I believe you are correct. What I am unclear about is the lowering of standards for down-payment and loan qualification, and the political pressure for the above that occurred and resulted in massive default. When I first bought a house, seems I had to have a minimum of 10% down payment; then I heard of 5% 1st time home buyer loans, then zero-down loans, and then worse than that (Not sure if pseudo-feds went that far).
If the federal government guarantee wasn’t there, would they (mortgage companies) have pushed the stakeholder risk that low on their own? Some may have, IMHO, but not to the point it sank to.
If you want to own something, you have to have a healthy ability to execute. We lost sight of that because of unreasonable expectation of value appreciation.
” What I am unclear about is the lowering of standards for down-payment and loan qualification, and the political pressure for the above that occurred and resulted in massive default.”
Actually there was little to no political pressure involved. The culprits who lowered standards were the unregulated investment bank and hedge fund rivals of Fannie and Freddie. The IBs and Hedgies came out with ARMs, no down, no docs, NINJAs, all of the exotic paper and took big market share away from stodgy old Fannie and Freddie, who continued to stick with conforming paper.
“If the federal government guarantee wasn’t there, would they (mortgage companies) have pushed the stakeholder risk that low on their own? “
The would and they did. The mortgage market had changed dramatically. The lenders were bundling and selling off everything. They had no intention of hanging on to the paper they created. The were selling CDOs, CDOs squared, synthetic CDOs, and every sort of derivative imaginable. The problem for the lenders is that their model was flawed and they weren’t protected from the fallout of the toxic paper they were writing.