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Old 05-30-2018, 10:19 AM
 
Location: Alameda, CA
7,605 posts, read 4,822,457 times
Reputation: 1438

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Quote:
Originally Posted by Loveshiscountry View Post
Incorrect
From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features

Many of these companies are middlemen who arrange mortgage loans for borrowers — including "subprime" borrowers — with banks, including CRA-regulated banks.

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.

From the very same link you provided
Following the dot-com bust in 2000, the Federal Reserve dropped rates to 1 percent and kept them there for an extended period. This caused a spiral in anything priced in dollars (i.e., oil, gold) or credit (i.e., housing) or liquidity driven (i.e., stocks).

You don't think government is responsible? The drop was the incentive.



You missed this earlier.

In the early 1990s, Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick ** beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."

She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting." Not just that they were CRA but that they were little to no down payment. Something that was rarely done in the past that became common place.

Government - "We need more mortgages"
People - "The biggest obstacle is a sizeable down payment"
Government - "We'll pass rules that ignore the free market and force lenders to make little to no down payment loans"

"The government pushed for greater mortgage securitization in an effort to increase CRA lending. At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of "affordable" mortgages. The government was intentionally decreasing the risks to the original lenders in order to increase loans to low-income borrowers, and minorities in particular."

>>>>>> TWO TRILLION!!!!!! <<<<<<<

**Just words right? No incentives or proof of incentives?
Jamie Gorelick Clinton Administration lawyer whom he appointed in 1997 to be Fannie Mae vice chairman despite having no formal financial experience – received over $26 million. Just by way of reference, in 2002, 21 senior Fannie Mae executives received over $1 million each.

GSEs were “regulated” by the Office of Federal Housing Enterprise Oversight (OFHEO), which was a part of HUD

I want you to think about this and respond. Do you actually think government is going to go through all the trouble of passing bills and not act on it? Is that what happens?
Prohibition was probably the most controversial and broken bill, yet it was also enforced quite a bit.
Was it the GSEs attempting to satisfy their goals or the investment banks entering a new market for them that drove the growth of subprime?


The following is from another study looking at what actually occurred.



https://files.stlouisfed.org/files/h.../Van_Order.pdf

From 2003 to 2007, the growth of outstanding mortgage debt accelerated to 11.9% per year but
the volume of outstanding mortgages financed by the GSEs rose by just 7.6% per year. On a
cumulative basis, the overall mortgage market grew 31% faster than the volume of mortgages
funded by the GSEs over this period
. This shift involved two related developments: (1) the share
of total outstanding mortgage debt financed by the issuance of “nonagency” or “private label”
asset-backed securities (PLS) grew by 219% over this period; and (2) the origination of non-
traditional mortgage products, like subprime (generally poor credit history and other negative
attributes like low downpayments and less than full documentation) and Alt-A loans (seemingly
prime but with a flaw, typically low documentations) that would not normally meet GSE
underwriting criteria also grew exponentially. These factors were associated with the share of
mortgages financed by the GSEs falling from 52% at the end of 2002 to 44% at the end of 2006.
...
The dramatic growth in PLS issuance was the capital markets’ manifestation of the increase in
the origination of nontraditional mortgage products outside of the GSE channel. According to
the Government Accounting Office (GAO), “nonprime” mortgage loans (subprime plus Alt-A) accounted
for 34% of the overall mortgage market in 2006. From 2001 to 2005, the dollar
volume of subprime mortgages increased from $100 billion to $600 billion, while Alt-A
mortgages grew from $25 billion to $400 billion over roughly the same period.
As with the
growth in PLS outstanding, the volume of subprime and Alt-A mortgage origination increased
most dramatically in the middle of the decade. Combined annual subprime and Alt-A
origination grew from an estimated $171 billion in 2002 to $877 billion in 2005, an annualized
growth rate of 72%.



Notice that the annual issuance of subprime + Alt-A mortgages is almost >>>ONE TRILLION<<< a year. While I believe Cuomo's commitment was over 10 years so that would be 200 billion a year of mostly as it turned out Alt-A.


Bottom Line the GSEs were not the primary buyers of the huge increase in subprime loans. The money for most of those loans was coming from the investment banks.
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Old 05-30-2018, 10:22 AM
 
Location: Alameda, CA
7,605 posts, read 4,822,457 times
Reputation: 1438
Quote:
Originally Posted by workingclasshero View Post
the greed was from the buyers

the greed from buyers who wanted mcmansions will all the bells for nothing down, interest only, no-doc

the greed from the realtors who knew if we sell this so high, more commission for us


I saw my basic Longisland house go from 140k in 95 to over 460k in 05....tripling in a 10 year span.....


had nothing to do with packaging of mortgages...had to do with the ACTUAL MORTGAGE, and mortgages being GIVEN to people who NEVER WOULD HAVE QUALIFIED under the free market... but they sure qualified under the government mandates
"who NEVER WOULD HAVE QUALIFIED under the free market"


Perhaps the disagreement is with definition of terms. How do you define the "free market."


