Mortgage Delinquency Rate Tops 9%

[First]

You have not seen anything yet. By 2010 it will be closer to 20% as alt-A and option adjustables come on-line - you think you're house value sucks now - you have also seen nothing yet.

lmao. You kooks never fail.

 

[IronWing]

What exact role did the "feds" play in securitization specifically?

I'd also like to know why MBS is suddenly horrible, considering it has existed for more than 30 years without a problem. I'd also like to know how the broader aspect of the CRAs were "fraud"?

In my post I was referring to Fannie and Freddie as "feds". I should have chosen my words more carefully. The Federal Reserve also played a role in making these investments so inviting by keeping interest rates so low for so long.

 

[LegendKiller]

In my post I was referring to Fannie and Freddie as "feds". I should have chosen my words more carefully. The Federal Reserve also played a role in making these investments so inviting by keeping interest rates so low for so long.

Your argument RE: rates is silly. Lower rates = lower enticement to invest. You're going to counter with borrowing, but if you look at mortgage rates, risk premiums are at historical lows during those periods, so you fail there. Furthermore, even when they raised rates, the "investments" didn't stop. You're forgetting one key variable, almost all of the creative products in the subprime market were designed to get around ANY interest rates (option arms, arms, no/low docs...etc). Thus, rates were meaningless.

F&F had minimal feedback into subprime RMBS. Their losses now are only tied to prime, which, granted, is large, but wasn't the overall cause. Being F&F is like being the front car rear-ended car in a 1,000 car pileup. You didn't cause shit in back of you, but that doesn't mean you won't get hit.

 

[werepossum]

Again with the FUD. All you have to do is post a link to the law or reg or to a court smackdown of HUD for exceeding it's authority in forcing a lender to make a loan to an unqualified applicant. Otherwise you are blowing smoke. Private lenders set their own criteria for approving loans. They choose to do business with Fannie or Freddie or not. There is no requirement to sell a loan to Fannie or Freddie.

It is really quite simple. Private lenders chose to make unwise loans. They did so in the belief that housing prices would always go up and they couldn't lose. Freddie and Fannie, like other investors, also got greedy and bought loans they shouldn't have.

Some folks are simply incapable of accepting that private businesses can screw up and therefore try to blame government when the bottom falls out.

Okay, let me see if I can break this down so that you can understand it. Mortgage companies and banks make home loans. Very few of these loans are held by those mortgage companies and banks because they soon run out of capital. Enter Fannie Mae and Freddie Mac. The federal government created these GSEs to buy loans from mortgage companies and banks, the idea being that once the original seed money is put up by government, the GSEs are self-sustaining because middle class mortgages are inherently stable. Thus more middle class people can buy homes, because the problem was not that they could not afford to pay their mortgage, but that banks ran out of money. Therefore more people can afford the American dream. The usual function is that Fannie Mae buys bundles of loans and holds them, whereas Freddie Mac buys bundles of loans (and sometimes makes even bigger bundles of loans) and sells them to investors, but there is a lot of overlap, with both GSEs selling some and holding some. These bundles are (well, were) quite popular with investors because these loans have been stringently qualified and examined by government regulators.

Now enter President Carter. He has a lofty goal, to make home ownership available to more people, specifically lower income people. HUD does this, but it's horrendously expensive because like all government programs it has lots of waste and fraud and unqualified developers, and for each "affordable" home the government has to furnish a chunk of money to make it "affordable". (You're too young to remember, but government used to pretend it was being fiscally responsible.) So Carter made a push to simply have HUD change the mandate of the GSEs to make some portion of their loans to low income borrowers. Everyone thought this was a good idea, so the percentage crept up under Bush I, took a big jump under Clinton, and jumped again under Bush II, to an ultimate of 56% of the GSEs' portfolio. Again, this was thought by most people in Washington to be a Good Thing because most people in Washington, of either party, subscribe to the Magic Cupboard theory of economics.

Now enter reality. The HUD mandate now stands at 56% for low income borrowers, but the low-hanging fruit is gone. People who could almost afford a home had mostly bought during the earlier years. In most areas, low and even median income families cannot afford a house. Period. Yet the HUD mandate has the force of law; when the CEOs of GSEs fail to meet those mandates, they have to testify before Congress as to why they failed. So they began taking "low-documentation, low-verification and non-standard" mortgages" as James Lockhart testified to Congress. The reason is simple enough; there simply aren't enough low and moderate income borrowers who can afford houses. But this made things worse because mortgage companies and banks quickly learned that the GSEs were buying any crap they could write as long as it had a low and moderate income borrower. Thus banks dispensed with such "outdated metrics" as income and credit history verification and independent appraisals. (I forget exactly which government hack first used the term "outdated metrics"; I do remember being both amused and pissed off at the time.) They also made non-standard loans, including 105%, 110%, even 125% of the home value. Again, the GSEs were buying everything.

Now enter the investment groups. They have been buying up bundled mortgages because historically these are excellent investments, as the federal government (via the GSEs) vets the mortgages and guarantees them, so it's rare to lose money on them. But now there is a big problem; the GSEs are not doing their vetting. They can't, not and fulfill their HUD mandates. When the GSEs ceased requiring such "outdated metrics" as income and credit history verification and an independent appraisal, the mortgage companies could make a mortgage to a lender with bad credit or insufficient income at little risk, because as long as it sold the loan as to a low and moderate income borrower, Fannie Mae and/or Freddie Mac would buy it. These are the "low-documentation, low-verification and non-standard" Lockhart complained about. So the investment groups were holding bundles of loans not likely to be paid back, guaranteed by GSEs were are broke. The investor groups were damaged but if they had the cash to weather the storm, their losses would eventually be made whole, but those investors that held financial derivatives, whose value is based not on the fundamental value of these financial firms but on their profitability, were devastated.

