Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Bush was a consistently strong advocate for affordable housing.
The Bush Admin advocated for a super regulator of FNMA/FHLMC in the latter part of 2003. Barney Frank resisted. Be aware that Republicans controlled both chambers at the time.
FHLMC/FNMA market share declined as the sub prime housing bubble grew.
What killed the GSEs were their investments of their own capital in private label junk bonds, deemed investment grade by the independent investment rating agencies. How likely would a super regulator have questioned these GSE investments of their own capital into investment grade securities?
Do you think the 2004 SEC ruling that reduced the Net Capital Requirements for the fab five, Goldman, Morgan Stanley, Merrill Lynch, Bear Stearns and Lehman that substantially allowed them unprecedented leverage had something to do with all that followed? Any of these names ring a bell?
...In 1995, the Clinton Administration changed the law governing GSEs' mission -- the Community Reinvestment Act (CRA) -- to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks' lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank's lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods -- which involved reducing mortgage loan standards -- or face backlash from those organizations' private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions through Fannie Mae, the government controlled banks' mortgage lending activity rates.
As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae. Banks could even buy the mortgages back from Fannie Mae, with Fannie's payment guarantee, thereby eliminating the credit risk (as long as Fannie was government backed). Now, if the US federal government is behind Fannie - and the government has a perfect credit record - there is really little worry for banks, so they might as well make all the mortgages Fannie Mae is willing to buy, and purchase all the guaranteed debt Fannie puts up for sale. However, to the extent investors ever believed Fannie was just like any other company -- without the US government guaranteeing its debts, at least in bulk -- well that would be a different story. The risks involved would go from theoretically near zero, to well, who knows... Throughout the Congressional debate on GSE regulations in 2003-2005, senior Congressional Democrats repeatedly inferred -- even directly stated on at least one public occasion -- the US federal government would bail Fannie Mae out if required.
In written law, the US government only 100% guarantees Ginnie Mae. The other major two GSEs, Fannie Mae and Freddie Mac, exist in more of a grey area. Nothing explicitly states the federal government is 100% behind them, but it has always been implied. That is why statements of top government officials in the run up to the bubble are so very important, as are actions like the US President personally appointing Fannie's CEO and directors.
From 1993-1999, the Clinton Administration replaced many of Fannie Mae's key executives, including the CEO, the CEO's number two, and nearly half the board of directiors. As a government sponsored enterprise (GSE), the President had the authority to make those appointments. The board, which increasingly consisted of Presidential appointments, then worked with the new CEO to change Fannie Mae executives' salary structures in order to incentivize them to reach higher mortgage targets. More specifically, the board promised senior executive millions in bonuses each year as long as Fannie reported certain earnings figures. Just a quick reminder... Fannie's ability to reach earnings targets is directly related to the number of mortgages it buys, as long as those mortgages do not default or as long as Fannie executives do not recognize negative changes in the payment flow.
Bush was a consistently strong advocate for affordable housing.
The Bush Admin advocated for a super regulator of FNMA/FHLMC in the latter part of 2003. Barney Frank resisted. Be aware that Republicans controlled both chambers at the time.
FHLMC/FNMA market share declined as the sub prime housing bubble grew.
What killed the GSEs were their investments of their own capital in private label junk bonds, deemed investment grade by the independent investment rating agencies. How likely would a super regulator have questioned these GSE investments of their own capital into investment grade securities?
Do you think the 2004 SEC ruling that reduced the Net Capital Requirements for the fab five, Goldman, Morgan Stanley, Merrill Lynch, Bear Stearns and Lehman that substantially allowed them unprecedented leverage had something to do with all that followed? Any of these names ring a bell?
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
.......... the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
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. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Defending Home Turf From Attack; Fannie Mae Is Facing Assault By House Panel and Business Rivals
By RICHARD W. STEVENSON
Published: April 22, 2000
WASHINGTON, April 18— Fannie Mae, the giant company created by the government decades ago to help make mortgages available to home buyers, is no stranger to hardball politics or high-stakes finance, having established itself as a power to be reckoned with both in Washington and on Wall Street.
Shareholder owned but federally chartered, it is an odd hybrid that dominates the business of channeling money between lenders and Wall Street by buying mortgages and packaging them into securities. Its chief executive, Franklin D. Raines, is a former White House budget director whose name has been floated by Vice President Al Gore's presidential campaign as a possibility for the No. 2 spot on the Democratic ticket, and its executives have close ties to both parties.
But the company's very size and influence have now put it in the middle of a firestorm. Together with several smaller government-chartered corporations, Fannie Mae could soon supplant the federal government as the benchmark for creditworthiness in the bond market, a possibility that has already set off emotional sparring between the company and the Treasury Department.
