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Saturday, October 11, 2008

Baloney: Housing Collapse Caused By Privately-Issued Loans, Not Government-Mandated Loans

By Rob on October 11, 2008 at 06:19 pm
3 Comments
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Scrambling to spin reality in the face of a housing collapse caused by big-government, liberal policies the left is claiming that the problem was privately-issued loans.  Not publicly-issued loans.

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets reported Friday.

Here’s what’s being ignored: Fannie Mae and Freddie Mac either owned or secured 51% of America’s $12 trillion mortgage market.  Meaning that the only reason a lot of these private institutions dealt out subprime loans was because they knew Fannie Mae and/or Freddie Mac would either secure the loan or outright buy it.

So yes, most of the loans that went sour were issued by private lenders.  But that completely ignores the fact that two government sponsored entities owned or secured half of the mortgage market.  It also ignores the fact that it was the collapse of Fannie Mae and Freddie Mac that sparked this pop in the housing bubble.  If those two companies didn’t represent over half of the mortgage market (something that never would have happened in a free market) and if they hadn’t collapsed under the weight of bad loans issued under pressure from the government and liberal activists (something that again wouldn’t have happened in a free market) we wouldn’t be in the predicament we’re in now.

The left can spin all the want.  The root of the problem is government pressure, applied through Fannie/Freddie and a myriad of policies of regulations, on lenders to give loans to people who could not afford them.

That’s a fact.

Comments

Avatar for Pelayo

This little article leaves out mention of the law that really created this, the Community Reinvestment Act (CRA). That “government regulation” forced these banks to give loans to a helluva lot of people who ordinarily would not qualify for a loan.  The CRA was the prime reason for so-called subprime loans.  A new acronym for a type of loan came out of this mess, NINJA, no income no job no assets. Many banks stayed out of the subprime swamp because there were no community organizers turning up the pressure.

Pelayo on October 11, 2008 at 07:10 pm
WOOF

the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it’s even more risky, since they have a lot more borrowing capacity. And here, again, it’s difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients’ money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can’t find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices?

You Can Rely On Your Old Man’s Money
WOOF on October 11, 2008 at 07:51 pm
Avatar for UncleSA

Rob, It’s less than 5% of that “over half of the mortgage market” which are the bad loans (see below ...and above).
===

Woof! Good points!

See, here’s someone who understands that it is the massive (global) leveraging of a relatively small (bad loan) problem that is the real problem.
...and of the bad loans, only a small fraction were to the poor; most being refinancing and 2nd, 3rd, etc. mortgages because....

Home loans were the only commodity left in this country with enough “capital funding” to fuel the financial feeding frenzy.
Thanks, UncleSA

UncleSA on October 12, 2008 at 02:24 am
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