Tag Archives: Federal Housing Finance Agency

Once Is A Mistake–Twice Is A Decision

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Yesterday The New York Post reported that the Obama Administration is making the same mistakes that led to the housing market collapse of 2008. One of the major causes of the economic collapse of 2008 was the amount of money borrowed for housing loans that was not going to be paid back. There were a number of causes of the problem. The economy had been good for a while, interest rates were reasonably low, people had moved into bigger houses, and banks were pressured to give loans to people with questionable credit and unsubstantiated income. As gasoline prices doubled, many of the people who had taken out loans that were on the edge of their ability to repay found themselves unable to make the payments. The banks, in turn, sold those mortgages as if they were going to be paid back, and they were not paid back. The YouTube video Burning Down the House provides one of the best explanations of the cause of the 2008 collapse that I have seen. I am posting it here in case YouTube takes it down:

That was then, but where are we now?

The story in The New York Post reports:

As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.
Wasn’t the last one bad enough?

Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.

The Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.

Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime-lending program.

The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”

When the economy and housing prices turn south again, a lot of these loans will go bad, just as they did last time.

The writer of the article states that he doesn’t believe the loans will cause a worldwide problem this time because the banks have learned their lesson. He does point out, however, that a large portion of housing loans made in America are government insured. That means taxpayers will be on the hook this time (I thought we were the last time). Hang on to your hats. Here we go again.

Getting It Half Right

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The mainstream media never hesitates to rewrite history when it is to their advantage, but every now and again they accidentally begin to report actual facts.

The Nation posted an article yesterday about the role Bill Clinton played in the 2008 mortgage meltdown. This information is readily available information that the mainstream media has so far ignored.

The article reports:

Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street’s meltdown. Hillary Clinton’s redefinition of the reform problem deflects the blame from Wall Street’s most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

The seminal event that sowed financial disaster was the repeal of the New Deal’s Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law’s repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector’s armies of lobbyists. The “universal banking model” was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

While that is true, you need to take a step back and look at what actually made that change necessary. Due to some changes in federal regulations and pressure by groups like ACORN, banks were forced to issue loans to people who could not pay them back. This sub-prime loans were doomed to fail, and banks needed to find a way to cut their loses. The issuing of the sub-prime mortgages goes back to a law passed during the Carter administration that was put on steroids during the Clinton administration. When the Bush administration called for curbs on Freddie Mac and Fannie Mae, they were rebuffed by Chris Dodd and Barney Frank in Congress. It was later revealed that Chris Dodd had a ‘friends and family’ mortgage from one of the major players in the sub-prime mortgage market.

For the entire story, please watch the video below. I have posted it before; it is not new. I am embedding it because I am afraid that it will disappear from YouTube.

 

This is the real story of what happened in the economic meltdown.

The Government Is Suing The Wrong People

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On Friday, Market Watch reported that the Federal Housing Finance Agency, overseers of Fannie Mae and Freddie Mac, is ready to sue a dozen major banks, claiming they misrepresented mortgage securities they bundled together and sold during the run-up to the burst of the housing bubble. Bloomberg.com ran a similar story on Saturday reporting:

Edward J. DeMarco, head of the U.S. watchdog overseeing Fannie Mae and Freddie Mac, says his job is protecting taxpayers. His critics think he’s undermining the government’s efforts to shore up the economy. 

I firmly believe that the government is suing the wrong people. There is a video at YouTube I have linked to in the past called Burning Down The House which does a very good job of detailing the history of the housing bubble. It shows Congressional testimony relating to decisions that caused the bubble. It is well worth watching.

In 2010 Republicans on the House Oversight & Government Reform Committee issued a report entitled, Follow the Money: ACORN, SEIU and their Political Allies.” The executive summary of the report states:

“ACORN drafted language to loosen underwriting standards and decrease down payments in the housing industry, paving the way for the high rate of subprime loans millions of Americans eventually defaulted on.

“ACORN used provisions in the Community Reinvestment Act of 1977 that allowed community groups to challenge bank mergers and acquisitions if a bank did not adequately invest in its own community. These challenges, which featured ACORN’s standard intimidation tactics, successfully forced banks to make lending agreements with ACORN Housing. If banks refused ACORN’s demands, they jeopardized approval of mergers in a timely manner. ACORN Housing moved to become a conventional service provider for the loans. ACORN reaped profits from over a billion dollars in loans to low-income neighborhoods. Because of the policies and financial instruments developed, in part through ACORN’s lobbying activities, borrowers eventually defaulted on the loans. The end result was the bursting of the housing bubble.

“ACORN Housing received a total of $39,925,620.13 from Bank of America, JPMorgan Chase & Co., CitiBank, HSBC, CapitalOne, and SunTrust. These lenders and banks also provided ACORN with grants, address and bank account information of at-risk homeowners so ACORN could provide free counseling services. Instead, ACORN used the address and bank account information to target struggling Americans who would be signed up as dues-paying members of ACORN. ACORN’s membership recruiting brought in $48 million a year for ACORN — a boon for their Muscle for Money program.”

The banks were not totally innocent in the financial collapse of the housing market, but they were not entirely guilty either. When the government and ACORN required the banks to make risky loans, the banks dealt with the situation by bundling sub-prime loans with good loans and selling them as a package–thus selling off any mortgages that might not be repaid. That was an understandable business decision. What we need is a local banker who knows his customers and can make decisions regarding mortgages based on that knowledge. Unfortunately, when ACORN began protesting banks that were not making enough risky loans, the game changed. It’s time to let banks be banks and the government be the government. There is some need for regulation, but the overregulation and rules of the 1990’s helped cause the problems. The government is suing the wrong people–but I don’t think they can sue themselves.