The sharp reaction in the bond market was in large part a function of forecasts that Fannie Mae and the other such enterprises would within three years have more debt outstanding among investors and financial institutions than the United States Treasury.
Unlike Treasury debt, the debt issued by Fannie Mae and Freddie Mac to help finance mortgages is not backed by the full faith and credit of the United States government. But investors have long perceived that the government has made an unwritten commitment to treat Fannie Mae and Freddie Mac as too big to fail.
Although the implicit guarantee has not been tested -- and indeed is explicitly contradicted in the offering documents for the debt the companies sell -- it has nonetheless generally allowed Fannie Mae and Freddie Mac to borrow money at lower interest rates than any entity short of the government.
In an interview, Mr. Raines of Fannie Mae suggested that the Treasury Department's expression of interest in reconsidering the benefits and potential risks of government-sponsored enterprises was motivated by a combination of ideological opposition to government support for a company operating in the capital markets and a reluctance to give up the influence it exerts in the markets as the issuer of the benchmark security.
Government-sponsored enterprise debt also is counted as safer than traditional corporate debt by regulators when they assess the financial strength of banks. As a result, many banks have made such debt a big part of their capital base, a situation that has left some regulators and members of Congress speculating about the implications for the financial system if Fannie Mae or Freddie Mac were to get into serious financial trouble.
Even as he stressed that Fannie Mae and Freddie Mac were healthy and profitable, Mr. Baker said that to ignore ''the potential impact of a misstep'' by one or both of the companies ''is to flirt with a potential disaster.''
Should the government-sponsored housing companies continue to grow unchecked in size and influence, Mr. Baker told the hearing, the government might ultimately find itself on the hook for a bailout that would be financed out of ''your constituent's wallet.''
Fannie Mae quickly responded that the comparison to a high-risk hedge fund was ''unfounded,'' and that the company exceeds all regulatory standards for financial strength.
Invoking the defense that his company has used successfully for years, David Jeffers, a spokesman for Fannie Mae, said that a proposal by Mr. Baker to tighten regulation of Fannie Mae and Freddie Mac ''is going nowhere because it is antihousing.''
125% Loan: Blessing Or Bane?
By JAY ROMANO
Published: July 13, 1997
RESPONDING to the seemingly insatiable demand by borrowers for ever more exotic forms of credit, some aggressive lenders have brought to market a rather unconventional mortgage product: the 125 percent loan.
With such a loan, homeowners -- even those with less-than-pristine credit -- can borrow up to 125 percent of the market value of their homes by pledging collateral that doesn't exist.
Lenders who make such loans say they are effective credit tools that can be used by homeowners to raise cash for unexpected expenditures, get out from under high-interest credit-card debt or pay for home improvements that will in turn increase the owner's equity.
''The underwriting criteria (from the government) are actually more flexible,'' Mr. Levy said. ''They allow more dinks on your credit and a more narrow spread between what you make and what you pay out.''
And that is just what concerns Mr. Bader of Skyscraper Mortgage.
''The person who couldn't qualify for an ordinary home equity loan at 8 percent is now borrowing even more money at 14 percent,'' Mr. Bader said, adding that anyone thinking about taking out such a loan should contemplate the following:
U.S. Proposes Rules to Help House Buyers
Published: March 05, 2000
The federal government has proposed new rules that would make it easier for low-income house buyers to qualify for mortgage loans, a move intended to help blacks and other minorities buy houses.
The proposed rules from the Department of Housing and Urban Development would require two of the largest housing finance companies in the country, Fannie Mae and Freddie Mac, to increase the percentages of overall loans that they offer to lower-income families from the current standard of 42 percent to 48 percent in 2000 and to 50 percent in 2001.
The companies would be required over the next 10 years to buy $2.4 trillion in mortgages from banks and other lenders to assist the 28 million American families with low and moderate incomes. Many of those families are minorities, housing officials said.
''This rule will greatly expand the supply of affordable housing across the country,'' said 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 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 cooperating with federal regulators on this issue. The Housing Department said it was reviewing fair-lending practices at Fannie Mae. The two companies can do more, Mr. Cuomo said, and that led to the elevated goals.
The requirements for mortgage purchases were last set in 1995. The goals were up for renewal this year, as required by Congress. The housing administration could have lowered the goals or have left them unchanged.
FNMA/FHLMC and their independent public accountants had some serious accounting challenges in 2000/2001 and the scandals hit the fan in 2003. That's what prompted the consideration for a super regulator. It had nothing to do with the housing bubble. Regardless, a Republican majority choose to abandon the super regulator concept. Politics as usual.
A healthy economy depends on lowering spending during a recession. You need to drive a market to it's true bottom for a healthy rebound to occur. You aren't holding Obama to the same standard given the excess spending he has done relative to our economic performance.
