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125% Loan: Blessing Or Bane?
By JAY ROMANO
Published: July 13, 1997
''This rule will greatly expand the supply of affordable housing across the country,'' said [b]Housing Secretary Andrew M. Cuomo.
The companies(fannie/freddie) buy mortgages for homes and apartment buildings from banks, savings and loans and other mortgage lenders, and package and sell the loans to investors. When Freddie Mac and Fannie Mae buy mortgages from lenders, they provide the lenders with cash to issue new mortgages.
Under the higher goals, the companies would buy an additional $488.3 billion annually in mortgages over the next 10 years for seven million more low- and moderate-income families. The new mortgages would be added to the $1.9 trillion in mortgages for about 21 million families that would have been helped by the current standards.
Mr. Cuomo said that Fannie Mae and Freddie Mac were directing federal regulators on this issue.
============
the said it in 97 ….. buy an additional $488.3 billion annually, over the next 10 years
that was Fannie Mae and Freddie Mac GOAL...…
Can you check your reference? Here is a link to the NYT article and it doesn't contain the quote. I wasn't able to any reference to $488.3 billion annually. I was able to find a HUD press release talking about $488.3 billion over 10 years, which would be 49 billion annually. Many other publications and articles referenced the 10 year goal. Its also not clear that these mortgages would be subprime or not.
Here are the actually results as documented in the FCIC.
By 2004, creators of CDOs were the dominant buyers of the BBB-rated tranches
of mortgage-backed securities, and their bids significantly influenced prices in the
market for these securities. By 2005, they were buying “virtually all” of the BBB
tranches. Just as mortgage-backed securities provided the cash to originate mort-
gages, now CDOs would provide the cash to fund mortgage-backed securities. Also
by 2004, mortgage-backed securities accounted for more than half of the collateral in
CDOs, up from 35% in 2002. Sales of these CDOs more than doubled every year,
jumping from $30 billion in 2003 to $225 billion in 2006. Filling this pipeline would require
hundreds of billions of dollars of subprime and Alt-A mortgages.
The investment banks by 2005 were buying “virtually all” BBB tranches (ie subprime loans).
Overall mortgage indebtedness in the United States climbed from $5.3 trillion in 2001
to $10.5 trillion in 2007.The mortgage debt of American households rose almost as much in the six years from 2001 to 2007 as it had over the course of the country’s more than 200-year history. The amount of mortgage debt per household rose from $91,500 in 2001 to $149,500 in 2007.
...
In an environment of minimal government restrictions, the number of nontradi-
tional loans surged and lending standards declined. The companies issuing these
loans made profits that attracted envious eyes. New lenders entered the field. In-
vestors clamored for mortgage-related securities and borrowers wanted mortgages. The volume of subprime and nontraditional lending rose sharply. In 2000, the top 25
nonprime lenders originated $105 billion in loans. Their volume rose to $188 billion
in 2002, and then $310 billion in 2003.
...
In 2006, $600 billion of subprime loans were originated, most of which were
securitized. That year, subprime lending accounted for 23.5% of all mortgage
originations
So in 6 years subprime went from just over 100 billion representing less than 10% of the market to over 600 billion representing 23.5% of the market.
Clearly something different was occurring in the 2000s. What changed? As you have pointed out the subprime market existed prior to the 2000s. Why did it explode?
The answer is the investment banks and the creation of CDOs using residential mortgages. They believed the MBS would offer them the stability they needed to make the CDOs attractive and the subprime mortgages would offer a higher income stream.
What you're desribing is after the fact. A symptom. The reason behind the lenders doing that?
Congress passed a bill in 2003 that increased the amount of little to no down payment loans. Loans which were rarely made before. They punished lenders with lower "scores" if lenders did not meet certain numbers on those type of loans.
Last edited by Loveshiscountry; 05-27-2018 at 01:40 AM..
Again more babble and claiming deflection when the facts don’t support your preconceived narrative .
Again you deflect and refuse to address what i've posted. Your posts are running joke of denial.
Quote:
Originally Posted by Metsfan53
Listen I get it, you’re not interested in actually learning about the issues at all play. You just want to wallow in your confirmation bias. You are so gung ho with your little theory you literally can’t see the forest for the trees. It’s fine.
Again you've made it about me because you refuse to address what I've posted. Rather childish but consistent.
Quote:
Originally Posted by Metsfan53
I’ve addressed your silly point time and time again and refuted you argument with the actual facts from the events in question.
No you haven't all you've done is deflect and come up with an alternate theory that happened after the fact and is in no way shape or form the cause.
One more time for everyone to see. Watch how this poster deflects and never addresses what I've posted.
