Obama Mortgage Overhaul

Off Topic Politics & World Issues
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[quote]angry chicken wrote:
Hey Bill, I wasn’t saying that you were wrong in your statement of the GSE’s (Government Sponsored Enterprises AKA: Fannie Mae, Freddie Mac and Ginnie Mae) contributed to the problem. But the fact is that during the time prior to 2008, it was a Sub-Prime dominated market (with respect to all of the problem loans that were written) and the guidelines that the GSE’s had were not much better, but they were competing with the banks and by comparison, their guidelines WERE conservative for that time. Now hindsight is 20/20 and we all know the whole industry had it’s head up it’s ass, but it was a lack of regulatory control over the BANKS (and Mark to Market accounting) that caused all this mess with the economy. The GSE’s followed the banks, not the other way around.[/quote]

Can you document that there was a major market (compared to time of crash) for bundled mortgages prior to the GSE’s being huge buyers? I don’t think you will be able to, but there is the possibility I could be wrong.

[quote]But I don’t know what you mean about loans being pushed on the “non-creditworthy”. The lending climate right now is such that I have to practically TRICK a bank into giving good borrowers a loan. I had an 800 credit score borrower shot down by two banks before I got him approved at a third bank, simply because he owned two businesses and the underwriter was too STUPID to understand his tax returns (even after I pointed them to the section in the 4155 that showed the income was allowable, they STILL just shot it down rather than take the risk)

It’s fucking ridiculous as shit with how “job-scared” underwriters are right now. Add the HVCC and other new regulations that have been passed to “help” things, and the whole mortgage industry has been completely hamstrung with regard to getting things done. I ask for 45 days to close a loan now because I need an extra two or three weeks to cut through all the red tape.

Trust me, NO unqualified borrowers are getting through (along with many people that are qualified) unless they are committing loan fraud.[/quote]

I don’t have the reference right now – we had a thread on it a couple of months ago – but yes indeed, Barney Frank was indeed again demanding loans for the uncreditworthy. (Not of course that he used that word.)

And while I can see where what you are saying would seem to make sense as showing that what I said was wrong, I believe the effect is still there.

I’ve seen no evidence that the Justice Department is relaxing its opposition to banks “discriminating” according to income, racial or ethnic status, or geography. We even have a President now whose one big achievement as a lawyer was suing Citibank for not making “enough” loans to blacks, which suit he won.

Does anyone think the Obama Administration would be fine with banks making mortgages or other loans at lower percentage for (for example) blacks than whites, regardless that in some areas it could well be the case for any of several reasons that fewer blacks had a given amount of income, downpayment, and credit rating and the only reasons were those, not racial discrimination?

So if a bank is determined to cut its losses on these loans, now that they are unlikely to be able to resell them, now it has to make considerably fewer loans to each of the protected groups (low income, minority status, or allegedly-redlined physical address.) They can’t run a ratio that the Justice Department would consider insufficient, so they must also cut back loans even to the highly qualified.

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[quote]Bill Roberts wrote:

[quote]jsbrook wrote:
However, it it should be noted that the majority of bogus subprime loans originated from lenders not regulated by the CRA. Studies have estimated that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates.[/quote]

I think you would find that the vast majority of bad loans were sold either directly to a GSE or indirectly ending up there. Therefore the bank originating the loan had nothing to lose if the loans defaulted.

Congress is responsible for creating that situation where issuance of bad loans was economically rewarded by them, through the GSE’s.[/quote]

Partially true. The GSEs did take on many of the worst loans. But nobody sells loans to the GSEs just to offload credit risk–in fact, the majority of contracts with the GSEs leave quite a substantial part of the credit risk with the original lender: recourse agreements, indemnifications, servicing options that put a lot of the cost of default on the seller/servicer, not the GSE. My colleagues in corporate have worked on negotiating these contracts. You try and get the best deal you can for the banks but can only do so much.

