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Yes, you keep focusing of the relatively minor contributions from the GSEs while ignoring the much larger and more significant actions in the sub-prime marketplace from the likes of Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, AIG, and a whole host of others. Why do you ignore the market for loans that the GSEs wouldn't even touch?
that's because the BIGGEST sub prime was fannie/freddie
that's because the BIGGEST sub prime was fannie/freddie
Yep. I already posted the data. Fannie, Freddie, and other government agencies were responsible for 58.5% of all subprime loans. Banks, Wall Street, brokerages, etc., were responsible for only 41.5%.
The federal government was the driving force of the subprime mortgage market. Everyone else was just trying to compete with the government.
They all knew it. Former Treasury Secretary Tim Geithner's comment on Fannie and Freddie when interviewed by the Financial Crisis Inquiry Commission in 2009:
"Moralhazard was everywhere and endemic. The biggest source was in the GSEs [Fannie and Freddie]. The GSEs were entirely moral hazard."
The the worst loans, of which there was a considerable volume, never even passed through the GSEs.
The worst of the loans were subprime, made to those with an insufficient credit history and therefore no/low FICO scores, and most of those did indeed pass through the GSEs. I even posted the Fannie Mae document explicitly stating the GSEs wanted to buy loans with extremely loose/inadequate lending standards from Countrywide and other lenders.
Open your eyes and follow the GSEs' own paper trail.
They all knew it. Former Treasury Secretary Tim Geithner's comment on Fannie and Freddie when interviewed by the Financial Crisis Inquiry Commission in 2009:
"Moralhazard was everywhere and endemic. The biggest source was in the GSEs [Fannie and Freddie]. The GSEs were entirely moral hazard."
We conclude that these two entities contributed to the crisis, but were not a pri-
mary cause. Importantly, GSE mortgage securities essentially maintained their value
throughout the crisis and did not contribute to the significant financial firm losses
that were central to the financial crisis.
The GSEs participated in the expansion of subprime and other risky mortgages,
but they followed rather than led Wall Street and other lenders in the rush for fool’s
gold. They purchased the highest rated non-GSE mortgage-backed securities and
their participation in this market added helium to the housing balloon, but their pur-
chases never represented a majority of the market. Those purchases represented 10.5%
of non-GSE subprime mortgage-backed securities in 2001, with the share rising to
40% in 2004, and falling back to 28% by 2008. They relaxed their underwriting stan-
dards to purchase or guarantee riskier loans and related securities in order to meet
stock market analysts’ and investors’ expectations for growth, to regain market share,
and to ensure generous compensation for their executives and employees—justifying
their activities on the broad and sustained public policy support for homeownership.
The Commission also probed the performance of the loans purchased or guaran-
teed by Fannie and Freddie. While they generated substantial losses, delinquency
rates for GSE loans were substantially lower than loans securitized by other financial
firms. For example, data compiled by the Commission for a subset of borrowers with
similar credit scores—scores below 660—show that by the end of 2008, GSE mort-
gages were far less likely to be seriously delinquent than were non-GSE securitized
mortgages: 6.2% versus 28.3%.
If Fannie's and Freddie's held or guaranteed loans were of higher quality than everyone else's, why the huge bailout?
There have been lots of other studies that have come to the same or similar conclusions. My information didn't first come from governmental sources, but it is good to know that the commission came to similar conclusions.
When a bubble pops a lot institutions that otherwise would have done well or experienced just limited problems may also fail. When the real estate bubble popped even people who had previously had good credit started defaulting on their loans. That is the nature of a bubble or deep recession. Which is why it makes sense to stop the collapse before it spreads even further.
The GSEs are highly profitable entities which is demonstrated by the fact that they have repaid the 188 billion and now are paying the Federal Government billions of dollars a year. The size of the bailout does not speak to the quality of the loans. Again many have looked at the issue and the GSE loans, including the GSE low quality loans, in the aggregate where of higher quality then the non-GSE players. This is demonstrated by the default rates between the GSEs and the non-GSEs.
There have been lots of other studies that have come to the same or similar conclusions. My information didn't first come from governmental sources, but it is good to know that the commission came to similar conclusions.
When a bubble pops a lot institutions that otherwise would have done well or experienced just limited problems may also fail.
LOL... Would they fail in a MUCH larger way than any other mortgage originator or buyer? No. Why the much bigger bailout for Fannie and Freddie if the loans they held or sold as MBS were so much better than others'? Come on, man... open your eyes.
LOL... Would they fail in a MUCH larger way than any other mortgage originator or buyer? No. Why the much bigger bailout for Fannie and Freddie if the loans they held or sold as MBS were so much better than others'? Come on, man... open your eyes.
From the commission report.
While they generated substantial losses, delinquency rates for GSE loans were substantially lower than loans securitized by other financial firms. For example, data compiled by the Commission for a subset of borrowers with similar credit scores—scores below 660—show that by the end of 2008, GSE mortgages were far less likely to be seriously delinquent than were non-GSE securitized mortgages: 6.2% versus 28.3%.
6.2% is smaller than 28.3%.
Let me put it this way. If the GSEs experienced a delinquency rate that was the same as the non-GSEs then the GSEs would would have needed a bailout in the range of 800 billion in order to keep them from going under. Fortunately their portfolio of loans were better than the non-GSEs.
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