Congress forced lenders to lower standards and make loans they rarely made in the past. In 1989 1 in 240 loans was 3 percent down or less because they werent a good risk. Lenders knew this from experieince. In 2007 those loans were common place as now 1 in 3 or 80 in 240 were 3 percent down or less. Basic economic premise when you lower standards, quality and efficiency suffer.
Quote:
Originally Posted by Metsfan53
But anything that doesn’t feed your confirmation bias you call deflection, making things up, or against your rules. It’s akin to debating a third grader. I’m frankly tired of it. Please go back and read the info I’ve given to you, you may learn something.
Again you've made it about me while deflecting from what I've posted since you cannot defend your position.
Quote:
Originally Posted by Metsfan53
However I doubt that’s your goal. Sadly you’ll go on thinking you have a clue. You’ve conflated numerous events across decades, attributed quotes and articles from a decade prior to 08 as proof of your point and highlighted your only knowledge base in the topic is something you probably heard in Fox News or read on Brietbart.
Again you've made it about me while deflecting from what I've posted since you cannot defend your position.
Quote:
Originally Posted by Metsfan53
As to your middle paragraph, I’m not quite sure what that has to do with anything except that it’s yet another silly detail you think backs up your non existent point. Btw the real danger of the 08 collapse was the death of the credit market not so much the stock market, but again I don’t expect you to know this bc you don’t really understand the topic.
Again you've made it about me while deflecting from what I've posted since you cannot defend your position.
One more time for everyone to see. Watch how this poster deflects and never addresses what I've posted.
Congress forced lenders to lower standards and make loans they rarely made in the past. In 1989 1 in 240 loans was 3 percent down or less because they werent a good risk. Lenders knew this from experieince. In 2007 those loans were common place as now 1 in 3 or 80 in 240 were 3 percent down or less. Basic economic premise when you lower standards, quality and efficiency suffer.
Quit running and directly respond to what I've posted. Don't make things up like no one forced lenders to make those loans when in fact it's been pointed out several times how they actually did it.
Again more babble and claiming deflection when the facts don’t support your preconceived narrative . Listen I get it, you’re not interested in actually learning about the issues at all play. You just want to wallow in your confirmation bias. You are so gung ho with your little theory you literally can’t see the forest for the trees. It’s fine. I’ve addressed your silly point time and time again and refuted you argument with the actual facts from the events in question. But anything that doesn’t feed your confirmation bias you call deflection, making things up, or against your rules. It’s akin to debating a third grader. I’m frankly tired of it. Please go back and read the info I’ve given to you, you may learn something. However I doubt that’s your goal. Sadly you’ll go on thinking you have a clue. You’ve conflated numerous events across decades, attributed quotes and articles from a decade prior to 08 as proof of your point and highlighted your only knowledge base in the topic is something you probably heard in Fox News or read on Brietbart. As to your middle paragraph, I’m not quite sure what that has to do with anything except that it’s yet another silly detail you think backs up your non existent point. Btw the real danger of the 08 collapse was the death of the credit market not so much the stock market, but again I don’t expect you to know this bc you don’t really understand the topic.
Bolded to expose your economic ignorance.
hahahahahaha You don't understand what the simple, easy to understand Easy Lending means? hahahahahaha The cause of the Great Depression, the dot com bubble and the housing bubble, the house of cook and you don't understand? hahahahahaha
Quit deflecting and respond to what I said. Don't force lenders to make bad loans and we dont have a boom and bust. But you wont respond to that. You'll be too busy trying to sound important by deflecting.
Do you realize that low and moderate income =/= subprime. Also do you realize that 24 of the top 25 subprime lenders in 2006 were non bank lenders (aka shadow banking system I have been referencing which you clearly don’t comprehend) who were not subjected to federal housing affordability standards?
Making loans that weren't made when left to their own accord.
A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages.
First National Bank of the Berkshires' loan portfolio, which consisted mostly of real estate related loans, is said to "reflect positively" on the bank's efforts to meet CRA requirements. "The bank's most innovative product is a mortgage loan, offered to customers of all income levels, that requires only a 3 percent down payment. In addition, the bank pays most of the closing costs and will escrow those to be paid by the borrowers. According to the bank officer, this product has received tremendous interest and represents about 80 percent of new loan originations," the pamphlet says.
" A huge driver of the demand for subprime loans was the demand for CRA bonds. Banks operating under the CRA could meet their obligations by buying up CRA loans or MBS built from CRA loans. The CRA created a demand that the mortgage servicers were meeting."
Basically anything the can be used to support the actual facts of what happened in 08 aka anything that doesn’t feed the confirmation bias of two posters specifically.
Long story short: the biggest issue I have is the lack of problem-solving in the approach espoused.
It mimics the breakdown in the Financial Crisis Inquiry Commission.
