In case there is anyone who STILL doesn't get it....

[Pazuzu]

Why did the government have restrictions on free trade among private individuals in the first place?

They shouldn't have relaxed the restrictions, they should have destroyed them!

[Shaun @ Tru6]

Please show the difference between the two sets of rules and then the percentage of foreclosed mortgages from the total that fall into the new set. Include # of foreclosures in the old set to determine the variance.

Originally Posted by Moses

They forgot the first step.

CONGRESS relaxed the lending restrictions so they could get poor people involved in home ownership. It was deliberate.

Bankers aren't stupid. They wouldn't lend their own money to people with no income, no assets and no verified job. But hell, if Charlie Rangel tells you to relax the lending rules for government backed loans it's time to sell, sell, sell!

The mortgage crisis is the exclusive responsibility of our congress.

[Moses]

Originally Posted by Shaun 84 Targa

Please show the difference between the two sets of rules and then the percentage of foreclosed mortgages from the total that fall into the new set. Include # of foreclosures in the old set to determine the variance.

It's not my job to do your homework.

Are you suggesting that traditional borrowers who put 20% down and buy fixed rate loans have the same foreclosure rates as No down, interest only, stated income borrowers? What are you smoking, Shaun?

[Shaun @ Tru6]

Originally Posted by Moses

It's not my job to do your homework.

Are you suggesting that traditional borrowers who put 20% down and buy fixed rate loans have the same foreclosure rates as No down, interest only, stated income borrowers? What are you smoking, Shaun?

It is when you make irrational claims based on emotion. You make a claim, please back it up. Show your work.

[Rick Lee]

Originally Posted by Moses

Are you suggesting that traditional borrowers who put 20% down and buy fixed rate loans have the same foreclosure rates as No down, interest only, stated income borrowers? What are you smoking, Shaun?

Moses, foreclosure rates aren't the (main) problem. While they're high, they did not cause Fannie/Freddie's need for rescue. The folks who put 20% down (I'm one of them) have seen their values go down by at least that much, making them upside down or in the same boat as those who never had any positive equity. Doesn't matter for those who plan to stay in the house for the long term. However, the paper Fannie/Freddie used to package that mortgage and resell is now worth less, if not worthless. A CDO or MSB with 20% equity is a pretty safe investment. When that loan becomes upside down, it's a problem.

[Seahawk]

Originally Posted by Shaun 84 Targa

It is when you make irrational claims based on emotion. You make a claim, please back it up. Show your work.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&&scp=1&sq=30%20sept%201999&st=cse

[Porsche-O-Phile]

I'm normally not a fan of government intervention, but I'd hope we've all learned a lesson from this.

I liken it to the rules for 401ks or Roth IRAs. Tell people they have to hold these investments (and they are investments) for a certain period of time to eliminate future profiteering/"flipping" (which was a huge contributor to this problem). It effectively would kill the possibility of any future bubbles in this sector. If people know they have to hold the property for a while, they will buy more responsibly. Banks will lend more responsibly. Everyone wins.

Of course I'd LOVE a solution that does not involve government or legislation, but I can't think of one. If anyone has any suggestions, I'm all ears.

It's clear that we either do one thing or the other - we either deregulate completely (which in theory I think is the best thing to do) or we have government intervene and try to keep things from melting down into a depression that will impact EVERYONE.

Like I said, in theory I think #1 (deregulation) is the best course and the most honest one. However we need to be realists - there's no way that's going to happen. The government will not just step aside (much as I might like them to) and allow there to be entire cities of vacant buildings being used by drug dealers, meth heads, etc. (e.g. like large portions of Detroit). There's no way they'll allow us to have 60% unemployment and triple-digit annual inflation - even though those things would be the HONEST result. It just won't happen.

So that said, if we're going to have government intervention, what form should it take. That seems the more honest and pertinent question. I'd rather see ownership restrictions such as I suggested for real estate than a hard-dollar bailout with taxpayer money. The nice thing about my suggestion to force people to hold their purchases for a period of time is that it costs the taxpayers ZERO.

[Shaun @ Tru6]

Originally Posted by Seahawk

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&&scp=1&sq=30%20sept%201999&st=cse

Saw that. Please do the math.

[Seahawk]

Originally Posted by Shaun 84 Targa

Saw that. Please do the math.

I did.

[Moses]

Originally Posted by Shaun 84 Targa

It is when you make irrational claims based on emotion. You make a claim, please back it up. Show your work.

Sheesh...

From Wikipedia.
Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007,[11] with over 7.5 million first-lien subprime mortgages outstanding.[12]Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005.[13] By January 2008, the delinquency rate had risen to 21%[14] and by May 2008 it was 25%.[15]

Subprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007.[16] During 2007, nearly 1.3 million properties were subject to 2.2 million foreclosure filings, up 79% and 75% respectively versus 2006. Foreclosure filings including default notices, auction sale notices and bank repossessions can include multiple notices on the same property.[17] More homeowners continue to receive foreclosure notices, with one in every 519 households receiving a foreclosure filing in April 2008.[18]

The U.S. mortgage market is estimated at $12 trillion[19] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008.[20]

[Shaun @ Tru6]

Originally Posted by Seahawk

I did.

