If CRA originations were ignored by half of the origination force which produced the majority of loans, then clearly CRA production could not have been a significant factor regarding the meltdown. And it wasn’t.

voiceofreason on February 5, 2013 at 6:54 PM

That’s like claiming that a fund which purchase less than half the stock during a day’s trading session can’t be responsible for driving up the price of a stock. It’s pure stupidity.

Please clue me into this counter argument that I’m sure has nothing to do with my position that fraudulent securitization was the heart of the meltdown because your attempts at the discussion have been comical up to this point. Shrill, but none the less comical.

I can’t believe you didn’t hear all the reasons for the ratings that many of these bundles received.

But for starters, let me force you commit to what you’re claiming was fraudulent. The originations, the securitization, or the ratings?

As for your erroneous statement that no one called those loans AAA, you have a shred of credibility in that no one called that particular loan AAA.

Nobody on Hot Air claimed that these type of individual loans were AAA.

Loans, plural, like that were called AAA when they were pooled, tranched and sprinkled with worthless insurance. All part of the fraud process that caused the meltdown.

You’re a joke. You continue to be a simpleton.

Are you seriously clueless about the argument that justified rating this paper as AAA? Where the heck were you during these years? Did you keep your head in the sand the entire time? Do you really need someone that wasn’t even directly in the industry to explain it to you?

While you’re trying to remember, feel free to explain how you justify actually claiming that it was fraud (in general – not just that incidents of fraud occurred).

And to reiterate/clarify, prime delinquencies lagged subprime and alt A delinquencies. It was the delinquencies of the latter that triggered the meltdown not delinquencies on prime paper.

You keep reiterating this as if you’re making a point. Again, if NFLX’s stock trades up excessively high due to a fund purchasing 30% of the stock on a daily basis, then the stock can start to depreciate after a different fund stops buying. That doesn’t mean the first fund didn’t cause the bubble. You seriously need help understanding basic supply and demand.

- More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

- Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

AJB on February 5, 2013 at 10:38 AM

Thanks for broadcasting how you’ll act if the wheels come off the Affordable Tax-care Act.

Almost ALL of those $20,000/year Bronze family policies will be issued by private insurers. And those that can make money will have made ALL their money off of ObamaTaxCare system. (The greedy b-stards!)

So, it won’t be the fault of the Big Government Solutions, Inc. In fact, you’ll probably use the union methodology of finding anything less than a void of mistakes by management as examples of “mismanagement”.

If I apply heated vicegrips to your scrotum a vast majority of your body will still be pain-free!! That’s what makes that location effective. Bulk stats are useless if applied wrong.

Did you know that 100% of those paying the non-insured penalty will be private parties “choosing” to pay the penalty?! It’s not coerced because they’re not being responsible and paying for the $20K Bronze coverage for their family. They chose to save money, and the government let them! Greedy, irresponsible, pigs!

Big Government Solutions: If we can’t do it, we can find somebody to blame and make them pay!

However, now they are arguing that they never needed those sanctions![1] Because those greedy, money-grubbing lenders jumped at the opportunity to “predatorally” lend to the people who could not afford a home because they could sell the bad debt by layering bad loans in an MBS that the government helped to create and popularize with the GSEs and the CRA. And the GSEs would drain the market of bad debt, to keep the plates spinning.

And businesses–greedy MFs they are…USED the structures and markets created by the government (Big Government Solutions!) to make money.

The big question is why did the CRA create the stick, if they never had to use it? Why go out of their way to act like mobsters and dictate what risks a lending institution needs to make, if they never needed it? Doesn’t it speak against the planning and efficiency of Big Government Solutions (BGS) that they would employ coercion as a first measure for something that they never needed to use?

Now, they are saying that the carrots are negligible. They didn’t need the stick AT ALL (the way their spinning it), but now they are saying that they didn’t really employ a carrot either.

That leaves a natural tendency for capitalizing entrepreneurs to move into the risky house loan business all by themselves. That really puts the efficiency of all that was done by BGS in regard to the CRA in question.

