patrick.net

ZippyDDoodah says

What could go wrong??

Nothing. Actual loan underwriting -- verifying the borrower had income to service the loan -- was what went missing in the last decade. The signal failure of the system 2002-2006 was the Alt-A subsector, where borrowers with good credit ratings were allowed to go stated income to avoid DTI limits and also layer risk with IO or even negative-am products.

“Unregulated banking” is an unsubstantiated claim

"What you had here is a regulatory motif that was too accommodating to private-sector interests," said Jim Leach, a former Republican lawmaker who led what was then the House Banking Committee and now lectures in public affairs at Princeton University. "In this case, the end result is chaos for the industry, their customers and the national interest."

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/22/AR2008112202213_pf.html

What percentage of homes sold 2000 - 2006 were $400k and under?

Since you are in a data-driven, fact-based mood now, let me lay this graph on you:

This lays out the existing market for loan products with resets, and shows you the relative contributions to the bubble by dollar volume.

The green and yellow portions of this charting are the suicide Option ARMs and Alt-A lending that went on 3 to 5 years ago. GSE lending in this area is the brick-red portions.

ZippyDDoodah says

but Fannie/Freddie guarantees are the only reason the bubble inflated as large as it did

This is a laughable assertion. Alt-A is Alt-A because the GSEs wouldn't take these otherwise prime loans. IMO the bubble inflated unsustainably 2005-2006 due to the ability of anyone to take out as many RE loans as they wanted for whatever amount of money they wanted, with Casey Serin's $2M loan haul being indicative of the fraud potential, if not a particularly high watermark for the time.

Countrywide, WaMu, and the rest of the lenders on the Mortgage Implode O Meter were not killed by the GSEs, quite the opposite.

It was the OTS with oversight responsibility over the big lenders in the mortgage field, the same OTS that was happy taking garden shears to "red tape" in 2003.

http://www.calculatedriskblog.com/2008/11/wapo-regulatory-failure-at-office-of.html

and otherwise resisting calls to rein in the industry.

OTS was hesitant to sign on ... [John] Reich, the new director of OTS, warned against excessive intervention. He cautioned that the government should not interfere with lending by thrifts "who have demonstrated that they have the know-how to manage these products through all kinds of economic cycles."

http://www.slate.com/id/2195218

Even as housing was melting down, Washington encouraged and enabled Fannie Mae and Freddie Mac to do more. As part of the stimulus package passed earlier this year, the caps on the size of mortgages Fannie and Freddie were permitted to back were lifted from $417,000 to $729,000. And as lenders have disappeared from the field, Fannie and Freddie have reassumed their leadership roles. In the second quarter of 2006, Fannie and Freddie accounted for 37.7 percent of mortgage bonds issued, a record low. But in the first quarter of 2008, the two firms accounted for nearly 70 percent of all new mortgages.

GSE's encouraged the bubble. In 2008 they financed 70% of all new mortgages with taxpayers on the hook. The debate is settled except among the leftist ideologues who won't acknowledge basic facts

OTS was hesitant to sign on … [John] Reich, the new director of OTS, warned against excessive intervention. He cautioned that the government should not interfere with lending by thrifts “who have demonstrated that they have the know-how to manage these products through all kinds of economic cycles.”

I think we're in basic agreement on this part in that we (presumably you) opposed the govt's TARP bailout of banks. If you will recall, TARP was championed by Bush and Democrats, opposed ONLY by House Republicans. Which supports my main point - both sides are not "equally" guilty here

"But in the first quarter of 2008, the two firms accounted for nearly 70 percent of all new mortgages."

This is because the regular lending industry had blown itself up in 2007. Sheez. What planet were you living on until you showed up here?

Salinas, CA was ground zero for creative financing, and its market turned in January 2006:

http://www.zillow.com/homedetails/680-San-Bruno-Way-Salinas-CA-93901/19346981_zpid/

By early 2008 the market had already fallen 50% as the negative-am lenders and loan funders had removed themselves from the market.

ZippyDDoodah says

http://www.slate.com/id/2195218

Even as housing was melting down, Washington encouraged and enabled Fannie Mae and Freddie Mac to do more. As part of the stimulus package passed earlier this year, the caps on the size of mortgages Fannie and Freddie were permitted to back were lifted from $417,000 to $729,000. And as lenders have disappeared from the field, Fannie and Freddie have reassumed their leadership roles. In the second quarter of 2006, Fannie and Freddie accounted for 37.7 percent of mortgage bonds issued, a record low. But in the first quarter of 2008, the two firms accounted for nearly 70 percent of all new mortgages.

GSE’s encouraged the bubble. In 2008 they financed 70% of all new mortgages with taxpayers on the hook. The debate is settled except among the leftist ideologues who won’t acknowledge basic facts

LOL, as I pointed out above the market was already TWO YEARS into its present decline by 2008. GSE's share in 2008 HAD NO EFFECT on the bubble since the bubble WAS LONG GONE BY THEN.

Do you actually have a brain ZippyDDoodah or are you just a troll? It's very difficult to determine here, help a brother out.

ZippyDDoodah says

OTS was hesitant to sign on … [John] Reich, the new director of OTS, warned against excessive intervention. He cautioned that the government should not interfere with lending by thrifts “who have demonstrated that they have the know-how to manage these products through all kinds of economic cycles.”

I think we’re in basic agreement on this part in that we (presumably you) opposed the govt’s TARP bailout of banks. If you will recall, TARP was championed by Bush and Democrats, opposed ONLY by House Republicans. Which supports my main point - both sides are not “equally” guilty here

I have no opinion on TARP. I don't pretend I can run a fifteen trillion dollar economy. "I don't have any solution but I certainly admire the problem".

This is because the regular lending industry had blown itself up in 2007. Sheez. What planet were you living on until you showed up here?

You're not making sense with your backtracking. Your orginal assertion was that "unregulated" private banking was the larger problem. I claimed that it was the GSE's and the environment which they fostered and guaranteed. That claim still stands.. and yours, not so much

LOL, as I pointed out above the market was already TWO YEARS into its present decline by 2008. GSE’s share in 2008 HAD NO EFFECT on the bubble since the bubble WAS LONG GONE BY THEN.

Yet you're unwilling to acknowlege that GSE's set lending standards well before 2008.

ZippyDDoodah says

Weren’t they guaranteeing the lion’s share of $400k and under mortgage loans?

Yes. But I said **BAD** loans. The lions share of bad loans were not under any GSE's guarantee.

ZippyDDoodah says

I agree that the private banks/loan companies went along for the ride, but Fannie/Freddie guarantees are the only reason the bubble inflated as large as it did

That's nonsense. Went along for the ride? They were the _main drivers_ of bad housing loans. We had a commercial RE bubble too, and now tons of bad CRE loans. CRE prices went up right along with housing prices, by about the same percentage amount. You going to pin that on GSEs and the Dems too? And the property bubbles in the UK, Spain, Ireland, Australia.... just by random chance at *exactly* the same time? It's all the GSEs, the Democrats, and Barney Frank?

It's completely absurd that people are still regurgitating this crap.

I have no opinion on TARP

Nice evasion of the largest, most sweeping govt. legislation in modern history. "I have no opinion because, well, I don't think for myself"

Yes. But I said **BAD** loans. The lions share of bad loans were not under any GSE’s guarantee.

Please cite or eat crow.

ZippyDDoodah says

This is because the regular lending industry had blown itself up in 2007. Sheez. What planet were you living on until you showed up here?

You’re not making sense with your backtracking. Your orginal assertion was that “unregulated” private banking was the larger problem. I claimed that it was the GSE’s and the environment which they fostered and guaranteed. That claim still stands.. and yours, not so much

Unregulated banking worked until it didn't. In my worldview, government oversight of the market is very similar to a the governor on a steam engine that prevents the machine from feedback cycle that would result in immense damage to itself and its vicinity.