I must have missed the variance analysis. All I saw was a lot of minorities getting loans.

[Shaun @ Tru6]

this is a decent start, thank you. I don't see where Congress told banks that they must make risky loans as a matter of law. That gap must be closed.

What's astonishing is that 6.8% of all mortgages is enough to topple our entire economy.

Originally Posted by Moses

Sheesh...

From Wikipedia.
Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007,[11] with over 7.5 million first-lien subprime mortgages outstanding.[12]Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005.[13] By January 2008, the delinquency rate had risen to 21%[14] and by May 2008 it was 25%.[15]

Subprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007.[16] During 2007, nearly 1.3 million properties were subject to 2.2 million foreclosure filings, up 79% and 75% respectively versus 2006. Foreclosure filings including default notices, auction sale notices and bank repossessions can include multiple notices on the same property.[17] More homeowners continue to receive foreclosure notices, with one in every 519 households receiving a foreclosure filing in April 2008.[18]

The U.S. mortgage market is estimated at $12 trillion[19] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008.[20]

[Seahawk]

Originally Posted by Shaun 84 Targa

I must have missed the variance analysis. All I saw was a lot of minorities getting loans.

That was where I started my math.

You do understand that this was the nexus of the sub prime debacle...look beyond the minority aspect, if you can, to:

''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.''

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.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

They lent money to people that otherwise could not have qualified for a conventional low risk loan.

[Burnin' oil]

Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.


http://online.wsj.com/article/SB122212948811465427.html?mod=googlenews_wsj

[Shaun @ Tru6]

Yes, I read the article. It does not say where Congress mandated, by law, that risky loans must be given out like candy.

If you are claiming it's the fault of Congress, I would like to see the old restrictions, then the new restrictions and the law stating that risky loans must be given otherwise punishable by...

Bonus for any Banking Lobby info in and around this time. They aren't known for all smiles and sunshine. What were they doing? What was its position on easing restrictions?

Furthermore, I'd like to know why loans were structured for high risk people when default was a virtual guarantee based on the structure of the loan.

[Rick Lee]

Originally Posted by Porsche-O-Phile

Tell people they have to hold these investments (and they are investments) for a certain period of time to eliminate future profiteering/"flipping" (which was a huge contributor to this problem). It effectively would kill the possibility of any future bubbles in this sector. If people know they have to hold the property for a while, they will buy more responsibly. Banks will lend more responsibly. Everyone wins.

Well, the cap. gains exemption is for two of the previous five years on a primary residence, $250k for singles, $500k for couples. Doesn't seem to be a problem now. But when you can do a quick flip in a boom market, take the tax hit and still make a good profit, what else do you suggest? Wanna permanently kill the market for everyone else with more laws and taxes?

If I were king of the world, I'd let banks lend whatever they wanted to whomever with whatever underwriting guidelines they wanted too. The catch, however, would be that they must service the loan for two years, cannot sell it and cannot collect insurance on it for two years. After that, they could sell it and would be responsible for some penalty on payment defaults, probably on a sliding scale. That would bring the sanity back to underwriting and instill some skin in the game for retail lenders. The problem has been that risky loans are so far removed from the original lenders by the time they have problems, that it's like a game of musical chairs. As long as you're not holding the bag when the music stops, you can keep doing what you're doing.

[Moses]

Originally Posted by Shaun 84 Targa

this is a decent start, thank you. I don't see where Congress told banks that they must make risky loans as a matter of law. That gap must be closed.

Fannie Mae (and Freddie Mac) buy loans from mortgage originators, such as banks and non-bank mortgage firms. It repackages the loans, as mortgage backed securities, and sells them on the secondary mortgage market, with a guarantee that the interest and principal will be paid, whether or not the original borrower pays.

Increasingly, congress has relaxed Fannie Mae lending restrictions in order to allow people with poor credit ratings to buy homes. You can find some compelling testimony from Charles Rangel who successfully lobbied for increased subprime lending to help poor people purchase homes.

[Burnin' oil]

Originally Posted by Rick Lee

. . . If I were king of the world, I'd let banks lend whatever they wanted to whomever with whatever underwriting guidelines they wanted too. The catch, however, would be that they must service the loan for two years, cannot sell it and cannot collect insurance on it for two years. After that, they could sell it and would be responsible for some penalty on payment defaults, probably on a sliding scale. . .

Then how will the poor folk and the bad credit folk buy a house?

[Moses]

In 1999 Greenspan warned that the Federally guaranteed mortgages were lending to unqualified borrowers and he urged tighter restrictions.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

So here we are. We built too many houses so the government could sell them to poor people with loans guaranteed by taxpayer money. The foibles of the banking industry are only minor contributors. Congress wanted to get poor people into home ownership-and they did. At alarming rates. People all over America were buying homes with NINJA loans (No income, no job, no assets) And these loans were all guaranteed by the taxpaying citizens.

[Shaun @ Tru6]

OK, I give up. When you can find the law that Congress made forcing banks to make risky loans, to not check on application data and to structure them in a way that ensures default, let me know.

then we can get to how mortgage backed securities were sold.