Um, the lion's share of my MBA class went into banking or consulting. While the latter has not been implicated in this crisis, I've certainly heard some interesting positions regarding whether they are providing "services that people really need."
MBA for idiots wrote:
The MBAs are out there running businesses, employing people, providing the goods and services that people really need.
Clinton Administration Changes of 1995
These revisions[5] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.[citation needed]
Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. [6] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. [7] [8]
Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market. [9]
George W. Bush Administration Proposed Changes of 2003
In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." [10] This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank (D-MA) claimed of the thrifts "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Mel Watt (D-NC) added "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing."[11]
The Democrats Added Massive New Provisions
"Part of the increse in home loans was due to...lenders like Countrywide...using the new subprime authorization..
The revisiions allowed the securitization of CRA loans containing subprime mortgages."
Subprime mortgages tripled in 1998 and 1999, REMEMBER THAT?
Fannie Mae and Freddie Mac sold those bad mortgages to Wall Street.
2004 Fannie Mae subprime loans - 92% were ARMs!
2005 91% were ARMs!
Before the Community Reinvestment Act Expansion of the Clintons (1995) housing values tracked with inflation.
After the CRA expansion [1995 and beyond], home prices became unhinged from inflation.
In 2003 the Bush Administration tried to overhaul the housing finance industry, by supervising Fannie Mae and Freddie Mac. The Democrats stopped any attempts at regualating Fannie and Freddie.
In 2005 John McCain warned about the inevitable collapse of Fannie and Freddie. The Housing Enterprise Regulatory act of 2005.
http://www.govtrack.us/congress/bill.xpd?bill=s109-190Democrats killed the bill. Why? Too much regulation... and the Democrats killed the same bill in 2007!
Barrack Obama received 4 times more money from Fannie Mae per year than any other Senator over the last 20 years! 49 times more money than John McCain!
As a lawyer, Obama sued Citibank for redlining, the remedy being lending money to people with bad credit - African Americans.
http://www.youtube.com/watch?v=H5tZc8oH--oMBA for idiots wrote:
No, it is the finance guys that blew it. The MBAs are out there running businesses, employing people, providing the goods and services that people really need...
No, it is the 800 meter guys that blew it. The middle distance runners are out there running businesses, employing people, providing the goods and services that people really need...
How tragic that the utter stupidity of worshipping at the alter of political correctness by the US, might bring to a shuddering halt the relentless rise in the living standards and prosperity of the citizens in most of the world’s leading economies.
Your liberal-Left deemed that ’minorities’ were not as successful as whites in being granted mortgages.
So, starting in 1992 your Democrat-dominated Congress instructed Fannie Mae and Freddie Mac to increase their purchases of mortgages for low- and medium-income borrowers.
The Clinton administration even threatened banks with prosecution under such laws as the Equal Credit Opportunity Act, which outlaw discriminatory lending by reason of race, marital status, religion and so on.
Fannie Mae was investigated for racial discrimination, and the Federal Reserve required banks to treat such sources of income as welfare payments and unemployment benefits as of similar merit to such criteria as income from employment, a good credit history or the ability to make a down payment.
Those affirmative-action lending policies, lauded at the time by your politically PC dimwits, are the direct cause of the present crisis.
Dumb, dumb and dumber.
No to 2012 wrote:
How tragic that the utter stupidity of worshipping at the alter of political correctness by the US, might bring to a shuddering halt the relentless rise in the living standards and prosperity of the citizens in most of the world’s leading economies.
Your liberal-Left deemed that ’minorities’ were not as successful as whites in being granted mortgages.
So, starting in 1992 your Democrat-dominated Congress instructed Fannie Mae and Freddie Mac to increase their purchases of mortgages for low- and medium-income borrowers.
The Clinton administration even threatened banks with prosecution under such laws as the Equal Credit Opportunity Act, which outlaw discriminatory lending by reason of race, marital status, religion and so on.
Fannie Mae was investigated for racial discrimination, and the Federal Reserve required banks to treat such sources of income as welfare payments and unemployment benefits as of similar merit to such criteria as income from employment, a good credit history or the ability to make a down payment.
Those affirmative-action lending policies, lauded at the time by your politically PC dimwits, are the direct cause of the present crisis.
Dumb, dumb and dumber.
You know absolutely nothing about what you are talking about. I used to be involved in the mortgage brokering business. First, redlining and subprime lending are two entirely different things. Redlining is the practice of arbitrarily denying loans based on the location of the borrower (usually a neighborhood that is predominantly minority). Redlining is discrimination pure and simple. Second, the problem is not the increase in subprime lending. The problem is the kind of subprime loans mortgage brokers were peddling, how they were bundled and sold to investors in securities and the unprecedented amount of speculative money that poured into the housing market after the internet bubble burst.