The Commission was given objectives (the inquiry or investigative question part), interviewed those with knowledge, gathered information, et cetera, & all with the intent to recommend long term remedies.
The functions of the Commission were clearly spelled out:
Quote:
To examine the causes of the current financial and economic crisis in the United States, specifically the role of
(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
(D) monetary policy and the availability and terms of credit;
(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
(F) tax treatment of financial products and investments;
(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
(H) credit rating agencies in the financial system, including reliance on credit ratings by financial institutions and federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbank companies;
(K) the concept that certain institutions are 'too-big-to-fail' and its impact on market expectations;
(L) corporate governance, including the impact of company conversions from partnerships to corporations;
(M) compensation structures;
(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
(O) the legal and regulatory structure of the United States housing market;
(P) derivatives and unregulated financial products and practices, including credit default swaps;
(Q) short-selling;
(R) financial-institution reliance on numerical models, including risk models and credit ratings;
(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
(T) the legal and regulatory structure governing investor and mortgagor protection;
(U) financial institutions and government-sponsored enterprises; and
(V) the quality of due diligence undertaken by financial institutions;
(2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;
(3) to submit a report under subsection (h);
(4) to refer to the Attorney General of the United States and any appropriate State attorney general any person that the Commission finds may have violated the laws of the United States in relation to such crisis; and
(5) to build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of the Committee on Banking, Housing, and Urban Affairs of the Senate, the Committee on Financial Services of the House of Representatives, other congressional committees, the Government Accountability Office, other legislative panels, and any other department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States (to the fullest extent permitted by law) with respect to the current financial and economic crisis.
One of the first interviews revealed:
Quote:
On January 13, 2010, Lloyd Blankfein testified before the Commission, that he considered Goldman Sachs' role as primarily that of a market maker, not a creator of the product (i.e.; subprime mortgage-related securities).[7] Goldman Sachs was sued on April 16, 2010 by the SEC for the fraudulent selling of collateralized debt obligations tied to subprime mortgages, a product which Goldman Sachs had created.[8]
& so on.
The Conclusions section of the FCIC report was based on the summary of the evidence gathered. Any recommendations or remedies suggested were based on the conclusions.
From the FCIC report:
The Commission reached nine main conclusions (directly quoted):[12]
We conclude this financial crisis was avoidable.
"There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms' trading activities, unregulated derivatives, and short-term "repo" lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner." The Commission especially singles out the Fed's "failure to stem the flow of toxic mortgages."
We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation's financial markets.
"More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor."
We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
"Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. ... [Large investment banks and bank holding companies] took on enormous exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic financial products." The report goes on to fault "poorly executed acquisition and integration strategies that made effective management more challenging," narrow emphasis on mathematical models of risk as opposed to actual risk, and short-sighted compensation systems at all levels.
We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
"In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt. ... [A]s of 2007, the leverage ratios [of the five major investment banks] were as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm. To make matters worse, much of their borrowing was short-term, in the overnight market—meaning the borrowing had to be renewed each and every day. ... And the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through "window dressing" of financial reports available to the investing public. ... The heavy debt taken on by some financial institutions was exacerbated by the risky assets they were acquiring with that debt. As the mortgage and real estate markets churned out riskier and riskier loans and securities, many financial institutions loaded up on them."
We conclude the government was ill-prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
"[K]ey policy makers ... were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small measure due to the lack of transparency in key markets. They thought risk had been diversified when, in fact, it had been concentrated. ... There was no comprehensive and strategic plan for containment, because they lacked a full understanding of the risks and interconnections in the financial markets. ... While there was some awareness of, or at least a debate about, the housing bubble, the record reflects that senior public officials did not recognize that a bursting of the bubble could threaten the entire financial system. ... In addition, the government's inconsistent handling of major financial institutions during the crisis—the decision to rescue Bear Stearns and then to place Fannie Mae and Freddie Mac into conservatorship, followed by its decision not to save Lehman Brothers and then to save AIG—increased uncertainty and panic in the market."
We conclude there was a systemic breakdown in accountability and ethics.
"In our economy, we expect businesses and individuals to pursue profits, at the same time that they produce products and services of quality and conduct themselves well. Unfortunately ... [l]enders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities. ... And the report documents that major financial institutions ineffectively sampled loans they were purchasing to package and sell to investors. They knew a significant percentage of the sampled loans did not meet their own underwriting standards or those of the originators. Nonetheless, they sold those securities to investors. The Commission's review of many prospectuses provided to investors found that this critical information was not disclosed.
