Fannie and Freddie make riskier loans

[DCal430]

200K is probably a lot in some place like Kansas, but in NYC or SF it is low income.

 

[Blackjack200]

Not if you don't exceed the standard deduction it doesn't. It also doesn't necessarily help you more because your dollars are taxed at lower marginal rates than wealthier people. Only about 30% of people itemize at all, and considering that somewhere around 65% of US households are homeowners, there are a lot of lower income people who aren't benefiting from the deduction at all.

I'm sure you're aware, but I'd also point out that even if your itemized deductions exceed your standard deduction, your benefit (i.e. the difference between the two numbers) from itemizing starts small and grows as income and deductions increase.

So a big chunk of the people that do itemize are probably only getting a very small benefit from it, while wealthier people get much more benefit.

I totally agree; the mortgage interest deduction should be scrapped.

Also, Ben Bernanke gave a lecture series on the financial meltdown at George Washington U.

http://www.federalreserve.gov/newsevents/lectures/about.htm

I thought it was pretty good. There were many factors, but one big one that rarely seems to gets mentioned is the complacency that resulted from not having any bank runs since the FDIC was established. What happened in 2008 was a financial panic when many brokerage firms either insolvent or thought to be insolvent, so there was a "run" on non-bank financial institutions. People searching for yield in a low interest rate enviornment were keeping their money in non-insured investments that were thought to be quite safe, like commercial paper and money market funds, and essentially using them like demand deposit accounts.

Bernanke also points out that many people blamed the low interest rate enviornment for the run up in house prices, but if you look at other countries that had similar housing bubbles, they did not have low interest rates.

 

[fskimospy]

200K is probably a lot in some place like Kansas, but in NYC or SF it is low income.

No it isn't.

 

[Blackjack200]

Less than 7% in NYC make over $200k.

http://www.slate.com/blogs/moneybox...w_york_city_what_does_it_take_to_be_rich.html

 

[FerrelGeek]

I agree about the lower income bracket. I'm referring to people in my situation - solid middle to upper middle class. What you are advocating would bury many in the income bracket that I'm referring to. But hey, make more peasants and collapse the $150k - $450k (approximate) housing market. The rich won't care.

You're right, you would have to own a moderately less expensive home. There's quite a bit of research on what the mortgage interest deduction does, son. It mostly takes people who would be homeowners anyway and has them own bigger homes, it does not usually take people from non-homeowners to homeowners.

 

[FerrelGeek]

You're right, you would have to own a moderately less expensive home. There's quite a bit of research on what the mortgage interest deduction does, son. It mostly takes people who would be homeowners anyway and has them own bigger homes, it does not usually take people from non-homeowners to homeowners.

Like I said in a subsequent post, lower the cap.

 

[Blackjack200]

Yeah, scrapping the mortgage interest deduction would make six figure earners into peasents

 

[Attic]

Also, Ben Bernanke gave a lecture series on the financial meltdown at George Washington U.

http://www.federalreserve.gov/newsevents/lectures/about.htm

I thought it was pretty good. There were many factors, but one big one that rarely seems to gets mentioned is the complacency that resulted from not having any bank runs since the FDIC was established. What happened in 2008 was a financial panic when many brokerage firms either insolvent or thought to be insolvent, so there was a "run" on non-bank financial institutions. People searching for yield in a low interest rate enviornment were keeping their money in non-insured investments that were thought to be quite safe, like commercial paper and money market funds, and essentially using them like demand deposit accounts.

Bernanke also points out that many people blamed the low interest rate enviornment for the run up in house prices, but if you look at other countries that had similar housing bubbles, they did not have low interest rates.

Bernanke is great because he's very intelligent and he's upfront. He is intellectually honest, a rarity amongst politicians but pretty common from Federal Reserve members.

If you liked his speech you might enjoy a further look at the foundations of our current money system.

The Creature from Jekyll Island

 

[Jhhnn]

I don't care if a banker says "Oh yeah, you can totally afford a $400,000 home on a $40k yearly salary. For sure". That doesn't make it so, and it doesn't pass the blame to the banker.

Please. There was a time when lending agents wouldn't knowingly lend you more money than you could possibly repay. The also wouldn't offer "creative financing" with no doc no down teaser rate short term ARM's, either, or Refi's at 125% of market valuation. Buyers were deliberately steered into such arrangements because of higher fees paid to loan originators.

Modern securitization flimflams let them do just that for a short while, using whatever means available to represent high risk as low risk to investors, with a little help from the ratings agency whores, of course. They fueled a speculative bubble & fed young families' fears of being permanently priced out of the market. It also fueled speculation among upper middle class people who borrowed against what they had in order to "invest" in "assets" like Florida condos & other rental properties.

The soundness of MBS deteriorated enormously over a few short years because they'd lend money to your dog, blend that debt in with less risky obligations & sell it as fast as they could, obfuscated by gaussian cupola math, hedging & blue sky marketing. They borrowed heavily in the Repo market to maintain liquidity while leveraged to an obscene degree. When investors wised up, the banks were left holding the bag o' shit they hadn't yet sold. Repo dried up & they couldn't even meet operating costs. Banks that had been acting like hedge funds circled the drain.