That’s right, 20 years of laws just to regulate how bankers make–and resell–bad loans. It’s the greedy finance companies that made and gobbled up the bad loans. The government just needed to stem the tide! /sarcasm[--if only it were that easy!]

Even with securitization, they could not have proliferated without fraudulently rating them AAA.

How is it fraudulent to assign a rating of AAA to a loan you expect to be backed by the United States government, which are then… backed up by the United States government?

blink on February 5, 2013 at 5:10 PM

First of all chief I was both a lender and broker. Do you know how that impacts the way a company operates? Didn’t think so. And this is germane to the discussion how?

If CRA originations were ignored by half of the origination force which produced the majority of loans, then clearly CRA production could not have been a significant factor regarding the meltdown. And it wasn’t.

I’m a joke? Please clue me into this counter argument that I’m sure has nothing to do with my position that fraudulent securitization was the heart of the meltdown because your attempts at the discussion have been comical up to this point. Shrill, but none the less comical.

As for your erroneous statement that no one called those loans AAA, you have a shred of credibility in that no one called that particular loan AAA. Loans, plural, like that were called AAA when they were pooled, tranched and sprinkled with worthless insurance. All part of the fraud process that caused the meltdown.

Essentially legitimate underwriting was scrapped for volume
Zomcon JEM on February 5, 2013 at 5:36 PM

Right. But these loans could not have proliferated without securitization. Even with securitization, they could not have proliferated without fraudulently rating them AAA. The allure of the toxic paper was the higher yield without the risk. The risk wasn’t apparent due to fraud. It doesn’t matter what the GSE’s wanted in terms of volume. What drove the process was investor demand for higher yielding paper without the associated risk that higher yielding paper requires.

And to reiterate/clarify, prime delinquencies lagged subprime and alt A delinquencies. It was the delinquencies of the latter that triggered the meltdown not delinquencies on prime paper.

Which makes you wonder, what shoe is getting ready to drop on the GSEs that is requiring this move in order to innoculate the WH from more of their irresponsible stewardship of this nation’s finances?

They are still essentially insolvant and we are still on the hook.

I think I better understand your differntiation – I just don’t think it holds – were the GSE ramping up their activity as the crisis moved along – absolutely – and I am not sitting here screaming CRA. But it was a part of it – and when you see “NorthDallas…” very long and detailed response you will understand how I am not going to hold the CRA blameless nor the GSEs. The situation as it occurred could not have happened – and I repeat could absolutely not have happened if the CRA and the GSEs were not in existance. Essentially legitimate underwriting was scrapped for volume and the GSEs and their ownership quotas drove that fact. Were there some who lied to make a quick buck – sure. We always see this in a govt program that becomes way too big to administer and so becomes a target.

I appreciate your attempt to say some were just defrauding a scam at the end. But the conditions were set in place by the Feds and the GSEs and legislation driving their activities.

I stated that clearly.

voiceofreason on February 5, 2013 at 12:37 PM

No, you didn’t. You weren’t up front about merely being a mortgage broker.

Over half of the originators pre-crisis weren’t affected by CRA.

So what? Who claimed that they ALL were. Something doesn’t need to affect 100% of everything in order to have a negative impact.

And that goes to support the position that CRA wasn’t the primary cause of the meltdown.

No, it doesn’t. Not at all.

Bank depositors emptying their accounts can still cause the downfall of a bank even if less than half the depositors do it.

Over half of the originators pre-crisis weren’t affected by CRA. And that goes to support the position that CRA wasn’t the primary cause of the meltdown.

blink on February 5, 2013 at 12:19 PM

Fannie/Freddie used to require 660 credit scores and up. They used to require written confirmation of job and income. They used to require sourcing and seasoning of sizable down payments. When these requirements are all met, it’s AAA paper.

And their appetite forced other buyers to look for other markets.

When one is originating loans that don’t require proof of income, proof of a job, source and seasoning on down payments or down payments at all, and these loans only have a 580 credit score “anti”, you have paper that clearly isn’t AAA and could easily be CCC or worse.