Also, after packacing the loans into a CDO, the banks kept many of the worst tranche loans for themselves, paying themselves a very high interest rate while keeping them on the balance sheets of SPV shell companies.

(Not to say that the GSEs are blamelesss. When they had their “shareholder-owned private company” hats on they pushes the envelope plenty. But when they had their “affordable housing” hats on, they rationalized dubious theories of credit quality–such as the belief that low or no down payment can be fully offset by a pretty FICO score–to beef up their affordable housing goals- usually at the expense not of “private sector” but of FHA, whose traditional borrower pool they pretty thoroughly cherry-picked)

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[quote]Bill Roberts wrote:
Angry Chicken, you clearly don’t comprehend what I wrote, and don’t comprehend the key reason why mortgages were extremely safe loans for more than 100 years but then became, commonly, unsafe loans.

Your attempt at word parsing, objecting to my phrase “the bank’s own money”, is simply playing with words and is missing the point: If you think banks would have lost hundreds of billions of their investors’ money by making such extremely bad loans, having to eat the losses themselves, there is a great deal of history you could look at to see that that is not reasonable.

Rather, they made the loan because “their investors” bottom line was not at risk principally because of the GSE’s.

You don’t understand the cause-and-effect here, and that if that cause had not been there then neither would have been the effect? None of your posts show that you are getting that and you are saying things that clearly seem to show that you don’t get it.

You do get what you have seen with your own eyes – that was a good write-up on that – but you are clearly missing the bigger picture and do not understand that Congress caused this mess by its interference in the banking industry, both with CRA and with its GSE’s. [/quote]

You’re right, dude, I know nothing about the mortgage industry. The loans that you are referring to, the one’s backed by the GSE’s, are NOT the loans I am referring to. Most of the loans that were written to these sub-prime, emerging market borrowers were not Agency loans (Agency refers to loans that are purchased by fannie and freddie) they were Portfolio loans that had NO government backing whatsoever. Some investor in China now owns a bunch of worthless paper that he bought in the form of a CDO. Fannie and Freddie didn’t touch that stuff. Most banks offered Agency and Non-Agency programs on their rate sheet. The account executives earned MORE by pushing the Non-Agency products.

As I stated before, I am a loan officer not an economist (I don’t know what you do for a living), but I certainly haven’t failed to comprehend anything you’ve said. My point is that, in my opinion, this program would have worked two years ago and is a day late and dollar short. I didn’t choose to go into the why’s and how’s of every piece of legislation that congress has passed on the financial industry. I am not interested (nor do I have time) to have that discussion. I’m sure that you and others here, may have understandings that I don’t have. Great. I’m happy for you. You’re Right! (feel better?) I just thought I’d share my perspective and opinion. You guys in PWI like sling shit a little too much for my taste, so have a nice day.

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I shouldn’t have used that phrase (“don’t comprehend.”) I was finding it frustrating that apparently I was typing to a wall, because it is a fact that the GSE’s are largely responsible for the disaster, along with the CRA, and historically these problems did not exist until these actions by the government and GSE’s, yet you appeared not to get that or even to disagree with it, but that is no excuse. My apologies.

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Apology accepted, Mr. Roberts. As I mentioned to someone in a PM earlier, I don’t often come here to PWI because the debate sometimes gets, shall we say, personal. I consider myself to be a pretty open minded person and closed minded rhetoric tends to turn me off (not calling you closed minded, just speaking of PWI in general).

I do appreciate the points in the discussion that you were making, and you seem to be very knowledgeable about this topic as well as many other topics that I’ve seen your posts in. I will be the first to admit that I do not know everything about the finance world (and even less about other arenas). I was only hoping to offer a perspective from the front lines about a topic that many of us are very passionate about. If I offended you in any way, you have my apologies as well.

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You did not in any way: you were a perfect gentleman. Thank you though!

And your writeup was a great account from the frontlines. I’d seen weak descriptions of that sort of thing, but yours really brought the points home.