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Dems Solution to Their Housing Bubble: Create Another





jmi256
This has to be one of the most asinine idea the Democrats have come up with (at least recently). One of the main reasons for the mortgage crisis and therefore the financial crisis is the Democrats’ insistence on lowing/relaxing criteria for mortgages and loans, but now the Democrats want to again force lower standards for mortgage loans.
Quote:

Fannie, Freddie asked to relax condo loan rules: report
(Reuters) – Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

In March, Fannie Mae (FNM.N)(FNM.P) said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac (FRE.P)(FRE.N) is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added.

In an interview with the paper, Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers.

In addition to the 70 percent sales threshold, Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units, as the firm sees these as signals that a building could run into financial trouble, the paper added.

Both Fannie and Freddie are preparing a response to the lawmakers, according to the paper.

Fannie Mae and Freddie Mac could not be immediately reached for comment by Reuters.

Source = http://www.reuters.com/article/GCA-Housing/idUSTRE55L39120090622
deanhills
You're so right jmi. This is exactly how the crisis started in the first place. Evil or Very Mad Neat way to get popular though, could be good to get votes for the new Healthcare bill as well, throwing money at people, wonder how the Banks will deal with this though. The bigger ones of course can rest assured that Obama will bail them out if need be, but what about the ones that are smaller ... crazy world out there that does not make sense at all ... Evil or Very Mad
jmi256
Hmmm…. Seems like the American taxpayer will be on the hook for even more shaky mortgages thanks to the Democrats’ plan to lower standards for those seeking mortgages. But what’s a few billion dollars here and there? We can always print more money, right?


Quote:
Fannie Mae seeks $8.4B in aid after 1Q loss

WASHINGTON (AP) – Fannie Mae has again asked taxpayers for more money after reporting a first-quarter loss of more than $13 billion.

The mortgage finance company, which was rescued by the government in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses.

Fannie Mae says it lost $13.1 billion, or $2.29 per share, in the January-March period. That takes into account $1.5 billion in dividends paid to the Treasury Department. It compares with a loss of $23.2 billion, or $4.09 a share, in the year-ago period.

The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request for aid will bring Fannie Mae's total to $83.6 billion. The total bill for the duo will now be nearly $145 billion.

Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie, lifting an earlier cap of $400 billion.

Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.

The two companies, however, loosened their lending standards for borrowers during the real estate boom and are reeling from the consequences.

With the housing market still on shaky ground, Obama administration officials say it is still too early to draft any proposals to reform the two companies or the broader housing finance system.

But Republicans argue the sweeping financial overhaul currently before Congress is incomplete without a plan for Fannie and Freddie. They propose transforming Fannie and Freddie into private companies with no government subsidies, or shutting them down completely.

The legislation "touches nearly every corner of the economy," Alabama Sen. Richard Shelby said in the GOP weekly radio and Internet address over the weekend. "But these major contributors to the crisis are left unscathed," he added, singling out Fannie Mae and Freddie Mac.

Source = http://apnews.myway.com/article/20100510/D9FK02U00.html
Bikerman
jmi256 wrote:
This has to be one of the most asinine idea the Democrats have come up with (at least recently). One of the main reasons for the mortgage crisis and therefore the financial crisis is the Democrats’ insistence on lowing/relaxing criteria for mortgages and loans, but now the Democrats want to again force lower standards for mortgage loans.

I must be missing something. They wanted the present occupancy clause relaxing didn't they (ie the rule that you don't lend until 70% of the condos are already bought) ?
So, you have someone with the cash, a cheap condo wanting an owner, and no mortgaga because there are some more cheap condos that have to sell first?

I don't see how that relates to the REAL issue - which was giving outrageous mortgages to those who could never dream of paying them back. This just sounds like a silly regulation which is slowing the market down at a time of potentially high demand because of the basement prices....As long as the bank do due dilligence on the important matter - the earnings of the individual/couple in relation to the size of mortgage, and their 'stability' of employment - then why does it matter if they buy a condo in a block where 35% are not yet sold....the logic escapes me....
jmi256
Well, it looks like Obama is doubling down on the Democrats’ stupidity, and he is looking to cause another housing bubble like the ones Democrats created by extending loans to those who could not afford them and should not have been offered them in the first place. This time, Obama is targeting the speculators who bought multiple homes they could not afford, and some who lied on their mortgage applications. But we’re supposed to feel sorry for these people and spend taxpayer money to support their recklessness in Obama and the Democrats’ opinion apparently. The original program failed miserably, so Obama and the Democrats are taking another stab at creating a fresh housing bubble by handing taxpayer money to these people.