In 2000-01, the internet bubble burst. Regardless of whether investors made money on the bubble or lost money, a tremendous amount of capital fled the market and went into housing. The problem with this money is that it was purely speculative cash seeking the biggest return in the shortest amount of time. Mortgages are usually sold off as long-term bonds. The repeal of Glass-Stegel allowed mortgages to be bundled into securities. The problem is that the good loans and bad loans are bundled together. No one really knows what they are buying because it takes too long to go through the thousands of individual mortgages to figure out what the risk really is. In the case of bonds, you have a very conservative rating system and much better transparency. Fannie and Freddie should have never been allowed to back these securities.
Now here is where the real fault lies. My mortgage broker friends. A mortgage broker\'s job is to pair a borrower with a loan. The mortgage broker usually uses a warehouse lender to get a short-term loan (90 days or less). Then, the loans are bundle and sold off to investors. The investors can further bundle loans and securitize them. Thus, the mortgage broker only cares whether the borrower can get the biggest loan possible in order to earn the biggest fee.
Subprime lending has been around for decades. The loans are risky because the borrowers are most likely to be on the short end of the stick in an economic downturn. The subprime loans that are currently in default are not in default because of an economic downturn. They are in default because these loans are fraudulent. The typical loan is a lower teaser interest rate with low payments initially because the borrower only pays the interest on the loan. When the rate resets after a couple of years, the payments will almost always double. This is rarely disclosed to the homeowner. When it is, the homeowner is told that they can come back and refinance because their home will be worth more in a few years. That worked for a little while. But, when the housing market overbuilt, thanks to crazy speculative internet bubble money, it was no longer possible to refinance as home prices declined. Homeowners were left owing more than the home was worth and facing payments that had doubled, while owning no equity. There is a word for a loan like this: Usurious. But there are no Federal usury laws and states cannot ennact usury laws on Federally regulated lenders because of preemption.
Let me be clear about something. Subprime lending was no liberal great society program. It was a scam. Pure and simple. A real subprime loan is a high interest loan on a very cheap house. Instead, thanks to bubble money, people were getting way too much money. And thanks to no usury laws, they were getting loans that would self destruct after years. In fact, there was racism. Minorities would always get the self-destructing loans because mortgage brokers new that they wouldn\'t question the loans and were more likely to take them.
I have seen mortgage brokers in action on thousands of deals. They make used car salesmen look like mother theresa. There was no reason to peddle the kind of loans that were sold to the public. There were plenty of subprime borrowers who would have been willing and able to pay a high interest loan on a small cheap house. But the mortgage brokers would always push them into a bigger house with a bad loan in order to get the bigger fee.
Blaming the borrower is like blaming a woman who where a short skirt for being raped. The average borrower doesn\'t even understand what points are. They trust the mortgage borker and got scammed.
We need to kill the mortgage brokering business, get the speculative cash out of mortgages and get rid of the securitization of mortgages. We need to bail out the lenders because the markets are completely irrational due to the overwhelming amount of speculatve dollars that now permiate Wall Street. If we don\'t do a bail out, the specultive dollars will flee the market and cause a panic. In other words, if we don\'t put out the fire, the speculators will drive a gasoline truck into the fire and bring down the entire economy. Hopefully, we have learned our lessons and the drop in housing prices will let people get back into the housing market with reasonable loans.
your friendly mortgage broker wrote:
Blaming the borrower is like blaming a woman who where a short skirt for being raped. The average borrower doesn't even understand what points are. They trust the mortgage borker and got scammed.
That's not much different from what the poster above you said. He wasn't blaming the borrowers. He was blaming Political Correctness and Equal Opportunity Lending (mandated by the Democrats) for making funds available to a large number of borrowers who were not qualified.
No, you all still don't get it. The majority of the foreclosures are on people who were qualified to purchase a home. The problem was that the mortgage brokers used scam AR teaser/reset loans to max out the amount borrowed and create cycles of refinancing in order to pump up their fees. There was nothing politically correct about that. It was predatory. Millions of Americans could have been placed in perfectly normal home loans, but were pushed into exotic mortgages by greedy mortgage borkers.
Sure, Federal programs made all of this possible by reducing the cost of borrowing. But, it is just like firearms. Guns don't kill people. People kill people. Lowered lending costs don't create predatory lending practices, greedy mortgage brokers do that.
1999 Clinton creates the problem
2003 Bush tries to correct the problem
Why were these loans given out?
They were presumably required to by law.
Since the Community Reinvestment Act of 1977, Congress requires banks to offer loans to minorities in low-income areas, even if the clients can't make down payments, don't have good credit histories, or even employment histories.