Wouldn't investment banks operating in a largely unregulated segment of a market be considered operating in the "free market?"
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Old 05-30-2018, 11:18 AM
 
3,992 posts, read 2,440,916 times
Reputation: 2350
Quote:
Originally Posted by Loveshiscountry View Post
Keep ignoring the fact that government put rules in place and forced lenders to make a plethora of bad loans they rarely made in the past. Keep deflecting and don't respond to that statement. Why would you respond to my statement since it would out your nonsense as nothing more than a symptom.

Fact - In 1989 1 out of every 240 mortgages was little to no money down while in 2007 it was 80 in 240. Explain how the free market does that. Keep ignoring that.

I've addressed all the symptoms you posted and not once, not once have you responded to what I've posted which is the cause.


you keep harping on the government regulations -yet its' been proven throughout this post the VAST majority of subprime loans were made by entities not subject to those regulations (So indeed your statement/cliam has been addressed numerous times, just bc you don't like the answer or cant refute the facts doesn't mean it hasn't).


For someone who accuses others of deflecting you sure do love to deflect that fact. You accuse others of making up facts- then when presented with the origin of said facts you scurry away or move on to another inane accusation or non sequitur. I'm honestly having a hard time deciding if you just cant grasp the facts regarding the topic at hand or If you're one of those people who can't admit when they are wrong and just dig in and refuse to acknowledge your error.


As to your diatribe in bold, as has been pointed out many times on the thread if you had bothered to pay attention or could manage to keep up, those loans paid more to both originator and investor, thus in an environment where the players (who were not bound by government regulations as discussed ad nuaseam) assumed they had marginalized the risk associated with those loans, their market share increased; isn't that pretty much the definition of the free market?
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Old 05-30-2018, 11:17 PM
 
Location: Texas
37,941 posts, read 17,744,268 times
Reputation: 10366
Quote:
Originally Posted by Metsfan53 View Post
you keep harping on the government regulations -yet its' been proven throughout this post the VAST majority of subprime loans were made by entities not subject to those regulations (So indeed your statement/cliam has been addressed numerous times, just bc you don't like the answer or cant refute the facts doesn't mean it hasn't).
No it hasn'tbeen proven. You made that up


Quote:
Originally Posted by Metsfan53 View Post
For someone who accuses others of deflecting you sure do love to deflect that fact. You accuse others of making up facts- then when presented with the origin of said facts you scurry away or move on to another inane accusation or non sequitur. I'm honestly having a hard time deciding if you just cant grasp the facts regarding the topic at hand or If you're one of those people who can't admit when they are wrong and just dig in and refuse to acknowledge your error.
Respond to what I posted and quit deflecting


Quote:
Originally Posted by Metsfan53 View Post
As to your diatribe in bold, as has been pointed out many times on the thread if you had bothered to pay attention or could manage to keep up, those loans paid more to both originator and investor, thus in an environment where the players (who were not bound by government regulations as discussed ad nuaseam) assumed they had marginalized the risk associated with those loans, their market share increased; isn't that pretty much the definition of the free market?
Keep ignoring the fact that government put rules in place and forced lenders to make a plethora of bad loans they rarely made in the past. Keep deflecting and don't respond to that statement. Why would you respond to my statement since it would out your nonsense as nothing more than a symptom.

Fact - In 1989 1 out of every 240 mortgages was little to no money down while in 2007 it was 80 in 240. Explain how the free market does that. Keep ignoring that.

I've addressed all the symptoms you posted and not once, not once have you responded to what I've posted which is the cause.
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Old 05-30-2018, 11:19 PM
 
Location: Texas
37,941 posts, read 17,744,268 times
Reputation: 10366
Quote:
Originally Posted by WilliamSmyth View Post
"who NEVER WOULD HAVE QUALIFIED under the free market"


Perhaps the disagreement is with definition of terms. How do you define the "free market."


Wouldn't investment banks operating in a largely unregulated segment of a market be considered operating in the "free market?"
In 1989 1 out of every 240 mortgages was little to no money down while in 2007 it was 80 in 240. Explain how the free market does that.

It's not the free market when it all started with a managed market.
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Old 05-30-2018, 11:21 PM
 
Location: Texas
37,941 posts, read 17,744,268 times
Reputation: 10366
Quote:
Originally Posted by WilliamSmyth View Post
Was it the GSEs attempting to satisfy their goals or the investment banks entering a new market for them that drove the growth of subprime?


