Posted on 10/18/2009 9:14:54 AM PDT by FromLori
It wasn't greed that caused the mortgage mess. In large part, the mess was the product of government policies designed to increase homehownership among the poor and ethnic minorities.
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.
The role of the FHA is particularly difficult to fit into the narrative that the left has been selling. While it might be argued that Fannie and Freddie and insured banks were profit-seekers because they were shareholder-owned, what can explain the fact that the FHA—a government agency—was guaranteeing the same bad mortgages that the unregulated mortgage brokers were supposedly creating through predatory lending?
The answer, of course,
(Excerpt) Read more at businessinsider.com ...
And conscientious politicians could not protest the “Affordable Housing†scheme because the recipients were mostly minorities and charges of “Racist†would certainly follow from liberals and the Democrats.
It was a wide variety of factors. And greed on the part of many buyers was part of it (as was governmental policies) - such as folks buying as much house as possible on interest-only loans or wth ARMs, instead of buying something they could afford with a normal mortgage, all in the hopes of flipping the house before the adjustments happened.
As long as we run around pretending just one party was responsible, we're probably doomed to repeat this mess again in the near future.
Watch. They will do this again and again, until the banks are totally broke and the tenants get the houses for free.
That may be the quick explanation but what is really behind that is a permissive society that defines standards down. Lowering standards is also the explanation for dumbed down education and moral values.
...thanks Lori....there’s another article like this tha’s been floating around frome the NYTimes....it was written several years back and expressed alarm at government prodding institutions to make mortgages to unqualified people....Franklin Raines(FHA) under Clinton’s admin. was a big instigator of this.
And conscientious politicians could not protest the "Affordable Housing" scheme because the recipients were mostly minorities and charges of "Racist" would certainly follow from liberals and the Democrats.
Not certain from where the strange punctuation marks came, other than the spellcheck feature got creative.
My spellcheck went nuts also. In checking spelling sometimes every word indicates spelled wrong. Found if I preview and then spellcheck it is OK.
If bringing down the American economy called be called a certain indicator of failure;
Then...CRA/Affordable Housing (democrats way of “leveling the playing field) can be termed the greatest Failed Social Policy in history.
And it hasn’t stopped...check numbers on FHA lending.
This was posted earlier and is probably more accurate.
http://www.freerepublic.com/focus/f-news/2357225/posts
Great video thank you!
Thanks oldbill
They’re just figuring this out?
Almost all economists are liberal you know so yes I guess they are just figuring it out.
Not really. You are confusing a cause with factors that facilitated the process or served as intermediaries that produces a result.
For quite a long time the home-ownership level stood at about 65% in this country. This was a quite stable equilibrium. The government literally whacked the market by MANDATING that homeownership increase via the (1998 reformulation of) the Community Reinvestment Act. This was the cause. The rest was merely a mechanism for producing the result.
Markets FACILITATE the balance of demand and supply. The government artificially increased the demand, and the market started to move the economy towards a new equilibrium. That equilibrium proved, unsurprisingly, to be unreachable.
We all use what's available when performing a task. It is only natural that the markets used available instruments --- CDOs, MBS, derivatives --- to facilitate the supply-demand parity. Socialist propaganda claims that these instruments caused the crises. It is easy to see that this is false. Derivatives existed for centuries. Mortgage-back securities existed for about three decades (and actually were CREIDTED in our wonderful boom of 1990s. We had no crises. The ONLY new component is the push from the Community Reinvestment Act, which raised ownership from 65% to the unsustainable 69%.
Even simpler. If a passenger grabs the wheel of the car you drive and sends it into a ditch, it is that person that CAUSED the accident. To be sure, the wheels continues to spin and the engined continued to work, but it would be silly to say that the too were "factors" in the accident. The engine and wheels are merely facilitators; they lead the car wherever the steering wants it to go. The markets similarly moved the economy where the GOVERNMENT via its Reinvestment Act wanted it to go. What we see is yet another (just like in 1929, when the governmnet turned a regular recession into a Great Depression) case of GOVERNMENT failure. (In the 1930s they too blamed "Wall Street speculators for the calamity; lacking imagination, socialists always say the same thing; the sad part is that, like in the 1930s, conservatives buy this garbage).
"And greed on the part of many buyers was part of it (as was governmental policies) - such as folks buying as much house as possible on interest-only loans or wth ARMs, instead of buying something they could afford with a normal mortgage, all in the hopes of flipping the house before the adjustments happened."
Thank you for pointing this out: it is quite common on this forum to attribute "greed" to Wall Street and portray "folks" as innocent victims.
In the present hysteria I would avoid referring to "greed," however: it's the words the left uses to entice class warfare. The neutral term is self-interest (and "wealthy" instead of "rich").
I would also note that the behavior you described is quite rational. If some bonds promise a better return than stocks, people move their 401K money into bonds. The GOVERNMNET interference made houses a more promising investment, and people reacted accordingly. That's all.
I don't condone the blind following by the people and wish they were more careful and foresightful. But people are they way they are. Most don't understand finance and act on the basis of intuition and what their neighbors do. That is why those that lead them have a fiduciary duty. The GOVERNMENT (not the markets) has failed them and led them into a blind alley.
“It wasn’t greed that caused the mortgage mess. In large part, the mess was the product of government policies designed to increase homehownership among the poor and ethnic minorities.”
Even if I don’t read any further, I’ll bet I can guess who got screwed at a higher rate than others.
A NSS bump
Thank you.
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