Well, other than those who had bet against the market, purchased protection in synthetic derivatives. They pushed MBS out the door, bet heavily against them thru proprietary trading desks. Their only problem was that sellers of protection like AIG couldn't liquidate to cover their obligations when the whole financial community was trying to liquidate to hold cash in a market panic.

 

[fskimospy]

I agree about the lower income bracket. I'm referring to people in my situation - solid middle to upper middle class. What you are advocating would bury many in the income bracket that I'm referring to. Buy hey, make more peasants and collapse the $150k - $450k (approximate) housing market. The rich won't care.

It wouldn't collapse it, although it would lead to a decline in home values as they have been artificially inflated by the deduction.

To be clear, you don't abolish something like this overnight, but you gradually phase it out.

 

[First]

It's hardly worth a rebuttal. It's a hodgepodge of thoughts that are loosely tied together and wrapped up in a conclusion that is typical for him. When faced with information his psyche can't deal with, the website is derided. First knows he's right and there is no sense telling him otherwise. Instead of rebutting his post, I had a conversation with the sink strainer that was just as fruitful and far more rewarding.

Most people in real estate have long heard this trope about how "low-income" loans (aka MINORITIES! or ILLEGALS! loans) caused the financial crisis, and they spend a great deal of time riffing on the problems with risky loans to people who "can't afford it". Nothing you said, linked or inferred is new or interesting. Sorry to be the bearer of bad news old man.

 

[First]

By all means continue to rationalize why making loans to people that can't afford it is a good thing. I fully understand that you have a big interest in that. Banking is big business after all and you are under pressure to perform the same as people in other big businesses are. You are required to produce.

You two have seized upon a tangential issue and are attempting to make the article, which contained perhaps one sentence in that vein, about that issue. The inference is that it's OK to lend to people that can't afford the loan, including people who have income from unemployment, because it's different this time, to paraphrase your 'argument'. It's typical behavior that I give no quarter to. You cannot make an unbiased argument because you are in it up to your waist. It's your job to make these loans happen. Make sure the T's are crossed and the I's are dotted and sell that baby before the second payment is due. Why in the hell would you care if it's foreclosed upon? It's not your problem at that point and you did everything right. Everything according to the standards and requirements.

The consensus of the financial industry in this regard is one that was contrived out of a need to assuage the ego, one contrived to justify bad deeds done on a huge scale. I've heard people and organization both big and small throughout my life play these fucking games. I never did like them and with every passing day I like them less.

In reading back through this I wonder why I am even responding to a fucking banker. I'm going to need an extra long shower this morning.

Yeah but again, as has has been proven, and isn't up for debate actually, the default rates on sub-prime/risky loans weren't mathematically able to cause what became known as the 2008 financial crisis, since 1) they didn't default at some double-digit Armageddon-level rate and 2) there weren't enough of them to matter. The Fed and many preeminent institutions collected the data, studied it and simply found no evidence of the "couldn't afford it" trope. Yes some people couldn't afford it, but they weren't a major part of the financial crisis.

Now, go play in traffic. That's more your speed.

 

[Atreus21]

How accurate do you guys suppose this video is?

https://www.youtube.com/watch?v=bx_LWm6_6tA

 

[JSt0rm]

Yeah but again, as has has been proven, and isn't up for debate actually, the default rates on sub-prime/risky loans weren't mathematically able to cause what became known as the 2008 financial crisis, since 1) they didn't default at some double-digit Armageddon-level rate and 2) there weren't enough of them to matter. The Fed and many preeminent institutions collected the data, studied it and simply found no evidence of the "couldn't afford it" trope. Yes some people couldn't afford it, but they weren't a major part of the financial crisis.

Now, go play in traffic. That's more your speed.

but those were liberal studies. Not to be trusted.

 

[fskimospy]

How accurate do you guys suppose this video is?

https://www.youtube.com/watch?v=bx_LWm6_6tA

It's a thesis project from an art student so I wouldn't put too much stock in it.

 

[WHAMPOM]

New 'Affordable Housing' Goals Pushing Fannie, Freddie Into Riskier Loans

What's old is new. Our leaders have learned nothing.

Neither have you. The loan boom and bust came about from loan officials falsifing applicants' qualifications to collect on commissions and selling bundled mortgages.

 

[fleshconsumed]

The core cause of the mortgage crisis was, in fact, consumers buying homes that they could not afford. Were there other factors? Of course! Bankers were lying about what people were able to afford. Bankers were lying to F&F about people's credit/qualifications (but it all goes back to the original person for thinking THEY could afford it in the first place). I don't care if a banker says "Oh yeah, you can totally afford a $400,000 home on a $40k yearly salary. For sure". That doesn't make it so, and it doesn't pass the blame to the banker.