I’d stop ranting about ‘bigots’ and start worrying about your country’s future - assuming you ever survive the mess your own liberal, left wing, socialist - whatever label one puts on it - policies have created.
You’re trillions in debt right now, have to borrow $2 billion daily from foreign investors just to keep your shaky economy afloat.
Your manufacturing base no longer exists - although, ironically, I did buy a chainsaw today that was actually manufactured in the US - welldone! - but it’s the first item from the US in many years.
And I believe you have the ‘second’ largest underground economy in the world - illegal immigrants from Mexico who send back ‘home’ $78 billion annually.
Are you becoming a banana republic?
A colleague of mine recently touring the US came up with some interesting observations and contrasts.
New Orleans:
He found that, with the exception of the areas where the wealthy people live, the streets were filthy. The French Quarter in New Orleans, which escaped being flooded during Hurricane Katrina, may not be entirely representative of inner-city areas in the US, but on an early morning walk, he thought Bourbon Street looked as if hordes of Vandals had just ridden through! The streets around the Marriott hotel in San Francisco (located on 4th Street adjacent to Market Street, and a block from Bloomingdale's – and thus not exactly a slum area) weren't much better. (Compared to, say, Japan, where he also toured, the streets, clothing, and food in the US are, to put it bluntly, schmuddelig – tacky or filthy.) He’d also never seen anywhere in the world as many police cars as he saw patrolling the streets of New Orleans. (The more police cars required to patrol the streets, the closer a region or a country is to being a banana republic.)
But then in Tennessee:
He was very impressed - said those people tend to have high ethical values and they are very concerned about and proud of their small communities. He came away with the impression that people in these communities help and support each other, and are also – in a positive sense – patriotic and proud to be Americans. He was also pleasantly surprised by Tennessee's scenic beauty and its low price level. In a bar in Knoxville, where a band played hillbilly rock, a pint of excellent local draft beer apparently cost just $2. It’s also interesting that he found wages for less-skilled workers in the US to be extremely low when compared to wages for similarly skilled workers in Switzerland and most of the EU.
However, as usual I’ve somewhat digressed.
ummm, you might want to watch this if you think Bush is clean on this one.
I hate to get into my brand is better than your brand or your brand caused this mess on this thread. It is a good thread.
No to 2012, nothing wrong with hitting the enter button to make it easier to read paragraphs.
Well, I disagree with saying that the mortgage brokers are at fault. For most people, the purchase of a home is the biggest purchase of their lives. If you aren't smart enough to read the documents and do the simple math, then you aren't smart enough to own a home. Five minutes with a calculator is all it takes. As has been said before, nobody made the consumers sign the closing documents. They did it freely and willfully. The mortgage people may be shady, but they are not at fault.
Dumb people do not need to be property owners.
If we keep doing Crusades and bailing out fat cats the U.S. will go bankrupt. Congress has to raise taxes or cut spending. I hope President Obama ends the Crusades against the Moslems because I don't want to get drafted to die in another Vietnam War, another lost cause.
If we keep doing Crusades and bailing out fat cats the U.S. will go bankrupt. Congress has to raise taxes or cut spending. I hope President Obama ends the Crusades against the Moslems because I don't want to get drafted to die in another Vietnam War, another lost cause.
I found this especially disturbing from that 2003 article:
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
Barney Frank, the guy with the loudest mouth in Congress trying to pump this $700 billion scam, is one of the main guys who created the mess and denied that there was a problem. Gotta be PC. What a joke! We the sheeple are going to get fleeced again.
I only read page 1 of this thread, but I thank the OP for the info. When I first heard of the bailout, I thought it sucked, but it needed to be done. My economics and business education consists of one macroeconomics class, and yet it was easy for me to see that the bailout, as crappy as it is, is much, much better than the alternative. I'm actually very surprised to see so many people opposing the bailout, especially those who should know better.
Yes, both articles are so true is detailing what we are currently seeing in the market and the response from the fools in DC.
How about this nugget from the 1999 article?
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
photofinish wrote:
Well, I disagree with saying that the mortgage brokers are at fault. For most people, the purchase of a home is the biggest purchase of their lives. If you aren't smart enough to read the documents and do the simple math, then you aren't smart enough to own a home. Five minutes with a calculator is all it takes. As has been said before, nobody made the consumers sign the closing documents. They did it freely and willfully. The mortgage people may be shady, but they are not at fault.
Dumb people do not need to be property owners.
Please tell me about your magic calculator that can predict what interest rates will be in the future.
That is the scam of the teaser rate. You only have to disclose the initial payment. You can't disclose what the reset will be because you do not know what the interest rate will be in the future.