Obviously that is how GDP is calculated. It also isn't a surprise that the investment portion of the GDP figures is low given the current regulation as well as promise of future tax increases put forth by Obama's administration.
Ah, the ole expansion through austerity measures thing.
Ah, the ole expansion through austerity measures thing.
I am approaching this from a long-term macro level. If we want to help people today, or even in the next 10-15 years my ideas would not work.
That being said, I would rather suffer in the short term (again, 10-15 years) so that the next generation has a very healthy economic system than do what we are doing today.
Bush's mission to get 5.5 million low income minorities mortgages when they would not otherwise qualify for them.
Mobilizing the Private Sector: America's Homeownership Challenge
Establish a national goal of at least5.5 millionnew minority homeowners before the end of the decade.
Challenge the private sector real estate and mortgage finance industries to dramatically increase their efforts to reduce the barriers to homeownership faced by minority families and to work with the nonprofit sector in a concerted effort to achieve this goal through national and local partnerships.
Convene a White House Conference on Increasing Minority Homeownership, to highlight the homeownership barriers faced by minorities and develop proposed solutions.
A substantial increase of at least $440 billion in the financial commitment made by the government-sponsored enterprises involved in the secondary mortgage market, specifically targeted toward the minority market;
Twenty-five different local initiatives to be undertaken across the nation, geared toward eliminating the specific homeownership barriers faced by minority families in those communities;
A commitment to raise $750 million in below-market-rate investments by 2007, which will work in collaboration with local homeownership initiatives and be targeted to heavily minority program areas;
Pursuing strategic partnerships in 20 top housing markets between homebuilders, lenders, local officials, and community leaders to develop approaches that address the local challenges to building homes for minority families living in urban centers;
Establishing of faith-based housing partnerships between the participants and at least 100 churches, mosques, synagogues, and other faith-based institutions;
Aggressively developing new mortgage products so that conventional market alternatives are available to combat the predatory loan products that are disproportionately targeted to minorities;
Creating new mortgage products to meet the unique needs of recent immigrants;
Dramatically expanding financial education efforts for minorities, providing financial counseling to at least 380,000 minority families, and taking measures at the local level to reduce predatory lending; and
Establishing multilingual, consumer-oriented internet Web sites designed to help minorities overcome barriers to homeownership, including creation of a central data bank of affordable housing programs made available to real estate agents when working with clients
THEY STARTED GETTING JUNK LOANS IN 1995
[quote=workingclasshero;31471844]go back even further
__________________________________________________ ___
Nothing within CRA compelled a bank to lend to anyone with a pulse.
Pre the Great Depression, one typically needed 50% down to buy a home and the mortgage note matured in 5 years. At that time the borrower could pay it off or refinance at the current interest rate. The consumer had the long term interest rate risk.
About 50% of homes went into foreclosure during the Great Depression.
The GI bill in 1944 was the first shot at making it easier for people to afford their own home. The zero down feature allowed returning veterans to acquire a home with no skin in the game. A VA loan is, by it's very nature, a sub prime loan.
Fast forward to the housing bubble, the dirtiest sub primes were not insured, guaranteed or facilitated by government. The source of funding these dogs came from the cream of the crop global investment community, pension, plans, retirement funds, mutual funds, insurance companies, global banks and FHLMC/FNMA. They invested in these private label derivatives because the independent credit rating agencies deemed them investment grade.
Had this junk not been rated investment grade, these investments would not have occurred and thus the source of funding the dirtiest of the sub prime would have dried up. The bubble would have been mitigated.
Last edited by middle-aged mom; 09-19-2013 at 12:14 PM..
Nothing within CRA compelled a bank to lend to anyone with a pulse.
uhm...not the carter CRA
but when the CHIEF OF HUD, (who sets the FEDERAL STANDARDS) changes the RULES
the housing crash was due to clinton and his ""The National Homeownership Strategy: Partners in the American Dream. "", directed by his chief of hud henry cisneros and later andrew cuomo
it had nothing to do with ''black''' but to due with ''''poor''''.....In short, it encouraged mortgage lenders to loosen-up their requirements for those seeking mortgages, thus making home ownership available to those who otherwise wouldn't qualify - in other words, for those who couldn't afford it.
The government, as a result, relaxed requirements for the federal guarantee on those mortgages(fannie/freddie): lowered income to payment ratio, relaxed income verification, reduced (or eliminated) down payments, etc. Mortgage lenders, as ones who issued those government backed loans, were encouraged - or possibly directed - to follow suit. (I say directed to follow suit because those lenders had to follow government rules if they wanted to continue to be able to issue FHA loans.)
