I think it’s more indicative of being a complete moron than of being a racist if you actually believe the CRA — whose purview less than 3% of the foreclosed homes were under — helped cause the financial collapse.

philnewkirk on October 6, 2008 at 9:10 PM

FillBarneyKirk the point is FM/FM skewed risk valuation and acted as a “risk launderer” through bundling….

http://www.madcowssteakhouse.com/viewtopic.php?t=21912&start=0

series of thoughts an a Washingtonian article back in ‘02

sven10077 on October 6, 2008 at 9:12 PM

Re-read Ed’s post, dummy.

“In that sense, the CRA is a bit of a red herring. The real cause of the collapse was the Congressional push for Fannie and Freddie to support subprime lending by purchasing the paper from lenders, which is related to the same policies that generated the CRA but isn’t the CRA itself. Lenders make money one of two ways: keeping the paper themselves and getting the interest over the term of the loan, or selling the paper to someone else for a guaranteed short-term profit. When Fannie and Freddie began buying all of this paper, they created a huge demand for subprime loans — and lenders responded by offering easy money to almost anyone who applied. They threw out income requirements and equity thresholds (such as down payments) and generated tremendous short-term profits for themselves … while Fannie and Freddie assumed all the long-term risk.”

ManlyRash on October 6, 2008 at 9:13 PM

Indeed Manly that is why Frank Raines and Jamie Gorelick are most properly called risk launderers….

check out the link I have about twenty posts above after some slamming of Barney having a Fannie Packer from Fannie Mae I started to ponder “underlying causes”….

was a long night posting.

sven10077 on October 6, 2008 at 9:15 PM

Dissection of Washingtonian 2002 Article on Risk Valuation and the Impending crisis of Fan and Fred…

sven10077 on October 6, 2008 at 9:16 PM

That actually happened, it was me and our then three year old daughter (she’s now 33 and a mother) at home, just us. Her answer to who did it: “I don’t know.” At least she didn’t blame the cat. Barney and Co. are blaming the cat.

Pelayo on October 6, 2008 at 9:20 PM

or it’d be like the three year old trying to explain to you with a straight face that….”mom dad it was your fault because your lack of caring about AGW made the polar bears do it….”

sven10077 on October 6, 2008 at 9:22 PM

I really don’t want to find out, do you?

bloggless on October 6, 2008 at 9:30 PM

I’m just wondering who he paid to knock them out to increase his attractiveness to Moses….

sven10077 on October 6, 2008 at 9:31 PM

As much as Fannie Mae’s advertisements feature youngsters chasing puppies in front of freshly painted Colonial homes, the company has never loaned anyone money to buy a house. By law, Fannie Mae and Freddie Mac buy only loans made by banks or other lenders.

That is why the racially charged pap rings hollow until you understand that what is being attacked is the one-two punch of a GSE(Government-Sponsored Enterprise a neither fish nor fowl hybrid)and threats of a frisky DoJ. The PR does not match the reality of what FM/FM do. It does provide a Tyrone Rockwell facade though.

Say you get a 30-year mortgage from Chase Manhattan. Chase will sell the mortgage to Fannie and agree to send Fannie your payments. At that point, Fannie has two choices. It can keep the mortgage, profiting from the difference between the interest rate on your mortgage and the rate it paid when borrowing the money from international investors to buy the loan. Or, if the lender has bundled your loan with others, Fannie will issue an investment product called a mortgage-backed security. Those who buy the security will pay Fannie a fee for guaranteeing that they’ll receive all your payments even if you prepay your loan, refinance, or default.

FM/FM acted as an agent of normalized slamming of housing prices through this methodology. It set up a defacto system where as long as the housing market did not go into hard rebellion on prices and the Fed maintained low rates in perpetuity the banks COULD NOT LOSE NO MATTER HOW BAD THE RISK VALUATION WOULD HAVE BEEN IN SANER TIMES. What killed the golden goose is the donk energy barricades and people losing liquid flexibility in their income…..the margins shrank in terms of real base purchasing power so defaults started up because people lacked the maturity to forestall discretionary items in lieu of tightening the belt to meet what with a saner energy policy over the last 30 years would have been short bursts of price jumps.

The thing is the wacko enviros are happy with the lack of new refineries and the oil gurus have made their peace with having to import ever increasing amounts of petrol as well as crude…..thus the incentive to maintain our strategic independence through near off shore drilling and increased refining capacity to meet the hundred extra million users since the last refineries were built has ensured higher prices no matter how much supplies go up in the near future thanks to OPEC.

These transactions, known as the secondary-mortgage market, have helped make home loans a good investment. Thanks to them, Fannie bought or guaranteed $600 billion in mortgages last year and made $6 billion in profits.