People go to the mortgage broker with the expectation that the broker will act in their best interest, just like a doctor or lawyer. But that is not the case. It is an arms length transaction. The mortgage broker doesn't owe the client a fiduciary duty. The only duty the mortgage broker has is to do the required disclosures.
And for the thinly veiled racist post blaming the community reinvestment act (CRA), the majority of subprme loans were given out by banks that were not CRA regulated. Plenty of CRA banks did get caught up in subprime loans, but CRA does not require banks to use teaser loans and other unconscionable lending practices. Banks had no problem complying with CRA without having to use teasers. It was only when all the money started pouring in did mortgage brokers start doing anything they could to get people into loans. CRA loans have always had a high rate of default and were never a threat to our financial system. It was only when Glass-Stegal was repealed, giving way to piles of speculative dollars to hit the housing market, that banks started pushing the exotic, doomed to default loans.
You don't need to know, you always assume worst case.
Most of the paperwork said something like this:
The first five years, your rate is 5%.
The next year (6), it can go up as much as 3% (to 8% max).
The next year (7), it can go up as much as 2% (to 10% max).
The next year (8), it can go up as much as 1% (to 11% max).
11% is the cap on your rate.
Anyone with a brain would do the math in 5 minutes to find out what their payments would be down the road under this worst case scenario. Of course, the reality is that rates probably won't get to 11% in year 8, so it would be a lower number. And refinancing is always in option. But I have no sympathy for people who failed to do these simple calculations.
It's not a scam, it's right there on the contract. They do have to disclose maximum reset rates.
I realize that plenty of people don't actually have brains, or don't use them, and they didn't do the math and now they are surprised. But again, I don't blame the mortgage industry. Dumb people should not be property owners.
No to 2012 wrote:
Why were these loans given out?
They were presumably required to by law.
Since the Community Reinvestment Act of 1977, Congress requires banks to offer loans to minorities in low-income areas, even if the clients can't make down payments, don't have good credit histories, or even employment histories.
I’d stop ranting about ‘bigots’ and start worrying about your country’s future - assuming you ever survive the mess your own liberal, left wing, socialist - whatever label one puts on it - policies have created.
You’re trillions in debt right now, have to borrow $2 billion daily from foreign investors just to keep your shaky economy afloat.
Your manufacturing base no longer exists - although, ironically, I did buy a chainsaw today that was actually manufactured in the US - welldone! - but it’s the first item from the US in many years.
And I believe you have the ‘second’ largest underground economy in the world - illegal immigrants from Mexico who send back ‘home’ $78 billion annually.
Are you becoming a banana republic?
A colleague of mine recently touring the US came up with some interesting observations and contrasts.
New Orleans:
He found that, with the exception of the areas where the wealthy people live, the streets were filthy. The French Quarter in New Orleans, which escaped being flooded during Hurricane Katrina, may not be entirely representative of inner-city areas in the US, but on an early morning walk, he thought Bourbon Street looked as if hordes of Vandals had just ridden through! The streets around the Marriott hotel in San Francisco (located on 4th Street adjacent to Market Street, and a block from Bloomingdale's – and thus not exactly a slum area) weren't much better. (Compared to, say, Japan, where he also toured, the streets, clothing, and food in the US are, to put it bluntly, schmuddelig – tacky or filthy.) He’d also never seen anywhere in the world as many police cars as he saw patrolling the streets of New Orleans. (The more police cars required to patrol the streets, the closer a region or a country is to being a banana republic.)
But then in Tennessee:
He was very impressed - said those people tend to have high ethical values and they are very concerned about and proud of their small communities. He came away with the impression that people in these communities help and support each other, and are also – in a positive sense – patriotic and proud to be Americans. He was also pleasantly surprised by Tennessee's scenic beauty and its low price level. In a bar in Knoxville, where a band played hillbilly rock, a pint of excellent local draft beer apparently cost just $2. It’s also interesting that he found wages for less-skilled workers in the US to be extremely low when compared to wages for similarly skilled workers in Switzerland and most of the EU.
However, as usual I’ve somewhat digressed.
Shhh don't tell people about TN. If you can stand the quickly dwindling ignorant rednecks TN is a great place to live. We haven't been hit by the subprime crisis. Seems like it is mostly the materialist Laguna Beach wanna-bes out in CA that are in over their heads with mortgages. I was in San Diego a few weeks ago and I have never experienced so much disgusting materialism. No wonder people are defaulting on their mortgages. Everyone is driving around in G'd out hummers driving to be hollywood. Regretfully, I see some of that disgusting materialism rubbing off on the younger generations where I come from.