Quote:
Boom-Era Property Speculators to Get Foreclosure Aid: Mortgages

The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.

Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.

The government’s need to protect neighborhoods from blight and renters from eviction by keeping the current owners in place is outweighing concern that taxpayers will end up bailing out real-estate investors. The program is being enlarged after less than 1 million borrowers modified loans through HAMP, compared with the administration’s stated goal in 2009 of helping 3 million to 4 million homeowners.

“When we started the program we focused on owner-occupied houses because the need was so great and we wanted to target the efforts to that group,” said Massad. “Given where we are today, more and more people recognize that vacant properties are a problem no matter how they became vacant.”

Homeownership Rate
Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Orlando, Florida last month that the U.S. economic recovery has been “frustratingly slow,” in part because weak housing markets are holding back consumer spending.

The homeownership rate, which peaked at 69.2 percent in June 2004, fell to 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. A new Fannie Mae program designed to reduce the overhang of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. Almost one in four home purchases in January was made by an investor, according to the National Association of Realtors. And investment and vacation properties made up 21 percent of houses in the foreclosure process in January, according to Irvine, California-based RealtyTrac Inc.

‘Huge Change’
The Obama administration announced last month that it would triple incentives to owners of mortgages that reduce home-loan debt and expand eligibility to borrowers struggling under the weight of other liabilities, such as medical bills. The extension will apply to all loans, including those held by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers. About 700,000 landlords will be eligible under the revisions to HAMP, which has been plagued by consumer complaints about lost paperwork, servicer delays and restrictive eligibility requirements.

“This is a huge change,” said Dan Immergluck, a housing policy professor at Georgia Institute of Technology. “The excessive concern to make sure nobody who played any role in creating the problem gets any benefit has paralyzed the response.”

The danger of blight to communities from foreclosed, vacant properties is still pervasive six years into the slump. Empty houses push down a neighborhood’s property values, according to a 2009 report by the Center for Responsible Lending, which said foreclosures will affect 91.5 million nearby homes through 2012. That will reduce property values by $20,300 for each household, according to the group, which seeks to protect homeownership and family wealth.

Buy-And-Flip Investors
By widening the program, the plan will inevitably offer aid to buy-and-flip investors who pushed prices higher during the boom by taking out mortgages with little or no down payment. Speculators accelerated the crash because they were quick to default when prices fell,
according to a September report from Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw of the Federal Reserve Bank of New York.

At the peak of the boom in 2006, more than a third of home purchase loans were made to borrowers who already owned at least one house, according to the study. In California, Florida, Nevada, and Arizona, which had the most pronounced bubbles, investors accounted for 45 percent of the mortgages.

While survivors of the property bust are now long-term investors, some of them may have started out as flippers, Haughwout said.

Taxpayer Dollars
While speculators are “no one’s first priority for receiving taxpayer dollars,” providing assistance to a large class of multiple property owners and “blanket modifications offered regardless of occupancy” would be more efficient than restrictive programs, the Fed said in the September report.

Chandrajit Bhattacharya, an analyst at Credit Suisse Group AG in New York, said that the HAMP changes will result in about 200,000 modifications for investors. While it won’t keep bondholders “up at night,” it will probably slow the process of liquidating foreclosed homes.

Bhattacharya said he doesn’t understand why the government should be subsidizing workouts for property investors who are in the business of making money on their purchases. Vacancies are unlikely to increase if the houses go into foreclosure and are purchased by owner-occupants or new investors who fill them with tenants, he said.

‘Ridiculous’ Policy
John Burns, an Irvine, California-based real estate consultant, said it’s “ridiculous” for taxpayers to come to the aid of individuals who made bad bets.

“What kind of precedent are you going to set?,” Burns said. “Are you going to refund people who lost money on the stock market too?”

Government help to homeowners comes after President George W. Bush’s administration rescued banks with the Troubled Asset Relief Program in 2008, when the housing crash sparked the worst financial crisis since the Great Depression. Wall Street benefited from Federal Reserve emergency programs to keep credit flowing, while Bush and President Barack Obama directed federal money to save companies including General Motors Co. (GM) and Chrysler Group LLC. The Obama administration then pursued a series of programs meant to reduce foreclosures.