Loans being funded without proper underwriting was the larger (if not core) problem, 2002-2007. This worked incredibly well as long as prices were going up, up, up, and of course the free-money lending contributed to the price rise itself, a virtuous cycle to start in 2002-2003 and a nasty feedback loop once we were riding the tiger in 2004-2005.

When prices levelled off in 2006, the business model would no longer work and the Implode O Meter started accruing its grim harvest once the machine started going piecewise in 2007-2008.

ZippyDDoodah says

I have no opinion on TARP

Nice evasion of the largest, most sweeping govt. legislation in modern history. “I have no opinion because, well, I don’t think for myself”

GMAFB. Only idiots or ideologues (but I repeat myself) have opinions on things they don't really understand. The theory behind representative government is that we elect people to run sh--. My job is making software, not captaining the most powerful, wealth-producing economy the world has ever seen.

Unregulated banking worked until it didn’t.

That is so brilliantly insightful.. for unthinking morons who are predisposed to believe this kind of BS

My job is making software, not captaining the most powerful, wealth-producing economy the world has ever seen.

Nice evasion to a basic question presented to you.. which you had posted about! "It's not my job to know that!!"

ZippyDDoodah says

LOL, as I pointed out above the market was already TWO YEARS into its present decline by 2008. GSE’s share in 2008 HAD NO EFFECT on the bubble since the bubble WAS LONG GONE BY THEN.

Yet you’re unwilling to acknowlege that GSE’s set lending standards well before 2008.

Yes, and borrowers were able to avoid them by finding Alt-A and Option ARMs! The GSE book of business AVOIDED these products during the bubble run-up of 2002-2005!

From a random comment I've found from late 2007:

Freddie had 86% fixed rate, 91% owner-occupied and overall the garbage ratio is relatively small: 8% Alt-A, 9% IO and 1% option ARM note: due to the overlap of categories percentages are not additive). The problem FRE has is that the 38% of its book concentrated in '06 and '07 vintages has very different characteristics from the overall book: 39% Alt-A, 44% IO and 14% option ARM.

Freddie started getting into the junk lending AFTER the bubble had already peaked in 2005. I think this was due to the GSEs having to pick up the slack the private industry was leaving by the latters' untimely demise.

Good day sir. I've said about all I care to now.

ZippyDDoodah says

Yes. But I said **BAD** loans. The lions share of bad loans were not under any GSE’s guarantee.

Please cite or eat crow.

please eat a dick. Oops! I was supposed to be leaving!

Freddie started getting into the junk lending AFTER the bubble had already peaked in 2005. I think this was due to the GSEs having to pick up the slack the private industry was leaving by the latters’ untimely demise.

The larger question, which you contine to evade, is WHY did GSE's "have to" pick up the slack with sh#tty loans? Can you answer that basic question?

please eat a dick. Oops! I was supposed to be leaving!

Oh my.. It's now abundantly clear that you and your side have really "strong" arguments. I'm sure you consider yourself to be an 'intelligent' thinker... I've got news Troy - you're just another low class leftist dimwit.. as evidenced by your writings..

guys .... much wasted energy. Relax.

"worked until it didn't" was actually pretty funny and correct.

I "feel" this problem, like most of our problems, came from liberalism and greed. R's have these issues, as do D's. R's get votes from greedy liars. D's get votes from liberal liars.

Vote Conservative. Problem solved.

ZippyDDoodah says

The larger question, which you contine to evade, is WHY did GSE’s “have to” pick up the slack with sh#tty loans? Can you answer that basic question?

How is that the larger question??? Troy has proven beyond all reasonable doubt that it was private banking that caused this mess and not GSEs. That was the larger question. Don't run to some other inane question with your tail between your legs now... Just admit that you were wrong (again) and move on. And in the future, it helps when you look at things objectively--not with your Republican glasses on. They tend to distort what you are actually seeing.