We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
"Many mortgage lenders set the bar so low that lenders simply took eager borrowers' qualifications on faith, often with a willful disregard for a borrower's ability to pay. ... While many of these mortgages were kept on banks' books, the bigger money came from global investors who clamored to put their cash into newly created mortgage-related securities. It appeared to financial institutions, investors, and regulators alike that risk had been conquered. ... But each step in the mortgage securitization pipeline depended on the next step to keep demand going. From the speculators who flipped houses to the mortgage brokers who scouted the loans, to the lenders who issued the mortgages, to the financial firms that created the mortgage-backed securities, collateralized debt obligations (CDOs), CDOs squared, and synthetic CDOs: no one in this pipeline of toxic mortgages had enough skin in the game. When borrowers stopped making mortgage payments, the losses—amplified by derivatives—rushed through the pipeline. As it turned out, these losses were concentrated in a set of systemically important financial institutions."
We conclude over-the-counter derivatives contributed significantly to this crisis.
"The enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis. ... OTC derivatives contributed to the crisis in three significant ways. First, one type of derivative—credit default swaps (CDS) fueled the mortgage securitization pipeline. CDS were sold to investors to protect against the default or decline in value of mortgage-related securities backed by risky loans. ... Second, CDS were essential to the creation of synthetic CDOs. These synthetic CDOs were merely bets on the performance of real mortgage-related securities. They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system. ... Finally, when the housing bubble popped and crisis followed, derivatives were in the center of the storm. AIG, which had not been required to put aside capital reserves as a cushion for the protection it was selling, was bailed out when it could not meet its obligations. The government ultimately committed more than $180 billion because of concerns that AIG's collapse would trigger cascading losses throughout the global financial system. In addition, the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions."
We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
"The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. ... [T]he forces at work behind the breakdowns at Moody's ... includ[ed] the flawed computer models, the pressure from financial firms that paid for the ratings, the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight."
To refuse to consider the various factors involved?
To insist on a 'tunnel vision' so extreme as to ban the use of certain words/phrases in an alternate version as a legitimate dissent?
The last is not only foolish & as something from George Orwell's 1984 ~ it was clearly shirking their responsible to carry out the function of the Commission itself.
& at the American taxpayer's expense ~ literally 'adding insult to injury'.
& now we're at the same o lame o junction again.
Sometimes I wonder why Mr. Pecora's investigative inquiries & report yielded such effective remedies while the more recent FCIC has not. Perhaps much of it has to do with the suffering created & then experienced by the American people during the Great Depression.
Lloyd Blankfein famously stated the bankers are 'doing God's work'. Perhaps more people in the present day believe him.
Honestly, I do not know. How would I know?
Again objectively, many things have changed since that time & that, of course, is another story.
Making loans that weren't made when left to their own accord.
A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages.
First National Bank of the Berkshires' loan portfolio, which consisted mostly of real estate related loans, is said to "reflect positively" on the bank's efforts to meet CRA requirements. "The bank's most innovative product is a mortgage loan, offered to customers of all income levels, that requires only a 3 percent down payment. In addition, the bank pays most of the closing costs and will escrow those to be paid by the borrowers. According to the bank officer, this product has received tremendous interest and represents about 80 percent of new loan originations," the pamphlet says.
" A huge driver of the demand for subprime loans was the demand for CRA bonds. Banks operating under the CRA could meet their obligations by buying up CRA loans or MBS built from CRA loans. The CRA created a demand that the mortgage servicers were meeting."
So again you don’t understand what I posted so you can’t even figure out how to respond correctly.
Bolded to expose your economic ignorance.
hahahahahaha You don't understand what the simple, easy to understand Easy Lending means? hahahahahaha The cause of the Great Depression, the dot com bubble and the housing bubble, the house of cook and you don't understand? hahahahahaha
Quit deflecting and respond to what I said. Don't force lenders to make bad loans and we dont have a boom and bust. But you wont respond to that. You'll be too busy trying to sound important by deflecting.
Except relaxed lending standards don’t create cdo or CDs products don’t create huge leverage don’t explode derivatives market. But again you seem tobe able to comprehend thatyou are only focusing on one part of the equation. But again post non sequitors and claim it supports your failed argument.
What you're desribing is after the fact. A symptom. The reason behind the lenders doing that?
Congress passed a bill in 2003 that increased the amount of little to no down payment loans. Loans which were rarely made before. They punished lenders with lower "scores" if lenders did not meet certain numbers on those type of loans.
I've posted the documentation in this thread time and time again. By the 2000s the investment banks created a demand for subprime loans. The investment banks needed the subprime loans. The investment banks couldn't find enough subprime loans, despite the fact that volume of subprime loans had gone from 100 billion a year to 600 billion a year, so they started buying subprime originators in order to guarantee a supply. The investment banks were not under a congressional mandate to do this. Investment banks motivation was profit and for nearly a decade the investment banks made billions of dollars off of subprime loans.
Therefore it is not after the fact. Its why suddenly there was all this capital to fund subprime mortgages.
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