John Russell, 61, of Northville, Michigan, said he was never a speculator seeking to flip houses. He bought four rental properties in neighborhoods in the state more than 10 years ago and said he planned to keep them for decades more. Now the houses are worth far less than he owes, his rents have tumbled, and he has to spend about $20,000 a year to keep them operating.

Chrysler Bankruptcy
Russell, a retired Chrysler executive whose pension was cut during the automaker’s 2009 bankruptcy, said two houses are in foreclosure and he can’t afford to keep them without the federal government’s help.

Banks have repeatedly rejected him for a modification because they aren’t primary residences, he said. Russell said he simply wants his mortgage bills to be brought in line with the rents.

“I guess what you’re always asking yourself is the market going to come back?,” Russell said. “As an investor you want to think that some day the house will be worth more than it is today.”

Moose Scheib, chief executive officer of LoanMod.com, a Dearborn, Michigan-based (MBASMI) firm that advises homeowners facing foreclosure, said many of the investors who hung on through housing bust are “mom and pop” property owners who bought real estate as a source of retirement income. Russell is one of his clients.

“Our economy is in trouble, housing is in trouble,” Scheib said. “Whether you’re fixing it on behalf of investors or homeowners, it benefits everybody to do that.”

Source = http://www.bloomberg.com/news/2012-03-05/boom-era-property-speculators-to-get-foreclosure-aid-mortgages.html
deanhills
Why not help those who lost their homes first? Particularly the borderline cases. And central of course here are the Banks. I'd sort those Banks out first. The best way would be to start local housing loan corporations in the communities and help those corporations to provide housing loans at a lower rate than the banks. As it had been before the deregulation of the banks during the eighties/nineties. That of course will sort out the Banks without having to regulate them again. There has to be a proviso of course that those corporations cannot be taken over by Banks. Those serving on the Corporation Boards can't serve on Bank Corporation Boards either. One way to fund those corporations could be interest free loans from those Banks who had received bailouts to the value of billions during 2008/2009. And who had failed to circulate the money to those who needed it as had been intended by those bailouts as well.
jmi256
deanhills wrote:
Why not help those who lost their homes first? Particularly the borderline cases. And central of course here are the Banks. I'd sort those Banks out first. The best way would be to start local housing loan corporations in the communities and help those corporations to provide housing loans at a lower rate than the banks. As it had been before the deregulation of the banks during the eighties/nineties. That of course will sort out the Banks without having to regulate them again. There has to be a proviso of course that those corporations cannot be taken over by Banks. Those serving on the Corporation Boards can't serve on Bank Corporation Boards either. One way to fund those corporations could be interest free loans from those Banks who had received bailouts to the value of billions during 2008/2009. And who had failed to circulate the money to those who needed it as had been intended by those bailouts as well.


As painful as it sounds, I would start by letting the market correct itself. By pumping even more taxpayer money into the pockets of those who took a gamble and lost, to support their failed policy of getting those who can’t afford mortgage payments or were not qualified to get them in the first place, Obama and the Democrats are simply propping up a system that will eventually crash. Thanks to the Democrats’ push to get mortgages in the hands of people who had a history of bad credit and not paying their bills, no savings of their own they earned that they could use as down payments, or jobs to pay for the mortgages once they received them, the money that was pumped into the subprime and no credit/bad credit/no job loans jacked up the price of homes for those would otherwise be able to afford and maintain a mortgage. For example, some family of four making $120,000 a year and who had $30k in savings would be able to buy a $150,000 house, make the down payment and maintain the mortgage. But because the Democrats injected federal money into the market with their policies/programs, that $150,000 home shot up to $200,000 or higher, leaving them either unable to afford a proper loan, or forcing them to take out a mortgage that they would have trouble affording.
The sooner the market recovers from the Democrats’ policies and returns home prices to fair market, the sooner the homes will be affordable to legitimate buyers and the sooner the free market can get back to work.
deanhills
jmi256 wrote:
deanhills wrote:
Why not help those who lost their homes first? Particularly the borderline cases. And central of course here are the Banks. I'd sort those Banks out first. The best way would be to start local housing loan corporations in the communities and help those corporations to provide housing loans at a lower rate than the banks. As it had been before the deregulation of the banks during the eighties/nineties. That of course will sort out the Banks without having to regulate them again. There has to be a proviso of course that those corporations cannot be taken over by Banks. Those serving on the Corporation Boards can't serve on Bank Corporation Boards either. One way to fund those corporations could be interest free loans from those Banks who had received bailouts to the value of billions during 2008/2009. And who had failed to circulate the money to those who needed it as had been intended by those bailouts as well.