Yes a GSE made 6 billion profit backing 600 billion dollars in mortgages in one year. The situation was known to be so bad in potential that the Feds had to create another GSE in 1970 to prevent a monopoly. Enter Freddie Mac.

sven10077 on October 6, 2008 at 9:35 PM

Fannie Mae keeps mortgage funds flowing. Although today’s financial markets could handle that job, the company’s ability to borrow trillions cheaply helps it finance loans Americans like most: 30-year, fixed-rate mortgages with low down payments.

The article misses a very important point….but remember this is from the heady salad days of 2002 FM/FM in purposely buying non GSE banks bad debt acted as a sort of “money launderer” for bad risk valuation taking bad debt and making a witch’s brew of amalgamated bites of “mortgage notes” for the mutual funds to buy back often with more borrowed money. This washed away the impact of mortgage risk valuation and then “cleaned up” the percieved risk to the market in the event of an implosion.

Fannie Mae also has worked to streamline how you get a mortgage. It developed what it calls DeskTop Underwriter to eliminate paperwork, appraise property values, and tell you quickly whether you qualify. Raines says such innovations can save home buyers as much as $1,000.

Made it more accessible to the average layman at precisely the same time that the threat of the DoJ camping on lender’s prospectii was in the air.

The biggest plus: Fannie lowers mortgage rates. If you turn to the mortgage columns in the newspaper, the “conforming” mortgages on the left–the ones Fannie and Freddie can buy–are typically a quarter of a percent cheaper than the “jumbo” loans on the right (this year, loans for more than $300,700). For the average loan Fannie buys–a mortgage of $118,000–that reduction saves about $19 a month.

Now the real kicker is that FM/FM have a 5% better margin for Fed rates than non GSEs are allowed. In essence they buy their money to buy cheaper than non GSEs and the 2.5% slack covers “operating costs” like Gorelick and Raine’s golden parachutes BTW. All of that power to save the average mortgage holder about 215 bucks a year.

“It’s something of a miracle from a public-policy standpoint,” says CEO Frank Raines, reflecting on his company as he sits at a conference table near Fannie Mae’s executive suites.

Hey Frank I don’t think the miracle is so miraculous right now.

The miracle didn’t fall from the sky. As one government official puts it, the company shouldn’t congratulate itself for winning a race that it started a mile ahead.

Quite remember the difference in borrowing costs….a LOT of non GSE businesses could leverage competitors with a built in tool like that.

During a congressional hearing last year, Fannie Mae’s chief financial officer, Tim Howard, was asked whether Fannie enjoyed “special benefits” over the rest of the housing-finance industry.

This was in 2001 now mind you…you can watch a youtube clip of this exchange if you search hard enough. Made for interesting C-Span.

“I think that’s a complicated subject,” Howard said. Told by a congressman that the answer was “almost arrogant,” he conceded, “We are given different opportunities from those which our competition’s been given.”

“Different Opportunities” is roughly translated as “do whatever the hell we want and know YOU are going to foot the bill if we step on our dicks Congressman”. Remember this GSE founded off of OUR tax money was now in the business of lobbying the very men and women who birthed her, and for real fun was turned into a career relaunching pad for the party that made the DoJ the club to FM/FM’s “shield”.

There’s a reason Howard waffled: The government fuels much of what Fannie and Freddie do. Take the companies’ low borrowing costs, which allow them to shave that quarter of a percent off your mortgage. Why do investors charge Fannie and Freddie such low rates for their bonds?

Why indeed, when you realize that whether explicitly implied or not the understood reality was what is coming next….

It’s not that the companies are famously well managed. It’s that investors are sure they’ll be repaid–if by no one else, by the US government. Uncle Sam would never let Fannie and Freddie default on more than a trillion in bonds, the thinking goes, because the government created them in the first place.

and there we have it and we are now past the first trillion if you factor in the two bailouts these two last months…..

though there was never an explicit guaranty there was in fact an implied one and implied by whom?

Franklin Raines, Barry O’bama’s financial advisor.

That means if housing prices crash or either company stumbles, the taxpayers could be on the hook for hundreds of billions. It’s as if the public had cosigned Fannie and Freddie’s debt, says Lawrence White, a New York University business-school professor and former Freddie Mac director. To pay for a very small cut in mortgage rates, White says, the taxpayers bear the risk of a massive bailout.

to buy you that extra 215 bucks an amount less than what the donks decried the Bush rebates as being “too miniscule to matter” we backed our mortgage debt SOME OF WHICH WOULD NEVER HAVE BEEN HIGH RISK HAD IT NOT BEEN BUNDLED by the general fund….

better still any attempt to keep FM/FM from buying every mortgage it could was decried as racism and demogogued.

sven10077 on October 6, 2008 at 9:40 PM