1. You’re a joke.

Are you seriously so clueless that you don’t know the counter-argument to this claim that was used so aggressively prior to 2006?

2. Nobody claimed that this individual loan was AAA, and you know it. In fact, the name SUB-prime hardly makes anyone think AAA.

Does Warren Buffet have an investment in Fitch or Moody’s by chance?

Just wondering.

PappyD61 on February 5, 2013 at 8:17 AM

We don’t have up-do-date numbers on holdings of the fat slob Buffett, but we do know that in the past couple of years he has held up to $72m of stock in Moody’s. We don’t know if he is currently invested in Moody’s.

More interesting though is the fact that the democratics’ favorite Nazi stooge, George Soros, has held up to around a billion dollars worth of stock in Moody’s. We don’t know if he is currently invested in Moody’s.

Yes agency paper became very lax in the years prior to the meltdown. It wasn’t always that way. What allowed it to be that way was representing this lax paper the same as the paper that was underwritten to original standards. That is where the fraud was, among other places, in securitization. Where was that disclosed to investors? Why was that paper still considered as safe as the agency paper of old? It is up to the investment banks and ratings agencies to fully disclose this. They didn’t and the paper, this and that of lower quality, proliferated around the world.

voiceofreason on February 5, 2013 at 1:41 PM

LOL.

Because it, like the agency paper of old, carried the guarantee that it was backed by the full faith and credit of the US government.

I repeat myself. You are screaming at the banks and the ratings agencies for actually taking the US government at its word that it intended to stand behind its guarantees.

Now, going forward, please state for the record that any and all government guarantees, implicit or explicit, cannot be considered actual and real for investment purposes.

This is what the imbecile Barack Obama and his slumlord puppet master Valerie Jarrett forget: they are suing Standard and Poor’s for taking the US government at its word.

And if it is no longer legal to do that, then the financial infrastructure of this country will implode overnight.

Bottom line is this:

The government got increasingly involved in the mortgage game, cannibalizing much of the prime space. This, in addition to things like the CRA and other government pressure to make lower-quality loans, pushed private lenders/investors into the subprime, etc., space. Classic example of crowding out. Securitization of these lower-quality loans pretty much followed the example previously set by the GSEs. Securitization was nothing new.

steebo77 on February 5, 2013 at 12:51 PM

I’ve been in the mortgage industry for 35 years. During the 8 years of (Democrat) Bill Clinton’s pResidency, the percentage of subprime mortgages nearly tripled.

Gotta be some relationship there…

No it’s not. The feds and local governments aren’t investing in blue chips, or any stocks for that matter.

steebo77 on February 5, 2013 at 2:15 PM

With a few notable exceptions (e.g., auto bailouts, TARP, some pension funds).

Let me clarify some points. I don’t believe the GSE’s should be in existence to today. I don’t believe the too big to fails should be in existence today and much of our current economic woe is directly related to the continued existence. Bush, though he didn’t try hard enough, did try to reign in abuses to the cries of the likes of Maxine Waters and Barney Frank. The only purpose my comments are meant to serve is to dispel the myth that the meltdown was primarily due to CRA and and he GSE’s. It wasn’t. It couldn’t have happened without fraudulent securitization and the rubber stamp AAA ratings.

voiceofreason on February 5, 2013 at 1:41 PM

It seems we’re in agreement about the broad contours, but differ as to primary causes and secondary, contributing factors. I do agree that the CRA itself wasn’t primarily responsible, but was emblematic of the larger, primary cause: government distortions of the marketplace. To be sure, fraud played a role, but was more significant in the latter years of the bubble, and was in many ways a response to increased government intervention.

And there would not have been a mortgage industry… Securitization isn’t evil. Fraudulent securitization is.

Never said it was.

When a prospectus states the securities are not backed by the full faith and credit of the U.S. Government, gwelf is wrong.

I think you’re misinterpreting what is meant by “implicit” and “explicit.”

As for spreads, before rampant fraud, the spreads started at 75 bps and went up from there.