As painful as it sounds, I would start by letting the market correct itself. By pumping even more taxpayer money into the pockets of those who took a gamble and lost, to support their failed policy of getting those who can’t afford mortgage payments or were not qualified to get them in the first place, Obama and the Democrats are simply propping up a system that will eventually crash.

I don't agree with you here. We all know that the real irresponsible people in all of this were the Banks who had been selling mortgage investment instruments that they knew FULL WELL had been bad, to their own clients. If there were anyone irresponsible it were the banking corporations who were paying their sales people HUGE commissions in order to flog bad loans to the street.

I also don't think you could blame this on the Dems. I'd blame it on both parties who are in cahoots with your large banking corporations along the lines of I pat your back, you pat my back. We don't have a democracy in the United States either, more like an oligarchy. The mega financial corporations in cahoots with whomever happens to find themselves in Government.
ocalhoun
jmi256 wrote:
the free market can get back to work.

The free market doesn't care if homes are affordable, and doesn't care if people get kicked out onto the street.
Just keep that in mind, please.
Mr_Howl
deanhills wrote:
jmi256 wrote:
deanhills wrote:
Why not help those who lost their homes first? Particularly the borderline cases. And central of course here are the Banks. I'd sort those Banks out first. The best way would be to start local housing loan corporations in the communities and help those corporations to provide housing loans at a lower rate than the banks. As it had been before the deregulation of the banks during the eighties/nineties. That of course will sort out the Banks without having to regulate them again. There has to be a proviso of course that those corporations cannot be taken over by Banks. Those serving on the Corporation Boards can't serve on Bank Corporation Boards either. One way to fund those corporations could be interest free loans from those Banks who had received bailouts to the value of billions during 2008/2009. And who had failed to circulate the money to those who needed it as had been intended by those bailouts as well.


As painful as it sounds, I would start by letting the market correct itself. By pumping even more taxpayer money into the pockets of those who took a gamble and lost, to support their failed policy of getting those who can’t afford mortgage payments or were not qualified to get them in the first place, Obama and the Democrats are simply propping up a system that will eventually crash.

I don't agree with you here. We all know that the real irresponsible people in all of this were the Banks who had been selling mortgage investment instruments that they knew FULL WELL had been bad, to their own clients. If there were anyone irresponsible it were the banking corporations who were paying their sales people HUGE commissions in order to flog bad loans to the street.

I also don't think you could blame this on the Dems. I'd blame it on both parties who are in cahoots with your large banking corporations along the lines of I pat your back, you pat my back. We don't have a democracy in the United States either, more like an oligarchy. The mega financial corporations in cahoots with whomever happens to find themselves in Government.


I agree. The easiest way to fix the problem would be to put all those responsible for the financial crisis in jail, and then seize all of their assets (as a bonus, we can use them to pay off the debt!). Let them serve as an example to any others who want to gamble with American lives. Then, any of these banks that were too big to fail, i.e. TOO BIG, should be broken down into many smaller banks, with conditions disallowing re-merges. But of course, no one wants to actually enforce Anti-Trust/Anti-Monopoly laws. Not even the Republicans, despite all their supposed love of the free market. Everyone seems to forget that as soon as a monopoly exists, the free market ceases to!

I bet this is how it went down, though. We have the lovely Federal Reserve, a bank owned by private investors, many of whom are also bankers. And we know Federal Reserve can destroy the economy at will, as they demonstrated for us in the 1930s. So I'm sure any idea of punishing Wall Street was met with the threat of 25% unemployment for the next decade.

Am I exaggerating? I really hope so. But this video scared me.

That was something of a rant. Sorry.
Bikerman
LOL...funnily enough I watched that video a couple of weeks ago.
I didn't see any obvious untruths in it (but I haven't done a proper fact-checking job on it) and much of the central thesis seems to check-out, but there is a nasty smell about the vid in terms of it being an anti-semitic attack. I may be wrong on that and I'll watch it again when I get time...
The other thing I seem to remember was that it was supportive of the central thesis (that the Federal Reserve is the root of all evil) to an extent that it twisted things a little and made sweeping claims (like 'the abolution of the Fed is the solution to ALL our problems today' for example)
deanhills
Mr_Howl wrote:
Am I exaggerating? I really hope so. But this video scared me.

