Posted on 06/04/2015 9:58:13 AM PDT by Jan_Sobieski
It wasn't greed that caused the mortgage mess. In large part, the mess was the product of government policies designed to increase home ownership among the poor and ethnic minorities. Today Peter Wallison points out how Fannie Mae, Freddie Mac and the FHA created a demand for bad mortgages that encouraged mortgage brokers to generate millions of them.
From the Wall Street Journal: Mortgage brokers had to be able to sell their mortgages to someone. They could only produce what those above them in the distribution chain wanted to buy. In other words, they could only respond to demand, not create it themselves. Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending. When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed. An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income. Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations...
(Excerpt) Read more at businessinsider.com ...
It was both sides of the coin.
I disagree. There would be no crisis without CRA and Freddie and Fannie. Every American does not deserve a house and the government should not absorb all the risk. Overregulation is the problem
And we’re in the process of doing the same damned thing again.
bump and bookmarked
It sickens me that the taxpayer bailed out AIG for its stupidity and much of the debt of the investment banks. And how Moodys and S and P walked away unscathed for grading worthless crap as Triple A.
The book doesn't address is where the hell was the media in all this? The author talks about one of the characters did go to the media and they were not interested in the story. I wonder if that is because they thought encouraging “ownership” was too important of a social goal?
What could motivate a bank to make a loan that they know the borrower can not pay? Banks would become insolvent if they did not discriminate between people that can pay and those that cannot. Only in an environment where a government regulation with government assuming all the risk would a company do this! Government meddling in free markets is at the root of virtually all bubbles
Bingo.....
1976, peanut head signs the CRA into law
1996, slick willie strengthens CRA forcing the mortgage bar lower
2006, Rumblings in the Bush administration that something needed to be done about the number of bad mortgages, and the enormous market in derivative trading (Oh cr4p, what have we done)...
2007-8, crash boom, the fruits of two donkeys rots and the Bush administration is blamed.
As another worthy said here.....”...we’re doing it all over again...”
KYPD
But yes government was part of it, because they were just happy to make sure every one had a right to a home.
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