More on the housing collapse -- the government **DID** cause it

[Loren Pechtel]

https://www.theatlantic.com/busines...vernment-did-cause-the-housing-crisis/249903/

Much more damning than anything I have run into before on this. It's not just the CRA mandating loans, the federal mortgage buyers required high percentages of mortgages with lower incomes. It's not just that the feds would buy trash, but if you wanted to sell mortgages to them you basically had to write trash.

 

[laughing dog]

The analysis of Peter Wallison - a rightwing Republican free marketer - is not accepted by many people familiar with the data. Here is one critique of Wallison (https://www.americanprogress.org/issues/economy/reports/2011/07/12/10011/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/) that includes

The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s......

Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization....

nstead, what Wallison and Pinto do—the key to their argument—is to expand the definition of “high risk” and “subprime” to include new categories of loans not ordinarily understood to be high risk. This expansion of “high-risk” lending is essential to the Wallison/Pinto argument that the mortgage crisis was caused by federal affordable housing policies.....

In short, Wallison's view is not supported by the actual data.

 

[ZiprHead]

It's always the governments fault to the American Enterprise Institute.

 

[Loren Pechtel]

The analysis of Peter Wallison - a rightwing Republican free marketer - is not accepted by many people familiar with the data. Here is one critique of Wallison (https://www.americanprogress.org/issues/economy/reports/2011/07/12/10011/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/) that includes

The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s......

Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization....

nstead, what Wallison and Pinto do—the key to their argument—is to expand the definition of “high risk” and “subprime” to include new categories of loans not ordinarily understood to be high risk. This expansion of “high-risk” lending is essential to the Wallison/Pinto argument that the mortgage crisis was caused by federal affordable housing policies.....

In short, Wallison's view is not supported by the actual data.

Which, once again, ignores the fact that the worst of the damage was due to the junk standards the government set for buying mortgages becoming the standard.

The reason I posted this is because many of you have insisted the CRA didn't require the writing of junk loans. With the % of loans that had to be low income how could they do that without writing junk?

 

[RVonse]

Besides the idiotic moronic folly of the Iraq war, Ive always given full credit to the Bush administration for the 2008 banking crises. Bush was the one who pushed like hell to get everyone owning a house.

It really does make you wonder how different....and how much better off all of us would be if Al Gore had won in 2000 instead of Bush. And that history was all decided on the basis of one Supreme Court decision. Talk about a butterfly effect of the first order.

 

[laughing dog]

The analysis of Peter Wallison - a rightwing Republican free marketer - is not accepted by many people familiar with the data. Here is one critique of Wallison (https://www.americanprogress.org/issues/economy/reports/2011/07/12/10011/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/) that includes

The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s......

Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization....

nstead, what Wallison and Pinto do—the key to their argument—is to expand the definition of “high risk” and “subprime” to include new categories of loans not ordinarily understood to be high risk. This expansion of “high-risk” lending is essential to the Wallison/Pinto argument that the mortgage crisis was caused by federal affordable housing policies.....

In short, Wallison's view is not supported by the actual data.

Which, once again, ignores the fact that the worst of the damage was due to the junk standards the government set for buying mortgages becoming the standard.

The reason I posted this is because many of you have insisted the CRA didn't require the writing of junk loans. With the % of loans that had to be low income how could they do that without writing junk?

Repeating Wallison's bs as gospel does not advance your argument.

 

[dismal]

Besides the idiotic moronic folly of the Iraq war, Ive always given full credit to the Bush administration for the 2008 banking crises. Bush was the one who pushed like hell to get everyone owning a house.

It really does make you wonder how different....and how much better off all of us would be if Al Gore had won in 2000 instead of Bush. And that history was all decided on the basis of one Supreme Court decision. Talk about a butterfly effect of the first order.

The government had been encouraging and subsidizing home ownership for decades before Bush you know. Was he just such a masterful leader and orator that people couldn’t resist his encouragements?

And, given it was Bush’s skills that caused the rise, it’s odd that when you look at a graph of US home ownership rates you’ll see it started trending up rapidly in about 1994 with no particular acceleration when Bush took over.

 

[zorq]

The reason I posted this is because many of you have insisted the CRA didn't require the writing of junk loans. With the % of loans that had to be low income how could they do that without writing junk?

Easily.

Simply by only writing loans for properties that the customers can actually afford. It doesn't matter what your customer base's income is.

If you are only allowed to offer 5 loans to people of superior income for every 6 people with inferior income, the only implication there is that you should only be offering loans on at least 6 relatively cheap properties. The other 5 properties can be cheap OR expensive. Everyone else with superior income who needs a loan can go get one from the private institutions.

 

[dismal]

The reason I posted this is because many of you have insisted the CRA didn't require the writing of junk loans. With the % of loans that had to be low income how could they do that without writing junk?

