Bye,bye Barney Frank

Originally posted by sh76
It wasn't the anti-discrimination that's the issue.

The policies enacted in the 1990s and pushed by the likes of Barney Frank forced (or at least caused) banks to give enormous amounts of loans to people who could never have been realistically expected to pay them back absent a continuous surge in the housing market. Whether the applicants were white, black, of the blame for the mortgage crisis. Refusing to acknowledge that is being disingenuous.

That is complete and utter nonsense. Please cite some specific policy enacted in the 1990s that "forced (or at least caused) banks to give enormous amounts of loans to people who could never have been realistically expected to pay them back absent a continuous surge in the housing market". Please cite some evidence of the "enormous numbers" of supposedly completely unqualified borrowers that government actions "forced or caused" said banks to reluctantly extend credit to. Please cite some evidence that it was government action rather than their own profit motive that caused banks to create the subprime mortgage market in the first place. And on and on and on.


The whole idea is the equivalent of a right wing urban myth. Here's some facts to chew on:

In fact, the rate of delinquencies for all GSE securities in 2004 was 4.3 percent, compared to a delinquency rate in private industry of 15.1 percent of mortgages. In 2005, the GSE rate was 7.8 percent compared to 28.7 percent, and in 2006 and 2007, the rates reached 13.2 and 14.9 percent in the GSEs and 45.1 and 42.3 percent in the private market.5 None of these figures are cited in Reckless Endangerment. In fact, losses as a proportion of mortgages guaranteed or bought by the GSEs were far lower than in private industry.

http://www.nybooks.com/articles/archives/2011/oct/27/did-fannie-cause-disaster/?pagination=false

The source cited is: "Data on the Risk Characteristics and Performance of Single-Family Mortgages Originated from 2001 through 2008 and Financed in the Secondary Market," Federal Housing Finance Agency, Table 3C, p. 27 (September 13, 2010), available at my.newschool.edu/cp/home/displaylogin . ↩

Originally posted by no1marauder
That is complete and utter nonsense. Please cite some specific policy enacted in the 1990s that "forced (or at least caused) banks to give enormous amounts of loans to people who could never have been realistically expected to pay them back absent a continuous surge in the housing market". Please cite some evidence of the "enormous numbers" of supposedly ...[text shortened]... . 27 (September 13, 2010), available at my.newschool.edu/cp/home/displaylogin . ↩

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch.

The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable -- which they were as long as rising housing prices kept default rates unusually low -- their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.

While Fannie and Freddie and the CRA were pushing up the demand for relatively low-priced property, the Taxpayer Relief Act of 1997 increased the demand for higher valued property by expanding the availability and size of the capital-gains exclusion to $500,000 from $125,000. It also made it easier to exclude capital gains from rental property, further pushing up the demand for housing.

http://online.wsj.com/article/SB122298982558700341.html

Originally posted by sh76

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. ...[text shortened]... the demand for housing.

http://online.wsj.com/article/SB122298982558700341.html

That article miserably fails to meet the tasks I asked of you. Merely requiring a small portion of mortgages to be targeted to lower income borrowers, who still had to meet credit worthy requirements, does not support your extravagant claims. And that the fact that GSA backed loans had a far lower delinquency rate than those backed by private banks totally refutes them.

Originally posted by no1marauder
That article miserably fails to meet the tasks I asked of you. Merely requiring a small portion of mortgages to be targeted to lower income borrowers, who still had to meet credit worthy requirements, does not support your extravagant claims. And that the fact that GSA backed loans had a far lower delinquency rate than those backed by private banks totally refutes them.

Yes, and that's why Fannie and Freddie same through the recent crisis soooooo well.