That was something of a rant. Sorry.
Well, if this was a rant, keep ranting away. Enjoyed it very much. Thanks for posting the link to the video. Reminds me of some I've seen as well. Must look for this specific one that was really educational, although maybe a bit long. I think it was an hour or so. Smile
handfleisch
jmi256 wrote:
As painful as it sounds, I would start by letting the market correct itself.


This "We Should Let Another Great Depression Happen" argument doesn't exactly win the hearts and minds of the American people, the 90% of the country that would truly suffer from a collapse of the housing market and the banking industry. We stopped the economic collapse that started with the 2007 financial crisis and most Americans can be glad about that.
deanhills
handfleisch wrote:
We stopped the economic collapse that started with the 2007 financial crisis and most Americans can be glad about that.
I don't agree that the economic collapse was stopped. It had been simply a case of putting a finger in a hole and very soon another hole will appear .... and another hole .... eventually we will be running out of fingers to plug all of the holes.

I don't agree with jmi's solution. For me the solution is in sorting out the very large banking corporations. And creating local coops. That would ensure a proper distribution of financial sources and helping entrepreneurs who want to start new businesses. Like the old days when the banks had been regulated to look after banking only.
ocalhoun
handfleisch wrote:
jmi256 wrote:
As painful as it sounds, I would start by letting the market correct itself.


This "We Should Let Another Great Depression Happen" argument doesn't exactly win the hearts and minds of the American people, the 90% of the country that would truly suffer from a collapse of the housing market and the banking industry.

What if, instead of 'winning the hearts and minds of the people' in the short term, we actually did what was best for the long run?
Quote:
We stopped the economic collapse that started with the 2007 financial crisis and most Americans can be glad about that.

We didn't stop it, we paused it.
It's still there; the instabilities that caused it are still present, and it's just waiting to get started again.

The (insolvent) banks that participated in risky and/or fraudulent activities need to be dissolved and replaced with new (solvent) ones, and the securities & exchange market needs to be untangled and sorted out. (And then regulated.)
(Also, strict rules for bank solvency need to be (re)enacted, enforced, and made permanent.)

Until that happens, the economic situation will remain fragile and precarious. (Until the next iteration of the boom/bust cycle anyway.)
If done with skill and care, these things might be accomplished without causing undue suffering to anyone.
But to call the crisis over, and call the status quo 'the way things are supposed to be' would be a mistake; there are still big problems that need to be fixed, and nobody in Washington seems to care about fixing them.
jmi256
ocalhoun wrote:
jmi256 wrote:
the free market can get back to work.

The free market doesn't care if homes are affordable, and doesn't care if people get kicked out onto the street.
Just keep that in mind, please.


Please define “affordable.” If you mean at a price that two parties mutually both agree upon and represents a transaction of value for value, then the free market absolutely provides that. In a free market, if I have enough money and good enough credit to buy a house that I can afford, then I can. In the Housing Bubble the Democrats created by forcing mortgage and housing entities, like Fannie and Freddie Mac, then “affordability” is not the main factor in the transaction, but rather a sideshow.
jmi256
ocalhoun wrote:
We didn't stop it, we paused it.
It's still there; the instabilities that caused it are still present, and it's just waiting to get started again.

BTW, you didn’t “pause” anything. We are still feeling the effects of the Democrats’ Housing Bubble. The housing market is simply being artificially propped up, and the ensuing financial crisis that resulted from the Democrats’ efforts to provide mortgages to those who could not afford them has affected even those who did not actively participate in the Democrats’ programs. Their policies artificially drove up home prices so that those who had good credit and were able to afford a decent home were forced to pay a lot more than they would have without the Democrats efforts to drum up support from their base.
Bikerman
Unbelievable re-writing of history yet again.
Those who want a fuller history of the US housing bubble should perhaps start with wiki:
http://en.wikipedia.org/wiki/United_States_housing_bubble
The causes of the bubble are examined in another article:
http://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble
Particular attention should be paid to the regulatory changes that set the scene:
The Depository Institutions Deregulation and Monetary Control Act of 1980 (allowing similar banks to merge and set any interest rate).
The Garn–St. Germain Depository Institutions Act of 1982 (allowing Adjustable-rate mortgages).
The Gramm–Leach–Bliley Act of 1999 (allowing commercial and investment banks to merge).