Easily.

Simply by only writing loans for properties that the customers can actually afford. It doesn't matter what your customer base's income is.

If you are only allowed to offer 5 loans to people of superior income for every 6 people with inferior income, the only implication there is that you should only be offering loans on at least 6 relatively cheap properties. The other 5 properties can be cheap OR expensive. Everyone else with superior income who needs a loan can go get one from the private institutions.

The mortgage industry doesn’t win by writing loans to people who can’t afford them.

Any reasonable explanation would be required to explain why these greedy capitalists in the mortgage industry did things that were not consistent with sound business practices.

 

[ZiprHead]

The reason I posted this is because many of you have insisted the CRA didn't require the writing of junk loans. With the % of loans that had to be low income how could they do that without writing junk?

Easily.

Simply by only writing loans for properties that the customers can actually afford. It doesn't matter what your customer base's income is.

If you are only allowed to offer 5 loans to people of superior income for every 6 people with inferior income, the only implication there is that you should only be offering loans on at least 6 relatively cheap properties. The other 5 properties can be cheap OR expensive. Everyone else with superior income who needs a loan can go get one from the private institutions.

The mortgage industry doesn’t win by writing loans to people who can’t afford them.

Any reasonable explanation would be required to explain why these greedy capitalists in the mortgage industry did things that were not consistent with sound business practices.

They didn't care who they wrote loans to because they immediately sold them.

 

[dismal]

The mortgage industry doesn’t win by writing loans to people who can’t afford them.

Any reasonable explanation would be required to explain why these greedy capitalists in the mortgage industry did things that were not consistent with sound business practices.

They didn't care who they wrote loans to because they immediately sold them.

This lacks an explanation as to why someone would by them.

 

[ZiprHead]

The mortgage industry doesn’t win by writing loans to people who can’t afford them.

Any reasonable explanation would be required to explain why these greedy capitalists in the mortgage industry did things that were not consistent with sound business practices.

They didn't care who they wrote loans to because they immediately sold them.

This lacks an explanation as to why someone would by them.

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

 

[RVonse]

This lacks an explanation as to why someone would by them.

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

Yes I think I remember some of it now. Especially the part where no one went to jail for any of the fraud. There were all these cool sounding derivatives and names that made them look like professor's instead of the con men that they really were.

 

[Harry Bosch]

This lacks an explanation as to why someone would by them.

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

Yes I think I remember some of it now. Especially the part where no one went to jail for any of the fraud. There were all these cool sounding derivatives and names that made them look like professor's instead of the con men that they really were.

Where is the fraud? Loans are classified according to risk. The subprime loans were coded higher risk as their primary source of repayment wasn't borrower income but was instead selling the home. People believed that real estate always increased in value. Therefore, if a person couldn't make their payment over time, they'd just sell and payoff the loan and make a little profit. The reason why so many of these loans were variable rate was that it was anticipated that these loans would be short term.

 

[Koyaanisqatsi]

This lacks an explanation as to why someone would by them.

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

^This

The single most important element to the entire debacle was the fact that the ratings agencies (Moody’s and S&P in particular), did not assess the risk properly (independently of each other) and gave junk such high ratings.

Had they actually done their jobs and dug deeper into the underlying assets like they are supposed to do, they should have discovered the problem and given the assets the low ratings they deserved and none of this mess would have happened.

There has been a LOT of debate (and accusations of bribery/willing complicity) as to why that didn’t happen, but the fact of the matter is they simply fucked up (and, again, they did so independently of each other). They simply did not understand the complexity of the assets and did not investigate the mortgage holders, evidently assuming (incorrectly) that the banks/underwriters of those loans had done their own due diligence.

There is a secondary element that helped cause this central problem, which was the fact that banks were no longer doing their own due diligence on these loans. A new industry had arisen; mortgage brokers that were not directly affiliated with any bank. They were supposed to do the background investigation into an applicant’s finances/abilities to pay their mortgages on a regular basis, but because the banks paid them a commission for every mortgage they secured (and because the government insured banks through FDIC), these third party brokers started not to care about the due diligence and gave out loans to people the banks would not have otherwise loaned to had they done their own due diligence.

Iow, it was a tragedy of errors that hinged on incremental cracks in a foundation that no one knew were cracks. Well, almost no one. There were a few (among them Hillary Clinton), but the biggest problem was confirmation bias. No one thought that a few bad apples (once bundled together with a bunch of good apples) could take down the whole structure. That was, after all, the purpose of bundling the bad with the good to begin with.

They just had no centralized idea of how many bad apples there actually were.

 

[Harry Bosch]

This lacks an explanation as to why someone would by them.

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

^This

The single most important element to the entire debacle was the fact that the ratings agencies (Moody’s and S&P in particular), did not assess the risk properly (independently of each other) and gave junk such high ratings.

