008 9:06 AM, Blogger juandos said...

Hmmm, I'm sure the barking moonbats will go crazy over this posting Dr. Perry...:-)

Regarding this part of the American Thinker posting: "With pressure from the Clinton Administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans"...

Consider the not so veiled threats of Janet Reno: REMARKS OF THE HONORABLE JANET RENO, ATTORNEY GENERAL OF THE UNITED STATES, TO THE NATIONAL COMMUNITY REINVESTMENT COALITION

 
At 11/03/2008 10:09 AM, Anonymous Machiavelli999 said...

Would you let this theory die already? Look at the facts instead of putting out theories that support your world view.

Fannie Mae and Freddie Mac were just as responsible for the mortgage crisis as any other private lender. They originated only 10-15% of subprime loans. The rest were originated by PRIVATE lenders making decisions on their own accord with no pressure from government. The only thing driving their decisions was greed and the hope for a quick payoff, since they did not hold the loans on their books.


Here are some more FACTS to support my view:

* More than 84% of the subprime mortgages in 2006 were issued by private lending institutions.

* Private firms made nearly 83% 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 CRA

* 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.

* Mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

So, essentially the majority of subprime originated from non-bank lenders who in no way had to follow any guidelines set forth by the CRA. Again, the only reason they did what they did was because of greed and the hope for a quick profit.

 
At 11/03/2008 10:16 AM, Anonymous Anonymous said...

THE US GOVERNMENT, they can screw just about everything up.

 
At 11/03/2008 11:24 AM, Anonymous Anonymous said...

Even as Ben S. Bernanke cuts borrowing costs to 50-year lows, taxpayers will likely be paying ever increasing interest rates on U.S. debt.

The next president may find foreign investors, the biggest creditors to the U.S., unable to absorb a growing supply of Treasury bonds as the financial crisis prompts nations to invest in their own banks and currencies. That would drive up yields just as a widening budget deficit pushes borrowing needs to a record $2 trillion, according to estimates by Goldman Sachs Group Inc. and Wrightson ICAP LLC.

http://www.bloomberg.com/apps/news?pid=20602007&sid=akUo9OCJA3PI&refer=govt_bonds

Uh-Oh. Payback for this greed is gonna suck frat boy.

 
At 11/03/2008 11:31 AM, Blogger juandos said...

"Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA...

I'm throwing the B.S. flag on that statement and all the rest of those 'alledged' facts you've put there in your comment machiavelli unless you have something credible to back them up...

How come the FDIC doesn't word it your way?

2000 - FDIC Rules and Regulations

Bank Director Magazine - 4th Quarter 2005
CRA: More Than A Numbers Game


A look back

To bring some perspective on what has occurred, let’s take a brief look back. CRA was designed to prevent redlining and ensure banks provided credit access to all segments of their communities, including low- and moderate-income areas. Previously, banks under $250 million, considered “small banks” under the act, were mostly tested on whether they were making loans to the entire community. Banks with more than $250 million, considered “large banks,” were tested for lending practices but were also required to earn 25% of their grade in service and 25% in community investments. For years, the so-called large banks complained it was unfair to be held to the same standard as banks with assets in the trillions. Trying to keep up with the data collection requirements on small farms, small businesses, and community loans took enormous time and came with great cost. And the investment test—designed to provide more flexibility—ended up making banks scramble for investments merely for compliance sake, even if the investments had little impact on their communities. In time, regulators recognized the validity of the larger banks’ argument and sought to level the playing field.


Fastforward to today. The new CRA rules released nearly 1,800 intermediate-sized banks—those with assets from $250 million to $1 billion—from CRA’s data-collection requirement as well as investment and service tests. Instead, the new rules added something called the “community development test.” Today, to gain a rating of “satisfactory,” a bank must get a “satisfactory” on both lending and community development tests.
...

 
At 11/03/2008 11:37 AM, Anonymous qt said...

Machiavelli,

All of your points present what appears to be a slam-dunk however, you have not provided any links to substantiate your assertions. Without checking your sources, how can one evaluate the facts you present in support of your argument?

Would very much appreciate if you could provide the sources for your facts. Thank you in advance.

 
At 11/03/2008 12:00 PM, Anonymous Anonymous said...

Looking forward, the Chicago Boyz consider the cause and effect of Obamanomics:

Why isn't Detroit a paradise?

http://chicagoboyz.net/archives/6380.html

 
At 11/03/2008 12:20 PM, Blogger juandos said...

re: 'Why isn't Detroit a paradise?'...

Hey anon, thanks for that link...

 
At 11/03/2008 1:30 PM, Blogger bobble said...

admittedly, this article is anecdotal. but, for those here with an open mind, you might find this story interesting. it sheds some light on what was going on at WaMu when it approved all those crappy mortgages. hint, it wasn't CRA . . .

NY Times

 
At 11/03/2008 1:42 PM, Anonymous EJ said...

Machiavelli,

You miss the larger effect of fannie and freddie. It's not just the percent of subprime loans that both the GSE's held or garranteed. Our problems are just not subprime loans but rather the underlying housing bubble popping. It’s the GSE’s entire impact on the housing market as a whole that is the big story. Their implicit guarantee allowed them to borrow money more cheaply, which channeled the tremendous amount of credit created by loose monetary policy from the FED for years into housing in general causing the unsustainable appreciation in the housing market. Subprime only came into prevalence once the price of housing became too high for new buyers to afford (around 2005-2006),so that these "affordable housing products", ie subprime loans, that the government encouraged anyway, became a primary tool to continue to use the easy credit made available to the financial industry. Once the Fed turned off the spicket, housing stopped appreciating and everything began to unravel.