Certainly the democrats are not blameless. Clinton's repeal of the Glass-Steagall act in 1999 undoubtedly contributed to the problem, but to characterise it as a 'democrat' housing bubble is in blatant contradiction to the facts.
A very large causal factor was legislation which removed controls on the large financial institutions - something which Republicans believed (and many still do) was a good thing and which is bang in-line with the basic philosophy of laissez-faire capitalism that the Republicans in the US, and the Conservatives here (to a lesser extent) are completely wedded to.
coolclay
Everyone's to blame! Imagine that!
jmi256
coolclay wrote:
Everyone's to blame! Imagine that!

It’s not about “blame” but rather making sure that we learn from our lessons to ensure that we don’t make the same mistakes and elect the same types of people who are responsible for the mess they made. The Housing Bubble that was created by government involvement in programs aimed at getting mortgages for those with no credit, bad credit, no down payment, etc., and the Democrats instituted these programs to pander to their base. Barney Frank, the disgraced Democrat from Massachusetts, was all too happy to “take credit” for the Democrats’ programs and admonished those who raised the objection that they were leading to a bubble that would eventually harm the entire market back in 2005. And we all know how that worked out.


Bikerman
By 2005 the bubble was already well blown and about to burst. To blame the democrat scheme (CRA) for the bubble is just silly.
The overwhelming money that went into sub-prime loans was private lending, not government mandated loans. (about 84% private and a total of about 6% from the CRA (community reinvestment act)).
At worst the CRA might have been the final straw that broke the camel's back, but the roots of the problem lie long before then.
jmi256
Bikerman wrote:
By 2005 the bubble was already well blown and about to burst. To blame the democrat scheme (CRA) for the bubble is just silly.
The overwhelming money that went into sub-prime loans was private lending, not government mandated loans. (about 84% private and a total of about 6% from the CRA (community reinvestment act)).
At worst the CRA might have been the final straw that broke the camel's back, but the roots of the problem lie long before then.


You’re right; The Democrats instituted policies pressuring banks to provide mortgages to those who could not afford them back in 1999. Many took out 5-year ARMs (Adjustable Rate Mortgages) to get an even lower monthly payment in the beginning of the loan (ARMs adjust at predetermined times) It took that long for some to see the signs of the bubble, but many saw it coming and made their investments based on what they saw as the inevitable collapse of the government-created bubble. From 1999:

Quote:
Fannie Mae Eases Credit To Aid Mortgage Lending

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.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Source = http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html
Bikerman
Nope.
CRA was introduced in 1977 by Carter. Bush snr then made significant changes which were partly responsible for the crisis brewing. (1985).

Interestingly the people who saw it coming didn't seem to include the Republican government who were in power when it DID come and had 6 years BEFORE it came to address the issue. What did they do? Loosened the market even more. Bush weakened the legislation in 2005, months before the bubble burst. The Republicans were happily steaming ahead into oblivion - despite, as you say, people warning them that is was about to get nasty
jmi256
Bikerman wrote:
Interestingly the people who saw it coming didn't seem to include the Republican government who were in power when it DID come and had 6 years BEFORE it came to address the issue. What did they do? Loosened the market even more. Bush weakened the legislation in 2005, months before the bubble burst. The Republicans were happily steaming ahead into oblivion - despite, as you say, people warning them that is was about to get nasty


Complain all you want about the fact that Fox News is quoted in the below, but it clearly shows that the Bush Administration tried to address the situation early on (April 2001, just two months after taking office) and was blocked by Democrats.

Bikerman
I'm not going to complain but if Fox is your only source then you don't really have a source.

If Bush had been worried in 2001 then why did he change the legislation in 2005?
jmi256
Bikerman wrote:
I'm not going to complain but if Fox is your only source then you don't really have a source.

You may have noticed that it is not. The Youtube video included footage from Fox News, but I also provided the New York Times articles that highlights the Democrats’ celebration of their program to extend mortgages to those who could not afford them, which eventually led to the burst of their Housing Bubble when (surprise, surprise) those would could not afford a mortgage were not able to. I also included footage from one of the key architects of the program, Barney Frank, from the floor of Congress (broadcast on CSPAN, BTW), sticking his head in the sand about his failed program that threatened to create the crisis that eventually did occur and even had the balls to mock Republicans for suggesting that steps had to be taken to fix the Democrats’ stupid programs. But Democrats blocked Republicans and we all saw how that worked out. But in case you missed my sources:

From 1999:

Quote:
Fannie Mae Eases Credit To Aid Mortgage Lending

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.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Source = http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html



Bikerman
Yep - I've already talked about this. As I said, this didn't help, but it accounted for a very small amount of the money lent to sub-prime lenders.
The major growth in sub-prime lending happened between 2000 and 2009 - during that period sub-prime lending quadrupled and house prices doubled.