Bap33 says

I “feel” this problem, like most of our problems, came from liberalism and greed. R’s have these issues, as do D’s. R’s get votes from greedy liars. D’s get votes from liberal liars.

Really? Wasn't it conservative thinking that advocated de-regulation of the banking industry?

Troy has proven beyond all reasonable doubt that it was private banking that caused this mess and not GSEs.

No he hasn't, not even close, no matter how much you wish that he had. That's why he, out of frustration with his inability to make a coherent argument to explain his earlier assertion that GSE's "had to" guarantee crappy loans, he started screaming to "eat a dick".

GSE's mandated lowering of credit standards and guaranteed loans to private banks for making loans to uncreditworthy individuals, setting the standard for other mortgage loans. Private banking said to themselves, "if it's good enough for GSE's to guarantee, then we better jump on the bandwagon too". Where is the logical argument that private banking is the larger culprit in this disaster? The RE bubble never would have inflated to the extent that it did without the mandates and taxpayer-backed guarantees of Freddie and Fannie.

Wasn’t it conservative thinking that advocated de-regulation of the banking industry?

As the video makes clear, the GSE regulators warning of "lending gone wild" were intimidated into submission by Democrats who were forcefully pushing their philosophy of lending more to the 'unfortunate', consequences be damned.

ZippyDDoodah says

GSE’s mandated lowering of credit standards and guaranteed loans to private banks for making loans to uncreditworthy individuals, setting the standard for other mortgage loans.

#1--they didnt mandate anything.
#2--that doesn't "set the standard" for anything. Private companies don't follow bad policy blindly into bankruptcy. Unless they are very stupid.

ZippyDDoodah says

Private banking said to themselves, “if it’s good enough for GSE’s to guarantee, then we better jump on the bandwagon too”.

Wow--gives new meaning to the term lemmings, huh? You really don't have much respect for the banking industry do you? Obviously you are completely wrong....

ZippyDDoodah says

Where is the logical argument that private banking is the larger culprit in this disaster?

Because your lemming theory is so logical, right?

#1–they didnt mandate anything

No? Buy a clue http://ur.lc/5vf

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.

In addition, the dollar amount of GSE high-risk activity rose significantly 2002 to 2007. In fact, high-risk loans and guarantees of high-risk loans exceeded 40% of new GSE business after 2003. They were fueling the bubble! Like the Democrats in the video, you are trying to shout down obvious facts that conflict with your narrative

ZippyDDoodah says

#1–they didnt mandate anything

No? Buy a clue http://ur.lc/5vf

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.

In addition, the dollar amount of GSE high-risk activity rose significantly 2002 to 2007. In fact, high-risk loans and guarantees of high-risk loans exceeded 40% of new GSE business after 2003. They were fueling the bubble! Like the Democrats in the video, you are trying to shout down obvious facts that conflict with your narrative

Let's look at the obvious facts.

1. Republicans controlled both houses (this also means controlling all the committees which is where the real power lies) and the Presidency in 2004 when this video was shot. How exactly did the Democrats stop anything?
2. The US housing blowup was overwhelmingly in Ca,Az,Nv,Fl mostly in middle class and higher areas not the least bit affected by the Community Resource act, which is what you are referring to when you talk about GSE lending standards.
3. The housing bubble and crash was a worldwide event. How did the US GSE's manage to affect lending standards in the entire world?
4. GSE can set any standard they want but banks are private companies and don't have to lend if the borrower doesn't meet the BANKS standard. GSE can encourage until the cows come home, it doesn't mean squat.
5. The Bush administration very quietly eliminated regulation across the board by simply eliminating the budgets to pay for enforcement. This was across all area's of government not just finance. Very slick. Mission accomplished with no drama and no political fights.

I do of course feel deepest sorrow for the poor bankers. It's tough being the victims of government agencies that forced them to make billions in bad loans to people who had no chance in hell to repay. Then of course they were forced to pay themselves millions (maybe billions) in bonuses for a job well done of taking care of the stockholders investments. Lead me to that brer patch brer rabbit.

my good man, R does not equal conservative.

