Quote:
Originally Posted by KRAMERCAT
CDO's are legitimate as long as the underlying mortgages are sound - all that went out the window with the no-down, no-doc loans doled out under the Bush watch (or non-watch).
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uhm,,again you are pointing to the wrong president...try clinton
1995 Pres. Clinton (through his chief of HUD (Henry Cisneros and 1999 under his second chief andrew coumo)) eased the rules on obtaining mortgages allowing more 'exotic' mortgages and 'no-doc/low doc' mortgages-----the consequence ......housing SKYROCKETED causing low inventories causing a 'not normal' increase in home prices, sellers got greedy, buyers got even greedier (looking to PROFIT in a skyrocketing market by flipping) and bought THINKING that prices would still increase and their ADJUSTABLE mortgage would pay it self off in MINIMUMAL years...EVEN THOUGH THESE INCREASES IN HOME VALUES WERE TOTALLY UNHEARD OF, AND MORTGAGE RATES WERE AT 40 YEAR LOWS( what did they think an adjustable mortgage gotten at 40 year lows would do in the term(3 months-3years) when it adjusted...of course it would go up, their CONTRACT even said after the term it would be 6% PLUS PRIME)))
For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."
The above is the start of the mortgage meltdon: Clinton's National Homeownership Strategy
President Clinton, with the blessing of Democrats in Congress, advanced an agenda which they called, The National Homeownership Strategy: Partners in the American Dream. (Do a Web search.) 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: 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 - and 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.)
Fast forward to 2000: 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 making this the blueprint for for other models."
The immediate results: As a result of a huge increase in demand against a limited supply, home prices (and values) rose dramatically. In addition to the injection of even more home buyers (unqualified home buyers) into the market, many people used those increases in their home values to refinance other debt into the more attractive (tax deductable) mortgage debt. Moreover, mortgages are bought and sold on the open market, as they always have been. Historically, behind Treasury Bills, Mortgages were among the safest of all investments to buy. As a result, many investment banks bought those mortgages (government-backed mortgages, by the way).
The eventual (and inevitable?) repercussions: People began defaulting on mortgages they couldn't afford in the first place. Banks and Mortgage lenders were foreclosing at record levels. (Foreclosures are always a lose-lose proposition for both the buyer and the lender.) Home values began to plummet. Mortgage investments were losing value.
The government, is now in the process of bailing-out mortgage lenders who made bad loans to people who couldn't afford them in the first place. Moreover, investment bankers, who are also facing a huge crisis - because of the defaults on the mortgages they purchased - are also being discussed as possible government bail-out candidates. (Can you say 401(k) accounts?)
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The New York Times
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published:
Thursday, September 30, 1999
In a move that could help
increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region
-- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
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.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''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.
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.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage.
But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.Home ownership has, in fact, exploded among minorities during the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
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notice the date of the NYT article...1999...BEFORE bush
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