Rampant fraud led to elevated Agency spreads? So you’re saying FNMA and FHLMC committed fraud?

This is a counter intuitive statement. The lower underwriting standards of CRA paper would be reason for borrowers to migrate away from the higher cost subprime paper. Why would anyone go subprime if the government is giving away the same loan at a lower rate?

There was a whole nexus of pressures pushing private lenders away from traditional, conforming loans. I only cited a few.

Subprime isn’t evil either. It is when it is priced close to prime because the quality is fraudulently represented as being close to prime, that it becomes evil.

I never said subprime was evil. I was merely pointing out that the market grew out of control only after the GSEs got heavily into the prime market and pushed lenders out of the more traditional space.

The allure of subprime paper, from an investor’s perspective, is the higher yield. That is the reward for taking more risk. It has little to do with who and in what amounts prime paper is being purchased.

I understand the relationship between perceived risk and expected return. What I’m saying is massive government purchases distort the market, pushing yields artificially low on higher-quality securities, forcing buyers to “chase yield” in riskier investment, which in turn carry artificially low yields because of the artificially high demand created by the original government intervention.

That is like saying penny stocks are popular because blue chips stocks are briskly selling. There is little correlation.

voiceofreason on February 5, 2013 at 1:19 PM

No it’s not. The feds and local governments aren’t investing in blue chips, or any stocks for that matter.

Zomcon JEM on February 5, 2013 at 1:27 PM

Yes agency paper became very lax in the years prior to the meltdown. It wasn’t always that way. What allowed it to be that way was representing this lax paper the same as the paper that was underwritten to original standards. That is where the fraud was, among other places, in securitization. Where was that disclosed to investors? Why was that paper still considered as safe as the agency paper of old? It is up to the investment banks and ratings agencies to fully disclose this. They didn’t and the paper, this and that of lower quality, proliferated around the world.

Let me clarify some points. I don’t believe the GSE’s should be in existence to today. I don’t believe the too big to fails should be in existence today and much of our current economic woe is directly related to the continued existence. Bush, though he didn’t try hard enough, did try to reign in abuses to the cries of the likes of Maxine Waters and Barney Frank. The only purpose my comments are meant to serve is to dispel the myth that the meltdown was primarily due to CRA and and he GSE’s. It wasn’t. It couldn’t have happened without fraudulent securitization and the rubber stamp AAA ratings.

northdallasthirty on February 5, 2013 at 1:14 PM

Excellent work! Fannie and Freddie always had the implied backing of the Federal government. Many pension funds would not have been able to invest in the Mortgage Backed Securities if they didn’t.

Zomcon JEM on February 5, 2013 at 1:22 PM

I believe you’re confusing the pre crisis and post crisis mortgage industry.

RadClown on February 5, 2013 at 1:25 PM

I agree on both counts. I stand corrected on the former.

Remember the heady days, when F+F was buying anything that walked? What would you expect. The GSEs would buy almost anything. They fueled the race to the bottom. Without them, none of this would have happened because the full faith and credit of the US would have only been exposed to the FHA starter market.

Not that difficult – privatize profit and make loss a public guarentee. I’m not sure how S&P misread any of this. Seems they were dead on correct and then didn’t start to hit the US ratings until the congress wouldn’t pass a budget to deal with their books.

gwelf, fannie and freddie paper didn’t have the implied guarantee of the Federal government until after the crisis began. Just look at any GSE based mutual fund prospectus. The securities were not backed by the full faith and credit of the US government. That only happened after the crisis started. And it shouldn’t have btw. That is not an out for the ratings agencies or investment banks.

voiceofreason on February 5, 2013 at 12:41 PM

If it were written into the prospectus, then it would have been an explicit guarantee. An implicit guarantee is one the markets believe exists, bur is unstated. The GSE’s implicit guarantee was the reason they were able to borrow at below market rates and have all their debt rated much higher than would a stand-alone private company with the same obligations.

The only MBS’s with an explicit government guarantee are Ginnie Mae’s.