Liberalsim and/or Greed is/was/shall remain the problem.

Bap33 says

my good man, R does not equal conservative.
Liberalsim and/or Greed is/was/shall remain the problem

Do conservatives advocate better regulation of banks then?

Because I was under the impression that conservatives favored free market solutions to every problem and limited government. ie, no regulation...

ZippyDDoodah says

#1–they didnt mandate anything
No? Buy a clue http://ur.lc/5vf
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.
In addition, the dollar amount of GSE high-risk activity rose significantly 2002 to 2007. In fact, high-risk loans and guarantees of high-risk loans exceeded 40% of new GSE business after 2003. They were fueling the bubble! Like the Democrats in the video, you are trying to shout down obvious facts that conflict with your narrative

OK--I think I see the problem. You are confused about what mandate means. Easing the credit requirements for loans that Freddie and Fannie will buy doesn't force a bank to do anything. It ALLOWS a bank to make loans and subsequently sell thtem to the GSEs if they so choose, but they can also choose not to do so. And they certainly would have no reason to make these loans and keep them!

MarkInSF says

679106″>ZippyDDoodah says

Your linked comment explains nothing. Nada. Democrats blocked investigations and intimidated those who were warning of problems in housing lending as the video makes clear. Although it’s not all Dems, it’s mostly Dems who did this. Which party is ‘most guilty’ of pushing the philosophy that lending standards should be lowered for otherwise uncreditworthy people in order to help the ‘less fortunate’? An honest answer to that question says it all

GSE’s were minor players in the bad loans business. Most of the sub-prime/exotic loans that went and are going bad were made by private label mortgage companies and a hand full of large banks and packaged up as securities by investment banks. ” the philosophy that lending standards should be lowered ” was embraced whole heartedly by the private market, not pushed on them.
But, yep, to the extent the government and GSE’s were involved, Democrats have more to answer for on that.

Considering that Fannie Mae and Freddie Mac have some awful default rates on so called "prime" mortgages, you can still say they were very very bad offenders. The simple fact that they went insolvent proves they were completely reckless. You really do have to be leveraged beyond insanity to go insolvent. Fannie's common defense is that it didn't initially get involved in subprime. They deflect from the real issue, which was the fact that they still backed way too many mortgages for overvalued homes and leveraged themselves to a point that was financial suicide.

tatupu70 says

Bap33 says

my good man, R does not equal conservative.
Liberalsim and/or Greed is/was/shall remain the problem

Do conservatives advocate better regulation of banks then?
Because I was under the impression that conservatives favored free market solutions to every problem and limited government. ie, no regulation…

Fannie, Freddie, and any bank that receives heavy subsidies from the government need to be regulated. Those who scream that deregulation caused this crisis usually completely ignore the fact that all of the major players in this crisis enjoy ridiculous subsidies. They get to borrow money below the market rate and they get the back stop of government safety for nothing.

For those not on the government teet, the best form of regulation is the fear of going bankrupt.

theoakman says

Those who scream that deregulation caused this crisis usually completely ignore the fact that all of the major players in this crisis enjoy ridiculous subsidies. They get to borrow money below the market rate and they get the back stop of government safety for nothing.

What subsidies did Countrywide, IndyMac, or Wamu enjoy? I'm confused. It sounds like you are refering to some of the benefits of TARP which occured after the bubble/collapse. By definition, something that happened after the bubble/collapse couldn't be a factor in it's cause...

ZippyDDoodah says

Yes. But I said **BAD** loans. The lions share of bad loans were not under any GSE’s guarantee.

Please cite or eat crow.

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_pf.html

In the worst years of subprime lending, Fannie and Freddie:

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion -- 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.

Overall, the GSE's held about 27% of active subprime loans by 2006. And they held about 70% of the overall mortgage market. Do the math. That means 73% of subprime was private label.