There comes the second part for the GSE's. Even though they only had a minority of the total subprime loans on their balance sheets, because they were so highly leveraged, 33 to 1(which investors facilitated because of the government guarantee that socialized investment risk in these institutions), that once some of these subprime loans on their books started going bad, they didn’t have the capital to absorb these losses and then they both have to be bailed out by the government.

Our housing bubble was a two step process: 1. Easy credit from the fed. 2. the disproportionate channeling of this credit into housing via the GSEs because of government market distortions that promoted such investment behavior.
r.

 
At 11/03/2008 2:15 PM, Anonymous qt said...

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.

 
At 11/03/2008 2:21 PM, Blogger juandos said...

bobble says: "it sheds some light on what was going on at WaMu when it approved all those crappy mortgages. hint, it wasn't CRA "...

You know this how bobble?

Because the newspaper that fails to report FACTUALLY on Obama's questionable online donations, Rashid Khalidi, Obama tax cuts, and on and on and on is has it?

Is it an open mind you want or an empty one?

BTW how do you know it wasn't CRA and Cooper is trying to weasel her way out of it now?

 
At 11/03/2008 2:22 PM, Anonymous rvturnage said...

machiavelli999, the fact that 84% of mortgages in 2006 weren't done by Fannie/Freddie bears little effect on the creation of the bubble that is the source of this problem.

The fact is, that the most recent housing bubble began really taking off in 1996. Notably, this corresponds with strengthening of the CRA and HUD's increase in mandated sub-prime lending for the GSE's in December '95 and again in '97.

In 1997, then head of Fannie Mae, Frank Raines said ""We have not been a major presence in the subprime market," he said, "but you can bet that under these goals, we will be."

By 2004 & 2005, the height of the bubble, Freddie and Fannie held 44% and 33%, respectively.

So, to review: at the beginning of the bubble the GSEs had little presence in the sub-prime market. At the height of the boom, they held major shares in the market.

As for the CRA, it goes far beyond who does or doesn't fall directly under its supervision. Threats of lawsuits, competition from people that did fall under CRA, direct influence from FDIC, the Fed and other government agencies spread the notion that subprime lending wasn't really optional and made it out to be far less risky than it actually was..heck it was even profitable. It was just up to the government to show the banks how it would be:

...[banks] just needed a push from the law to learn how to identify profitable inner-city lending opportunities. Going one step further, the Treasury Department recently asserted that banks...would not undertake such marketing in the first place without a push from Washington.

Further still, sub-prime lending was only the beginning. It was the overall lowering of lending standards -- which began with sub-prime and then infected prime lending -- which pushed the bubble higher and ultimately led us to where we are. Greed had little to do with it. There was always greed in banking. What changed was Government directing the greed where it otherwise wouldn't have gone.

 
At 11/03/2008 8:02 PM, Blogger Plamen said...

Machiavelli999:

How is who originated the loans relevant? Fannie and Freddie bought them from those private lenders you mention, guaranteeing them a free lunch - originate, collect fees, re-sell to F&F.

 
At 11/04/2008 10:56 AM, Blogger SBVOR said...

Machiavelli999,

Regarding your unsubstantiated assertions:

1) On 9/30/1999, the New York Times warned (emphasis mine):

“In moving, even tentatively, into this new area of lending [sub-prime], 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

2) Despite that warning, on April 19, 2000, the Clinton administration boasted:

“The U.S. Treasury Department released a report on Wednesday detailing lending to low- and moderate-income borrowers and low- and moderate-income communities covered by the Community Reinvestment Act. The study found that such lending rose significantly, totaling more than $600 billion between 1993 and 1998.”

But, that is just the tip of the iceberg.

Click here and review the overwhelming volume of substantiated evidence which proves how specious your assertions are.

 
At 11/04/2008 11:03 AM, Blogger juandos said...

Ahhh SVBOR again you come up with the good stuff, no its the great stuff...

Thanks and its much appreciated...

 
At 11/06/2008 5:24 AM, Blogger OBloodyHell said...

> The next president may find foreign investors, the biggest creditors to the U.S., unable to absorb a growing supply of Treasury bonds as the financial crisis prompts nations to invest in their own banks and currencies.

Except that they SPECIFICALLY DON'T you ignorant ASS.

Hockey moms and capital markets

The USA has one substantial advantage over most home markets -- an almost complete lack of corruption.

If they pull out of US markets it's because ridiculous taxation makes it untenable. It'll be because the US Economy is failing due to inadequate power generation. It'll be because of $6 a gallon due to "carbon taxes", based on a psuedo-scientific argument (can you say "Lysenkoism"? I knew ya could...) which is being proven utterly, abysmally faulty day after day.

But it won't be because their own markets are inherently more attractive. It'll be because certain groups with no clue what they talk about (or don't care, with the destruction of the USA being their chief goal) have totally screwed up the most powerful and effective economy in human history.

It'll just be "bad luck":

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded--here and there, now and then--are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or, as sometimes happens, is driven out of a society, the people then slip back into abject poverty. This is known as 'bad luck'.
- Lazarus Long(R. A. Heinlein) -

 
At 11/06/2008 5:28 AM, Blogger OBloodyHell said...

> Without checking your sources, how can one evaluate the facts you present in support of your argument?

FACTS? FACTS?

Weeeeee don' neeeeed no STEEEEEENKINK FACTS!!!

That's your mistake, qt -- you assume he didn't make it all up out of whole cloth.

You've been around here long enough to not trust machiavelli, or the annoynimouse, for that matter, with actually bothering to discern truth from fantasy.

 

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