Fannie and Freddie set to lower lending standards

[Memphis1979]

3% down is to much to ask for? Then you shouldn't be buying a house.

No, I disagree with this

[Loveshiscountry]

Originally Posted by pknopp

Banks weren't going to do it without something in it for them. There was no law that forced it. It was a nudge, nudge, wink, wink deal.

I thought it was written in the bill or maybe it was just "pressure" applied to banks if they didn't go along. Favorable lending rates to them if they did, as well as let mergers go through.

[pknopp]

Originally Posted by Loveshiscountry

Actually there were laws or maybe it was just "pressure" applied to banks if they didn't go along.

As part of the quid pro quo, sure.

Favorable lending rates to them if they did, as well as let mergers go through.

Among other things. Without this though, the banks don't play along.

[pnwmdk]

Originally Posted by WilliamSmyth

This type of loan was not required by CRA nor would Fannie or Freddie be involved in this type of loan.

Fannie or Freddie even with these changes never came close to the low standards being used by private (non-GSE) companies.

Funny how those who desperately want government intervention in the market place always try so hard to point fingers of blame where they do not belong.

Fannie and Freddie got into trouble because they took on more risk over the past two decades while using their political clout to beat back attempts to force them to hold more capital. They amassed huge investment portfolios to profit from the difference between their lower cost of capital—a benefit of an implied federal guarantee because Congress created the firms—and the rates they could earn on mortgages.


The companies experimented with loosening lending standards in the late 1990s. But in the early 2000s, Wall Street firms raced ahead of them by packaging larger quantities of riskier loans that often weren't eligible for backing by Fannie and Freddie. By 2005, Fannie and Freddie were losing market share. They began loosening their own loan standards to compete, taking on more risks at what would later prove to be the worst possible time. As the housing bust deepened in 2008, lawmakers called on the firms to take on more risks to help the market.

Fannie Mae, Freddie Mac Remain Unfinished Business Five Years After Financial Crisis - WSJ

The growth of Fannie and Freddie, who became the dominant market player and thus, set the lending rates, was forcing traditional lenders to deal with an ever shrinking share of the market. Lenders must lend.. Or they go out of business. Thus, the market was shoved into - by the force of the 500 lb gorilla - the fringes. That is, the ONLY growth market left to them was subprime, and thanks the to creation of the "securitized loan portfolio" market, was able to sell much of these subprime to unwary buyers.

There was no upside to the existence of Fannie and Freddie. In the end, everything about them has been harmful.