Quote:
The National Homeownership Strategy: Partners in the American Dream, is a "..... public-private partnership working to dramatically increase homeownership opportunity in America. Under the directive of President Clinton, the Partnership was formed in 1995 by nearly 60 national organizations that care about homeownership. Today, the Partnership consists of 66 members representing lenders, real estate professionals, home builders, nonprofit housing providers, and federal, state and local governments.
HUD Secretary Andrew Cuomo said: "The good news as we mark National Homeownership Week is that homeownership in America is at record levels. But the bad news we face is that many of HUD's homeownership and other programs are under attack by some members of Congress. The success of our homeownership initiatives proves that HUD in combination with local organizations can further our goal of even more homeownership and fulfill our commitment to liberty and equity for all." Andrew cuomo 2000
Regulatory changes 1995
In July 1993, President Bill Clinton asked regulators to reform the CRA. Robert Rubin, the Assistant to the President for Economic Policy, under President Clinton, explained that this was in line with President Clinton's strategy to "deal with the problems of the inner city and distressed rural communities". Discussing the reasons for the Clinton administration's proposal to strengthen the CRA and further reduce red-lining, Lloyd Bentsen, Secretary of the Treasury at that time, affirmed his belief that availability of credit should not depend on where a person lives or the percent of their income that goes to housing, "The only thing that ought to matter on a loan application is whether or not you can pay it back, not where you live." By early 1995, the proposed CRA regulations were substantially revised to address criticisms that the regulations, and the agencies' implementation of them through the examination process to date, were too process-oriented, burdensome, and not sufficiently focused on actual results.
............
Mr. Kent received what his lender, GFI Mortgage Bankers, calls its ''no-doc product'' -- as in no documents needed.
''We've created new products for people who have glitches, hairy credit,'' said Abe Eisner, executive vice president of GFI. ''No-doc means all we need is your name, address and Social Security number, depending on your credit history.''
GFI is a barometer for the industry; its subprime lending currently represents about 25 percent of the company's business. Two years ago, it was 10 percent.
--snip-....
One measure of the expanding subprime market is the number of loans that have been packaged and sold as asset-backed securities -- meaning that investors buy shares in those resold loans and then reap the returns as the mortgages are paid off.
--snip--
According to Jay Siegel, a vice president at Moody's Investor Service: ''Subprime loans have exploded from $7 billion in 1992 to $37 billion in 1996 as a sector of the entire securitized conventional loan market.'' That $37 billion, Mr. Siegel said, represents 11 percent of all the conventional loans that were securitized in 1996, up from 1.4 percent in 1992.
But in the last five years, Mr. Hornblass said, ''the growth of the securitization market has meant that lenders sell their loans, in essence, to investors, and get funding at a cheaper rate.
''So, now when they have cheaper funds, they are able to charge borrowers less,'' he said. ''And the money cycle is faster.''
Even quasi-governmental agencies have primed the subprime pump. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have recently developed computerized underwriting systems that allow lenders to speedily and reliably evaluate an applicant's credit-worthiness. The loans rejected by the automated system are, by definition, subprime.
''In the past, if a loan was rejected by Fannie Mae or Freddie Mac, that was it,'' Mr. Hornblass said. ''They weren't touching that business.
''But now both agencies have set up arrangements with lending companies that buy those subprime loans coming through the automated systems. Freddie Mac and Fannie Mae take a fee, the loans get funneled to a lending company that's willing to buy them, package them and then sell the securities to investors.''
The agencies have also, for the first time, become guarantors of subprime loans. In fact, on May 21, Freddie Mac agreed to guarantee the securitization of $227.3 million in subprime loans originated by the First Union Home Equity Bank.
Several industry analysts point out that the trend toward subprime lending has been a boon to the nation's affordable housing movement. ''There are more subprime opportunities that dovetail well with C.R.A.-required lending,'' said Mr. Gumbinger.
C.R.A. is the Community Reinvestment Act, a law passed by Congress in 1977 to combat red-lining -- the systematic policy of banks to avoid making loans in poor communities. The law requires Federally regulated banks and savings and loans, but not mortgage banks, to ''help meet the credit needs of communities in which they are chartered.'' If one of those lenders applies to Federal regulatory agencies for a merger or a new charter, it must demonstrate that it has originated a sufficient number of loans in low- and moderate-income neighborhoods.
According to data provided by Douglas Duncan, a senior economist at the Mortgage Bankers Association of America, 19.2 percent of the nation's home loans in 1993 went to minority-group members. By 1995, that share had risen to 22.2 percent.
Across the country, hundreds of lenders -- from major banks to so-called ''mom-and-pop'' operations -- have moved into the affordable housing market, prompted by a network of community development groups that have pioneered the rehabilitation of swaths of poor neighborhoods.
Last edited by workingclasshero; 09-19-2013 at 12:14 PM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