The following is from another study looking at what actually occurred.



https://files.stlouisfed.org/files/h.../Van_Order.pdf

From 2003 to 2007, the growth of outstanding mortgage debt accelerated to 11.9% per year but
the volume of outstanding mortgages financed by the GSEs rose by just 7.6% per year. On a
cumulative basis, the overall mortgage market grew 31% faster than the volume of mortgages
funded by the GSEs over this period
. This shift involved two related developments: (1) the share
of total outstanding mortgage debt financed by the issuance of “nonagency” or “private label”
asset-backed securities (PLS) grew by 219% over this period; and (2) the origination of non-
traditional mortgage products, like subprime (generally poor credit history and other negative
attributes like low downpayments and less than full documentation) and Alt-A loans (seemingly
prime but with a flaw, typically low documentations) that would not normally meet GSE
underwriting criteria also grew exponentially. These factors were associated with the share of
mortgages financed by the GSEs falling from 52% at the end of 2002 to 44% at the end of 2006.
...
The dramatic growth in PLS issuance was the capital markets’ manifestation of the increase in
the origination of nontraditional mortgage products outside of the GSE channel. According to
the Government Accounting Office (GAO), “nonprime” mortgage loans (subprime plus Alt-A) accounted
for 34% of the overall mortgage market in 2006. From 2001 to 2005, the dollar
volume of subprime mortgages increased from $100 billion to $600 billion, while Alt-A
mortgages grew from $25 billion to $400 billion over roughly the same period.
As with the
growth in PLS outstanding, the volume of subprime and Alt-A mortgage origination increased
most dramatically in the middle of the decade. Combined annual subprime and Alt-A
origination grew from an estimated $171 billion in 2002 to $877 billion in 2005, an annualized
growth rate of 72%.



Notice that the annual issuance of subprime + Alt-A mortgages is almost >>>ONE TRILLION<<< a year. While I believe Cuomo's commitment was over 10 years so that would be 200 billion a year of mostly as it turned out Alt-A.


Bottom Line the GSEs were not the primary buyers of the huge increase in subprime loans. The money for most of those loans was coming from the investment banks.
It's not just GSE but all horrible loans. Not just CRA specific but CRA type of loans which were 3 percent down or less.

"The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required. 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."

We know this, in 2007 1 in 3 mortgages were 3 percent down or less. That 45 percent of all first time mortgages, defined as not having a mortgage in the last three years, were no money down.

When the Fed lowered interest rates to next to nothing for all is that the free market or a managed market? I'm getting a 5% offer from the Fed so I can't make money or it's not a good risk to offer sub prime loans. I'm getting a 1% offer so now I'll take a chance on sub prime loans. Don't entice lenders by lowering standards.

Don't forget those who refinance. No need/enticement to refinance when interest rates are X but now that they are .2X why not refinance? Demand artificially created.

Plus more proof lenders were pressured.

"Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming."

"the CRA exam induces lending to riskier borrowers both in CRA eligible tracts as well as to low-income borrowers in non-CRA-eligible tracts."
Exact same bad loan but not considered CRA.

Why make those loans if they weren't under pressure?

"Under the rules, banks are banned from denying or raising the cost of banking to residents of low-income and minority neighborhoods. Banks also get graded based on how much credit they provide for mortgages and apartments as well as how many branches they have in low-income areas. In other words, banks aren't allowed to cater only to rich customers."

"But as banks expanded their deposit bases and other businesses, they often found that they were at risk of regulators discovering they had fallen behind in making CRA loans.

One way of addressing this problem was buying the loans in the secondary market. Mortgage companies like Countrywide began to serve this entirely artificial demand for CRA loans. Countrywide marketed its loans directly to banks as a way for them to meet CRA obligations."

Which banks do not fall under those regulations? non FDIC banks? How many of those are around?
And what about those that did not CURRENTLY fall under those regulations?

Regulators threatened that if the mortgage companies didn't step up to the plate by relaxing lending standards they would be brought under the CRA umbrella and required to do so.

"Freddie Mac began an "alternative qualifying" program with the Sears Mortgage Corporation that let a borrower qualify for a loan with a monthly payment as high as 50 percent of his income, at a time when most private mortgage companies wouldn't exceed 33 percent. The program also allowed borrowers with bad credit to get mortgages if they took credit-counseling classes administered by Acorn and other nonprofits. Subsequent research would show that such classes have little impact on default rates."

Clinton administration pressuring nonbank lenders to make more loans to poor minorities or they'd seek to extend CRA regulations to all mortgage makers.

"In Congress, Representative Maxine Waters called financial firms not covered by the CRA "among the most egregious redliners." To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial"

All created with government mischief.