That doesn't even include $500B of options ARMS. Second mortgages (which enabled many, many people to get around down payment requirements for GSE backed loans) are mostly private label too, and they are first in line for losses.

theoakman says

Considering that Fannie Mae and Freddie Mac have some awful default rates on so called “prime” mortgages, you can still say they were very very bad offenders. The simple fact that they went insolvent proves they were completely reckless. You really do have to be leveraged beyond insanity to go insolvent. Fannie’s common defense is that it didn’t initially get involved in subprime. They deflect from the real issue, which was the fact that they still backed way too many mortgages for overvalued homes and leveraged themselves to a point that was financial suicide.

I do not at all hold the GSEs or their congressional backers (who, yes were primarily Democrats) blameless at all. The GSE's were leveraged well over 100 to 1. It doesn't take much to go insolvent with a capital cushion like that.

I'm not trying to deflect the issue, just pointing out they were not central to the cause, as ZippyDDoodah is trying to claim.

I’m not trying to deflect the issue, just pointing out they were not central to the cause, as ZippyDDoodah is trying to claim.

Thanks for your citations, but the facts disagree with your conclusion that GSE's were not a major cause of the residential RE crash http://ur.lc/jkd . And unlike private mortgage providers, they never learned the hard lessons of the housing crash that private lenders learned (because taxpayers backstopped the GSE's) and kept on financing risky mortgages long after it became apparent that the bubble had popped. The GSE's waded in way too deep in high-risk mortgage activity fueling the bubble with taxpayer dollars. From the cited study:

Concluding Comments
This paper has evaluated the role that the GSEs, FHA, and CRA played in the financial crisis.
It has not, however, attempted an overall evaluation of any or all U.S. housing policies, nor has it
considered any policies for regulatory reform. The main conclusions are:
*I find the GSEs to have been a significant factor in expanding the mortgage crisis as a result
of their high volume of high-risk mortgage purchases and guarantees. Furthermore, I find
that the GSE housing goals for lending to lower-income households and in lower-income
regions were secondary to profits as a factor motivating the GSE investments in high-risk
mortgages.

It's not only that the GSE's bought and guaranteed high-risk loans, as a Govt sponsored Enterprise, they "set the bar" for banks and other lenders. Most definitely, they were "central" to the housing crisis. And the housing crisis was not "worldwide" as others have claimed. Overall, Latin America had no housing crash during this time period. Neither did Japan nor did the largest worldwide emerging economies: China, India, or Brazil. So let's cut the BS that "the whole world" had a housing crash at the same time we did here in the US. That's a demonstrable lie.

I have a question for Bob2356 - did you delete an entire post of yours because you decided that your claims (mostly against my assertions) were not defensible? Because one of your posts disappeared completely. The ultimate in backpeddling is to delete an entire post

Other quotes from your “source”:

“I find no evidence that CRA incentives played a significant role in expanding high-risk
lending during the housing bubble”

In my judgment, factors other than housing policy played a more fundamental role in
creating the crisis. These factors include the global savings glut, a monetary policy that accommodated a major housing bubble, highly leveraged, risky, and lightly regulated bank investment portfolios, and an unconstrained OTC market for credit default swaps.”

“Figure 2 shows that from 2003 to the end of 2006, the GSEs lost approximately 20
percentage points of new business market share. The FHA market share fell as well over this period, to an almost negligible volume. In contrast, the figure shows an increase of 20-plus percentage points in the market share of subprime lending based on data from Inside Mortgage Finance (IMF) and in the market share of high-risk lending based on a special tabulation by Ed Pinto (currently available only from 2002 to 2007).5 It thus appears that the subprime lending innovations over this period actively displaced GSE and FHA activity, leading to the declines in their market shares”

“That the GSE housing goals are consistent with high-risk mortgage activity, however, does not imply that the housing goals caused the GSEs’ high-risk activity. Indeed, several factors lead me to the view that the housing goals were a distinctly secondary priority for GSE management compared to profits as a factor motivating their investments in high-risk mortgages”

You really need to read your source material. It doesn’t say what you think it says….