Had they actually done their jobs and dug deeper into the underlying assets like they are supposed to do, they should have discovered the problem and given the assets the low ratings they deserved and none of this mess would have happened.

There has been a LOT of debate (and accusations of bribery/willing complicity) as to why that didn’t happen, but the fact of the matter is they simply fucked up (and, again, they did so independently of each other). They simply did not understand the complexity of the assets and did not investigate the mortgage holders, evidently assuming (incorrectly) that the banks/underwriters of those loans had done their own due diligence.

There is a secondary element that helped cause this central problem, which was the fact that banks were no longer doing their own due diligence on these loans. A new industry had arisen; mortgage brokers that were not directly affiliated with any bank. They were supposed to do the background investigation into an applicant’s finances/abilities to pay their mortgages on a regular basis, but because the banks paid them a commission for every mortgage they secured (and because the government insured banks through FDIC), these third party brokers started not to care about the due diligence and gave out loans to people the banks would not have otherwise loaned to had they done their own due diligence.

Iow, it was a tragedy of errors that hinged on incremental cracks in a foundation that no one knew were cracks. Well, almost no one. There were a few (among them Hillary Clinton), but the biggest problem was confirmation bias. No one thought that a few bad apples (once bundled together with a bunch of good apples) could take down the whole structure. That was, after all, the purpose of bundling the bad with the good to begin with.

They just had no centralized idea of how many bad apples there actually were.

Yes, I agree with the above. There's nothing wrong with a high risk loan, as long as the parties agree, and the loan is properly classified and properly priced. But the ratings agencies did not properly access the risk. They didn't stress test the loans (a very common practice today).

 

[RVonse]

Where is the fraud?

This part here:

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

That's like putting saw dust in the good food and calling it something its not. Deceitfulness. The same kind of fraud thats been going on since Jesus toppled the money changer tables. People who deserve to be called out and go to jail as an example to others. What makes it ever so obvious to me is all the crazy high tech names they called mixing saw dust into the mix. A flim flam if ever one was to be seen.

You and Koy can and go around telling everyone it was just an honest debacle caused by idiots too stupid to care how loans were rated.

But whenever you start mixing saw dust into the pot, that's just fraud pure and simple. Con men doing their work.

 

[RVonse]

Iow, it was a tragedy of errors that hinged on incremental cracks in a foundation that no one knew were cracks. Well, almost no one. There were a few (among them Hillary Clinton),

I honestly did not know that.

But it makes perfect sense that the biggest con women there ever was would recognize a fraud in the making first!

 

[T.G.G. Moogly]

Where is the fraud?

This part here:

Because the crappy loans were mixed in with good ones and the rating agencies said those loan packages were all great.

That's like putting saw dust in the good food and calling it something its not. Deceitfulness. The same kind of fraud thats been going on since Jesus toppled the money changer tables. People who deserve to be called out and go to jail as an example to others. What makes it ever so obvious to me is all the crazy high tech names they called mixing saw dust into the mix. A flim flam if ever one was to be seen.

You and Koy can and go around telling everyone it was just an honest debacle caused by idiots too stupid to care how loans were rated.

But whenever you start mixing saw dust into the pot, that's just fraud pure and simple. Con men doing their work.

Honestly, is someone trying to make a distinction between Wall Street and Washington? That would constitute deceit. Who made money in the end? Who got bailed out?

Yes, I agree with the above. There's nothing wrong with a high risk loan, as long as the parties agree, and the loan is properly classified and properly priced. But the ratings agencies did not properly access the risk. They didn't stress test the loans (a very common practice today).

Why look a gift horse in the mouth? Doing so would have risked profits.

 

[Harry Bosch]

This part here: That's like putting saw dust in the good food and calling it something its not. Deceitfulness. The same kind of fraud thats been going on since Jesus toppled the money changer tables. People who deserve to be called out and go to jail as an example to others. What makes it ever so obvious to me is all the crazy high tech names they called mixing saw dust into the mix. A flim flam if ever one was to be seen.

You and Koy can and go around telling everyone it was just an honest debacle caused by idiots too stupid to care how loans were rated.

But whenever you start mixing saw dust into the pot, that's just fraud pure and simple. Con men doing their work.

Honestly, is someone trying to make a distinction between Wall Street and Washington? That would constitute deceit. Who made money in the end? Who got bailed out?

Yes, I agree with the above. There's nothing wrong with a high risk loan, as long as the parties agree, and the loan is properly classified and properly priced. But the ratings agencies did not properly access the risk. They didn't stress test the loans (a very common practice today).

Why look a gift horse in the mouth? Doing so would have risked profits.

Because looking a gift horse in the mouth without considering the future often leads to lower future profits.