Last edited by Loveshiscountry; 05-31-2018 at 12:16 AM..
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Old 05-31-2018, 12:20 AM
 
3,992 posts, read 2,440,916 times
Reputation: 2350
Quote:
Originally Posted by Loveshiscountry View Post
No it hasn'tbeen proven. You made that up


Respond to what I posted and quit deflecting




Keep ignoring the fact that government put rules in place and forced lenders to make a plethora of bad loans they rarely made in the past. Keep deflecting and don't respond to that statement. Why would you respond to my statement since it would out your nonsense as nothing more than a symptom.

Fact - In 1989 1 out of every 240 mortgages was little to no money down while in 2007 it was 80 in 240. Explain how the free market does that. Keep ignoring that.

I've addressed all the symptoms you posted and not once, not once have you responded to what I've posted which is the cause.
You’ve been proven wrong over and over again by myself and several other posters using the facts of what actually transpired and cited as such which you have not been able to refute. Just bc you cannot seem to accept that you are wrong doesn’t make it untrue.
When you are faced with facts that prove your argument invalid you cannot counter, instead you ignore facts you cannot refute, claim the facts are made up, or somehow claim these facts are somehow deflection even when provided source material. It’s not an effective debate tool. It only highlights how hollow your thesis is, especially when you simply double down on your ineffective points over and over again even as they are disproven time and time again.
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Old 05-31-2018, 01:30 AM
 
6,790 posts, read 8,172,206 times
Reputation: 6997
Quote:
Originally Posted by Metsfan53 View Post
You’ve been proven wrong over and over again by myself and several other posters using the facts of what actually transpired and cited as such which you have not been able to refute. Just bc you cannot seem to accept that you are wrong doesn’t make it untrue.
When you are faced with facts that prove your argument invalid you cannot counter, instead you ignore facts you cannot refute, claim the facts are made up, or somehow claim these facts are somehow deflection even when provided source material. It’s not an effective debate tool. It only highlights how hollow your thesis is, especially when you simply double down on your ineffective points over and over again even as they are disproven time and time again.
I cannot rep you again but this post sums it up perfectly. There are a number of posters on CD who will continue like this ad nauseam.
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Old 05-31-2018, 10:01 AM
 
Location: Alameda, CA
7,605 posts, read 4,822,457 times
Reputation: 1438
Quote:
Originally Posted by Loveshiscountry View Post
In 1989 1 out of every 240 mortgages was little to no money down while in 2007 it was 80 in 240. Explain how the free market does that.

It's not the free market when it all started with a managed market.
So your postilion is that because subprime existed before the investment banks voluntarily adopted and promoted the crap out of subprime their voluntary actions can't be considered part of the "free market." That assertion makes no logical sense.


"Explain how the free market does that."
I've explained it multiple times, but I will give the short hand version again.
1) Investment banks want to make profits.
2) Huge profits can be made buy selling CDOs, particularly those with high income streams.
3) CDOs are especially good at selling otherwise toxic assets for a profit because of how they are structured.
4) Investment banks choose (voluntarily) to use subprime residential mortgages as the primary asset of their new CDOs because of the high income streams generated from subprime.
5) Demand for subprime mortgages increases to fill pipeline for CDOs.
6) Supply of subprime comes under pressure
7) Investment banks and their intermediaries design new types of mortgages to make them more attractive to borrowers.

That is how the free market generates demand for subprime. The investment bank demand for subprime far exceeded in GSE purchases of subprime.
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Old 05-31-2018, 10:05 AM
 
3,992 posts, read 2,440,916 times
Reputation: 2350
Quote:
Originally Posted by WilliamSmyth View Post
So your postilion is that because subprime existed before the investment banks voluntarily adopted and promoted the crap out of subprime their voluntary actions can't be considered part of the "free market." That assertion makes no logical sense.


"Explain how the free market does that."
I've explained it multiple times, but I will give the short hand version again.
1) Investment banks want to make profits.
2) Huge profits can be made buy selling CDOs, particularly those with high income streams.
3) CDOs are especially good at selling otherwise toxic assets for a profit because of how they are structured.
4) Investment banks choose (voluntarily) to use subprime residential mortgages as the primary asset of their new CDOs because of the high income streams generated from subprime.
5) Demand for subprime mortgages increases to fill pipeline for CDOs.
6) Supply of subprime comes under pressure
7) Investment banks and their intermediaries design new types of mortgages to make them more attractive to borrowers.

That is how the free market generates demand for subprime. The investment bank demand for subprime far exceeded in GSE purchases of subprime.
honestly I'm done on this thread- it's no longer about having an actual discussion on root causes of 08 crisis or why reversing Dodd Frank is wrong; it's devolved into two posters simply spamming the thread with the same gibberish over and over again to push their preconceived political narrative because they refuse to accept they are wrong even after they are provided hard evidence of such time and time again.
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