If I tell you to put a gun to your head am I the sole culprit of you placing the gun to your head and firing the bullet? Or is it partially yours for a lack of thinking, reasoning, research, or thought process whatsoever? Again, people such as yourself obviously have a huge lacking of logic. And it is shining VERY brightly at times like these

This has got to be one of the dumbest posts in the thread so far. Putting aside situations where loan applicant lied about his income, how is that not the Banker's fault for making a loan that clearly cannot be repaid? You're absolving Banker of his only job responsibility - making good loans that will be repaid. Making sure it's a sound loan is Banker's primary responsibility. A $400K loan on a $40K income is not a sound loan. The only reason the little $40K a year guy was able to get that $400K loan is because the banker gave it to him. Why would a banker give such a loan to the little guy you ask? Because the banker was stupid and thought it was a good idea. The banker thought the market would always go up, so if the little guy defaulted on the loan, the Banker would foreclose on a house that is now worth $450K and sell it for $500K a year down the road. Or he thought he could just make a bunch of these crappy quality loans, repackage them to hide the fact that they're crappy loans and sell them to some unsuspecting investor (which is precisely what GS did while simultaneously betting that these loans would fail).

In your hypothetical gun scenario the little guy is the one who's asking the banker to put a gun to his own (banker's) head, and the banker is the one pulling the trigger. The Banker decided to play Russian Roulette, and for a while he got lucky, until he wasn't. The little guy did not force the banker to play the Russian Roulette, he just asked, and the Banker took the bait. Very little of this is little guy's fault. And what's most appalling, the little guy is the one that got burned in the end while the banker walked away scot free.

 

[s0me0nesmind1]

This has got to be one of the dumbest posts in the thread so far. Putting aside situations where loan applicant lied about his income, how is that not the Banker's fault for making a loan that clearly cannot be repaid?

Again, if I put a gun in your hand with a bullet in it, am I soley to blame if you place it to your head and fire the bullet? Where do you get off saying a home mortgage application occurs with ANYTHING but YOUR signature and YOUR signature alone?

Of course not you dolt. Did I play a factor? YES. But if you think you aren't to blame for signing something that you have no clue what it is - you have another thing coming in life. Given your stance, it's quite easy to see how far you will get

No matter how corrupt the banker is, the lending transaction WILL NOT TAKE PLACE without the signature of the person stupid enough to sign something they can't afford. YOU as the consumer are responsible for understanding things like APR%, Adjustable rate, and everything else that comes with home ownership. Your lack of asking questions, researching, and otherwise be a bumbling fool is entirely in your hands.

 

[realibrad]

It's a thesis project from an art student so I wouldn't put too much stock in it.

I misses a lot of things, but the parts it does talk about are pretty much correct.

It does not explain why banks started doing more of the risky lending, but everything else seems to be pretty close.

 

[Bock]

None all of this talking is explaining to me how I can make money this time around. Please leave detailed instructions.

 

[fleshconsumed]

Again, if I put a gun in your hand with a bullet in it, am I soley to blame if you place it to your head and fire the bullet? Where do you get off saying a home mortgage application occurs with ANYTHING but YOUR signature and YOUR signature alone?

Of course not you dolt. Did I play a factor? YES. But if you think you aren't to blame for signing something that you have no clue what it is - you have another thing coming in life. Given your stance, it's quite easy to see how far you will get

No matter how corrupt the banker is, the lending transaction WILL NOT TAKE PLACE without the signature of the person stupid enough to sign something they can't afford. YOU as the consumer are responsible for understanding things like APR%, Adjustable rate, and everything else that comes with home ownership. Your lack of asking questions, researching, and otherwise be a bumbling fool is entirely in your hands.

You fundamentally misunderstand the power distribution in this transaction, and hence the level of responsibility that should be assigned to both parties.

The applicant, the little guy, does not have any power whatsoever. All he can do is ask for money. The lender/banker is the one who makes the decision to give the loan, he has all the power, he can approve or he can deny the loan and the little guy won't be able to do shit. The little guy can't make the banker give him money. It is banker's decision alone.

It's a fallacy of the highest degree to say that the little guy who simply asked for the loan and had no leverage whatsoever while doing so is the person primarily at fault. Banker is the one who has all the power in this transaction, and hence it is the banker who bears all of the responsibility (aside from the situation where the applicant falsified his income).

 

[dank69]

... (aside from the situation where the applicant falsified his income).

Which I think would be pretty hard to do without the banker's involvement.

 

[IGBT]

the liar loans and NINJA loans are right around the corner. Then down the road will be a bursting real estate market..goody!!

 

[TheSlamma]

None all of this talking is explaining to me how I can make money this time around. Please leave detailed instructions.

Well you have to start by thinking the party will never stop.

Once you get there we can move on to step 2

 

[werepossum]

I see your 4/20 celebrations went well.

Lol!

He has a point though. The GSEs' behavior started this crash, but the mortgage companies and banks turned it from a manageable isolated crash to a systemic crash. Had lenders honestly made the loans requested and no others, and treated the bundled loans as they deserved, then we would only have had to bail out the GSEs. Instead they recruited tame appraisers to inflate values, which meant that those loans which did default were way upside down. And they continued to make many more such loans than the GSEs could buy, then bundled them as comparable to traditional mortgages made under those "outdated metrics" such as credit score and employment/income verification. And to top it off, Congress and Clinton had obliterated the last sad vestiges of Glass-Steagall, which meant that all banks could buy the junks bonds, and nearly all did.