And who's watch was it?
That would be Bush then....

There is a nice little time line below - from HERE
Quote:
1980s: The Reagan Era: laissez-faire and trickle-down economics •

Substantial deregulation, especially the Garn-St. Germain Act which deregulates Savings and Loan companies, leading to the later S&L crisis • Oliver Stone’s Wall Street immortalized financial sector greed and immorality • S&L scandal: loose regulations, lax enforcement lead to massive fraud; hundreds of S&Ls fail lax enforcement lead to massive fraud; hundreds of S&Ls fail; $124 billion taxpayer-funded bailout • Neil Bush approves $100 million of bad loans to business partners through Silverado S&L, which subsequently fails
• 1989: Keating Five: Four senators and CEO Charles Keating accused of improper influence in advocating against investigating Lincoln S&L, which collapses and Keating is convicted of fraud
• 1987-1990: Michael Milken, Ivan Boesky and other Wall Street executives convicted of fraud and insider trading

1990s: Clinton era: increasing revolving door between Washington and Wall Street

• 1999: Clinton administration members with Wall Street backgrounds help pass the Gramm-Leach-Bliley Act, aka the “Citigroup Relief Act,” repealing Glass-Steagall and allowing mergers that create Citigroup
• 1994: A new law gives the Federal Reserve power to regulate the mortgage industry, but Alan Greenspan refuses to enact any regulations, on the grounds that regulation was unnecessary
• 2000: Clinton Administration, particularly Larry Summers, Alan Greenspan and key Congress members including Senator Phil Gramm help enact the Commodity Futures Modernization Act, which bans all regulation of financial derivatives and exempts them from anti-gambling laws
• 2000: Dot-com bubble bursts
• 2000-2002: Eliot Spitzer sues 8 investment banks for conflict of interest and recommending dot-com stocks they thought were junk; reaches settlements totaling $1.4 billion in fines

2000s: George Bush pushes for further deregulation and relaxed enforcement

• 2000-2005: Investigations of Fannie Mae and Freddie Mac reveal massive accounting fraud
• 2002: Arthur Andersen, auditor, convicted of obstruction of justice for shredding Enron documents
• 2003: Worldcom revealed to have inflated assets by $11 billion 17
• 2000s: new crops of highly complex financial innovations flourish: securitization of mortgages, credit default swaps, synthetic CDOs
• 2000-2007: Fed by the investment banking industry, a massive housing and mortgage credit bubble sweeps the United States; mortgage lending quadruples, housing prices double
• 2004: After intense lobbying by investment banks, the SEC lifts the leverage limits on the investment banking industry, allowing them to borrow more
• 2005: IMF chief economist Raghuram Rajan warns of dangerous incentives and risks in the financial system; Larry Summers dismisses him as a “Luddite”
• 2005-2008: Goldman Sachs, Morgan Stanley, Deutsche Bank and other investment banks begin using credit default swaps to bet against the same mortgage securities that they are selling as extremely safe
• 2006: Hank Paulson, CEO of Goldman Sachs, becomes Treasury Secretary
• 2007: The housing bubble bursts, as the financial sector runs out of people willing to borrow and purchase more housing; home ownership reaches an all-time high, while savings rates are at historic lows
2008: Great Recession begins
ocalhoun
jmi256 wrote:
ocalhoun wrote:
jmi256 wrote:
the free market can get back to work.

The free market doesn't care if homes are affordable, and doesn't care if people get kicked out onto the street.
Just keep that in mind, please.


Please define “affordable.”

I mean affordable as in, 'a normal family can afford a home to live in without undue sacrifices in other areas'.
Quote:
If you mean at a price that two parties mutually both agree upon and represents a transaction of value for value, then the free market absolutely provides that.

However, there are circumstances where a free market could fail to provide 'affordable' (by my definition) housing.

This is just one example, with the broader point being that a perfectly free market, while efficient, can cause suffering to the people subject to it.
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