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How does an entity A know how much risk entity B has assumed when A attempts to off load its risk by selling a CDS to B. I don't think it can or could.
Especially when there was explicit concealment of the very poor quality of the loans in the MBS's.
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Some days ago we wondered aloud at the blank check extended to Fannie and Freddie along with the suspiciously convenient timing of those announcements on Christmas Day...
Yes, they entered the GSE lending programs with their "most flexible lending standards" (source: Fannie Mae Foundation) to expand their market. How is that not the government's fault?
Where is the full quote on that statement?
Countrywide entered the Sub-Prime lending market on its own, prior to any GSE involvement. They were a very enthusiastic participants in the market and they did not have a government mandate to do it. They did for the reasons any company would enter a market; they were making tons of money.
Well, when the size of the contracts are larger than the asset base of the firm you're dealing with, that is a signal that it is too much risk for them to handle.
What were the reporting requirements? How would another firm know that a company of the "Quality" of AIG had taken such a huge risk?
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Originally Posted by Cletus Awreetus-Awrightus
I think the average person probably thought this, like you say.
I think with banks and their executives, we are left with two options: either they were incompetent, or they were planning on a bailout if "the unthinkable" happened.
I think the dollar signs had blinded them to the risks and the few that dared to point out the dangers were routinely dismissed and attacked.
What were the reporting requirements? How would another firm know that a company of the "Quality" of AIG had taken such a huge risk?
I don't know the answer to these two questions. I'm not assuming the process was transparent, I will say that; I just think that a conservative bank that was concerned about maintaining its capital would not have entered into an opaque agreement like that.
In other words, just because they may have been ignorant of AIG's counterparty risk doesn't mean that it's Ok for them to have entered into the contract. There were "known unknowns," which they seemed to have been ignoring in favor of short term profits.
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I think the dollar signs had blinded them to the risks and the few that dared to point out the dangers were routinely dismissed and attacked.
I vote from incompetence brought on by greed.
I think that's fair.
I don't mean to suggest it was a sinister conspiracy that was centrally orchestrated.
"Underwriting Standards Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice accepted by the GSEs."
Easing the Rules for Mortgage Approval
By ALAN S. OSER
Published: October 3, 1999
The less restrictive standards have come into wider use in recent years in the sales of homes that have at least one rental apartment. They have had the effect of allowing creditworthy borrowers with somewhat lower incomes -- usually close to the median family income in New York City of $50,000 a year -- to buy houses
But it got greater impetus in 1994 when Fannie Mae, the nation's largest purchaser of mortgages from banks and other home-mortgage originators, introduced pilot programs to stimulate the home sales market in New York and Boston. Fannie Mae packages these loans with other mortgages as securities for sale to investors. Creating a market to which mortgage originators can sell their loans encourages them to lend more
Fannie Mae's total purchases of New York City two- to four-family loans was 4,200 -- with an aggregate value of $788 million -- and 11 percent used the pilot underwriting.
There have been 14,000 Partnership home buyers since 1986, and more and more of the newer houses are three-families. Nowadays the loans are normally sold to Fannie Mae, and the underwriting for them follows Fannie Mae's standards.
The Mortgage Market: Up, Down and Sideways
Published: June 25, 2000
The Federal National Mortgage Association, known as Fannie Mae, the nation's biggest buyer of mortgages from banks and other lenders, revamped its Web site last month to enable consumers to compare all the costs of getting a mortgage, including interest rates and points, mortgage costs, appraisal fees and title insurance fees. Customers can also find lenders or credit counselors in their areas, along with a comprehensive glossary of mortgage terms.
Lenders are not required to cancel the insurance for loans approved before July 29, 1999, when the Homeowners Protection Act took effect, but most do, if only to remain in the good graces of Fannie Mae and the similar federal agency, Federal Home Loan Mortgage Corporation or Freddie Mac. Because these two agencies set the standards for the mortgages they will buy, Fannie Mae and Freddie Mac have enormous influence over the mortgage market.
People who have taken out mortgages before won't be surprised to learn that if their down payment is less than 20 percent, they will be required to have private mortgage insurance. But they may be surprised to learn that when their equity in the property reaches 20 percent -- a percentage that the mortgage industry considers likely to forestall default -- they can request cancellation of the insurance, which typically costs $30 to $100 a month.
Originally Posted by Cletus Awreetus-Awrightus
Fannie and Freddie had declining marketshare in the secondary mortgage markets during those years.
Fannie and Freddie didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the conforming requirements.
Keeping Homeowners in Their Homes
Published: October 22, 2000
''There has been a marked increase in the availability of mortgage financing, both in the conventional market and from subprime sources,'' said Naomi Bayer, director of the New York office of Fannie Mae, the federally chartered home-financing corporation. Subprime mortgages are offered at higher than conventional interest rates to people with less than stellar credit histories.
''There's been a proliferation of subprime lending over the last five years,'' Ms. Bayer said. ''There's a market for it, and there are investors willing to provide capital.''
In fact, according to the federal Department of Housing and Urban Development, 14.9 percent -- or 2.1 million -- of all mortgages originated in the United States in 1999 went to subprime borrowers. ''Over 90 percent of subprime loans have been made in the last six years,'' Ms. Bayer said, ''and the subprime market has grown roughly 30 percent each year over the previous year during that time.''
No Cletus, it is not. Go back and read it. "Exactly" means word for word. The words were reversed and the meaning changed. That does not constitute "Exactly". Don't try that crap on me. There are many fine dictionaries and grammer primers on the Internet. Use one if need be.
No, the meaning wasn't changed. Either you don't like that I questioned what he wrote or you're incapable of discerning from his writing what he said. Either way, we've learned quite a bit about your level of reading comprehension.
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(subprime).
directly from the new york times in 1999.
Stop the presses...
Are you telling us you believe the secondary market is the subprime mortgage market?
Done. Next.
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Good lord...