Nice try, Eskimopie. McClatchy ("Truth to Power") is nothing more than a liberal hack site; you might as well link to the Democratic Underground. The GSEs held a maximum of 48% of all subprime loans, but neither holds even the majority of the loans it buys; both bundle the loans and sell them. Securitization - it's how the GSEs fund their operations. You know that, you're just trying to maintain the purity of Holy Government.

And there is no court "smackdown of HUD because HUD was carrying out its mandate in the way it thought best. As Eskimopie is fond of pointing out, Congress delegated its authority. As to the private sector, there's only one reason that mortgage companies and banks made loans that they knew would not be paid back, and that's because government created the market. No problem making a loan you know can't be paid back if some other idiot is willing to buy the loan, you can still make a buck. Lockhart and the Federal Housing Financing Agency tightened the requirements (restoring the "outdated metrics") in 2004 and 2006, but by that time the damage had been done, not to mention it took private lenders time to realize that the GSEs could not keep up with the demand; they were out of money.

 

[IronWing]

Okay, let me see if I can break this down so that you can understand it.

Your time line is full of fail. The GSEs were late to the tea party, as Legendkiller has already pointed out. The investment banks were already there funneling crap loans to investors before the GSEs got in the act. Again, you avoid the truth that the lenders didn't have to make the loans they did. They chose to. Investors bought the crap loans without paying much attention to what they were buying. No government mandate made them act irresponsibly, they chose to do that out of pure greed. Lenders were under no obligation to deal with Freddie or Fannie. They chose to because, as you pointed out, it increased their access to investment dollars, allowing the lenders to extract fees, and to increase their profits. No government agency forced the lenders to manipulate their balance sheets to obscure the fact that they were grossly over-leveraged, even by the loose standards of the past decade. They did that out of pure greed as well.

 

[werepossum]

Your time line is full of fail. The GSEs were late to the tea party, as Legendkiller has already pointed out. The investment banks were already there funneling crap loans to investors before the GSEs got in the act. Again, you avoid the truth that the lenders didn't have to make the loans they did. They chose to. Investors bought the crap loans without paying much attention to what they were buying. No government mandate made them act irresponsibly, they chose to do that out of pure greed. Lenders were under no obligation to deal with Freddie or Fannie. They chose to because, as you pointed out, it increased their access to investment dollars, allowing the lenders to extract fees, and to increase their profits. No government agency forced the lenders to manipulate their balance sheets to obscure the fact that they were grossly over-leveraged, even by the loose standards of the past decade. They did that out of pure greed as well.

So your explanation is that HUD mandated the GSEs to fund low and moderate income borrowers' loans because the private investment banks were already making those loans. LOL Wow, it must be a riot watching you make change.

I think we're done here, Run, Forrest, Run!

 

[IronWing]

So your explanation is that HUD mandated the GSEs to fund low and moderate income borrowers' loans because the private investment banks were already making those loans. LOL Wow, it must be a riot watching you make change.

I think we're done here, Run, Forrest, Run!

More silliness on your part. You seem to have a mental block preventing you from understanding that private lenders are responsible for their own choices and you want to blame the government for all the woes the private lenders brought down on themselves.

 

[LegendKiller]

So your explanation is that HUD mandated the GSEs to fund low and moderate income borrowers' loans because the private investment banks were already making those loans. LOL Wow, it must be a riot watching you make change.

I think we're done here, Run, Forrest, Run!

I love how you blame this on the GSEs when the bulk of the problem wasn't caused by prime (or subprime) CONFORMING loans. The bulk of the problem was set on the margins by subprime NONCONFORMING loans, you know, the NINJA liar loans with option arms. You know, the ones that the GSEs do not fund.

Furthermore, sheer dollar origination of mortgages by the GSEs fell off a cliff in the 2003 area. That's why i-banks, such as Lehman, Bear, Goldman, among others, bought their own subprime lenders and had the great idea to vertically integrate shit mortgage originations through bond sales. You can find them now, busted RMBS securitizations, originated by those parties.

You're a fucking joke dude.

 

[werepossum]

More silliness on your part. You seem to have a mental block preventing you from understanding that private lenders are responsible for their own choices and you want to blame the government for all the woes the private lenders brought down on themselves.

I said we're done, child. Now go away.

I think government needs a hug.

 

[LegendKiller]

I said we're done, child. Now go away.

I think government needs a hug.

What's wrong? Don't want to tangle with somebody who actually knows more than the bullshit websites' content you spew here?

Come on now, don't be shy. It'll be over quick, you won't enjoy it much, but I certainly will.

 

[piasabird]

I saw an article about a week ago or so stating the FDIC was drastically increasing its budget. This can only mean that the feds plan on taking over a lot of banks.

This is something that varies greatly from region to region.

 

[LegendKiller]

I saw an article about a week ago or so stating the FDIC was drastically increasing its budget. This can only mean that the feds plan on taking over a lot of banks.

This is something that varies greatly from region to region.

I would agree that the FDIC does see more trouble. The regional/state/local community banks were deeply involved with CRE, although CRE appears to have bottomed out price wise, it didn't boom as much as housing. It will be an interesting year in 2010 to see how well the banks weather the storm.

 

[Vic]

I heard a while ago that FHA loans were delinquent at twice the rate as regular loans. More tax dollars up in the air.

FHA/VA loans have ALWAYS had delinquencies at twice the rate of conventional loans. And tax dollars don't foot that bill, FHA's mortgage insurance premiums do. Because FHA is NOT a mortgage lender, it is a mortgage insurer.

I sincerely hope you put more time and effort into your medical practice than you do into your politics.