Wednesday, September 17, 2014

Why Fannie and Freddie Were NOT Culprits in the Great Recession

Why Fannie and Freddie Were NOT Culprits in the Great Recession

Congress passed the Community Reinvestment Act.
From Wikipedia we learn:
“The Housing and Community Development Act of 1992 established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie's and Freddie's loan purchases be related to affordable housing. However, HUD was given the power to set future requirements. In 1995 HUD mandated that 40 percent of Fannie and Freddie's loan purchases would have to support affordable housing. In 1996, HUD directed Freddie and Fannie to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005. Under the Bush Administration HUD continued to pressure Fannie and Freddie to increase affordable housing purchases – to as high as 56 percent by the year 2008. In addition, HUD required Freddie and Fannie to provide 12% of their portfolio to "special affordable" loans. Those are loans to borrowers with less than 60% of their area's median income. These targets increased over the years, with a 2008 target of 28%.
To satisfy these mandates, Fannie and Freddie announced low-income and minority loan commitments. In 1994 Fannie pledged $1 trillion of such loans, a pledge it fulfilled in 2000. In that year Fannie pledged to buy (from private lenders) an additional $2 trillion in low-income and minority loans, and Freddie matched that commitment with its own $2 trillion dollar pledge. Thus, these government sponsored entities pledged to buy, from the private market, a total of $5 trillion in affordable housing loans.
I hold the view that the government caused the housing crisis.
As you can see from the above article, and Wikipedia It was the Community Reinvestment Act BY CONGRESS and the HUD director that FORCED fannie and freddie to take alt-a and subprime loans starting in 1992 at 30% of their book. By 2008 HUD had forced fannie and freddie to had to take 56% of their book with these CRAP loans. by 2008 they had pledged more than 5 trillion dollars for crap loans because they had NO choice due to HUD regulators and the US congress mandate.
And yet, the twins had only suffered minimally only 4% of their book went into forclosure.
The converse is the PLS market with wallstreet, Bear sterns, lehman brothers, The big banks suffered 25% foreclosure rates and PLS went bankrupt. This is your private mortgage market (PLS) at its finest. The same congress wants to hand the keys to our mortgage market to the 25% crowd after Forcing the 4% losses on fannie and freddie. 

2 comments:

  1. Its common for (R)'s to blame the CRA - a 30 year old law that (R)'s simply don't like.

    the last sane (R) (former, now) explains why (R)'s blame the CRA, rather than derugulation.
    https://www.youtube.com/watch?v=-wAkNjaWZFY

    ReplyDelete
  2. The entire nutbag conservative meme that blames the housing crisis on loans for poor people is hilariously stupid.

    ReplyDelete

leave a reply: