Sometimes We Do have a Better Press Corps (Another McClatchy News Edition)

It wasn't Fannie and Freddie, and it wasn't the CRA:

Private sector loans, not Fannie or Freddie, triggered crisis, by David Goldstein and Kevin G. Hall, McClatchy Newspapers: As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis. [...continue reading...]

Comments

[jdf]

Just one thing I have to get straight with all the rush flavored kool aid drinkers out there. This whole thing is not due to the banks and mortgage originators being 'forced' to lend to minorities. I don't even blame bush when he revealed "an initiative aimed at helping 5.5 million minority families buy homes before the end of the decade--'Part of being a secure America,' he said, 'is to encourage home-ownership.'" http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm (look it up, yes it is true).
Now there is no doubt that many minorities did sign up for these loans. In 2004 I lived in a community in the san fernando valley (Los Angeles) heavily populated with minorities, and the advertisements were EVERYWHERE. They were calling all phone numbers in the zip codes, complete with translators at the ready. Now, I worked at a subprime lender at the time too, and I can promise you they had no problem giving loans to anyone, minority or not (remember the 'fog the mirror test'?). The whole reason we are in this mess is cuz companies like the one I worked at (and left on moral grounds) issued loans and bundled and sold the loans to investors. Do not be fooled, they were not forced to make any loans, they did it very willingly! In fact, the law to which rush refers was passed in the 1970's, and if these poor banks had a gun to their heads and made to do bad loans, we would have had this bubble spring up & pop a long time ago. Further, these loans they were pushing were called 'toxic' for a reason. They invented these loans specifically to get poor people into a house they could not afford. If anything, the minority community was victimized the hardest.
See, rush is a spinmeister. He knows the republicans, or 'his guys' have responsibility for the economy ovr the last 8 years. He knows his guys are going to get the blame and the boot, and, he hates democrats. He tries to blame the dems for whatever he can pin on them and he does it by spinning the truth. So he came up with this excuse, racist as it is and trust me thats all that it is, an excuse for his guys, nothing more nothing less. if you listen to this discredited fool, he is a cheerleader for the republicans and has an obsessive hatred for democrats. He will take the truth and always spin it to fit the world view that he tries to sell his listeners.
Sorry for the long post.
JDF

[ken melvin]

Thank you McClatchy.

[ilsm]

When the con artists get burned along with their marks, it is fun to watch NRO blame the marks.

The predatory loan scan unwound and the predators end up holding the poor folks assets which are worth less than the scam expected.

And NRO blames to targets of the scam for it unwinding.

Where is the bunco squad?

Oh yeah they work for Bush, can't go after the boss.

Mc Clatchy has a columnist named Joe Galloway, been writng for years covered the Vietnam War well too.

[SRC]

It took the media a while to explode that McCain/Palin falsehood. Glad to see they finally noticed it.

[RW]

Unfortunately McClatchy still seems to be the exception to the rule vis-a-vis national corporate media but perhaps more will emulate them when it becomes clear the Republican attack machine is weakening ...at least one can hope.

[Abe, NYC]

I don't think this article matters anymore. Extreme right desperately needed something to hang this crisis on the democrats, they found it in the CRA. No amount of evidence to the contrary will change the story, which has taken two weeks to become a Dolchstosslegende. The only question is whether they will succeed in projecting this legend to the entire country, like they did with the myth of Jimmy Carter's atrocious economic performance (which actually surpassed every post-WWII Republican president except Reagan).

[Bruce Wilder]

CNN has an atrocious report on ACORN and "voter registration fraud"

They are not going to stop.

[Sam Dobermann]

Please people, spread the facts around to your friends and etc so that reasonable people will understand. Furthermore, the "regulation" that McCain has been touting would have forced Fannie and Freddy to securitize MORE loan packages which were the cause of the disaster.

Also the bill would have limited the size of the two which would have cut the mortgages the lower middle class could get.

The regulation bill passed the House in 2005 but the Senate bill was not the same and was more restrictive. It got out of committee but just died. It was never voted on in the Senate.

And McCain signed on as a cosponsor in 2006 after it was dead. at the time 2005 and 6, the Repubs controlled both houses.

[Lafayette]

Credit worthiness criteria

jdf: The whole reason we are in this mess is cuz companies like the one I worked at (and left on moral grounds) issued loans and bundled and sold the loans to investors. Do not be fooled, they were not forced to make any loans, they did it very willingly!

That they might have been willingly selling subprime loans is not the point. The point is this: F & F have criteria that must be met in order to determine credit worthiness, which is why their loans were bundled and “securitized” or “monetized” to obtain funds for further lending. They were, for the most part, “good loans” because they observed credit worthiness criteria. F & F have been performing this financial manoeuvre for a donkey's age.

Your company was "selling loans", but could they have met those same criteria? Or, were the criteria relaxed and the back-up documentation necessary either fudged, faked or simply overlooked. If so, then both are fraudulent activities where "due diligence" should have prevailed. If so, a higher authority should have been auditing the loans to assure that credit worthiness criteria were being met.

So, pray tell, were the loans you were selling to a vetted group meet the minimum standards of credit worthiness? Yes or no?

If yes, why are the default rates so high within this group? Credit worthiness criteria are there to minimize default rates. Duhhhhh .......

[Lafayette]

Perp-walk 'em

From further down in the article: Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

Which means what? That they sold on the subprime loans, thereby lowering their percentage in the total, and thus aided and abetted the subprime fraud? Did their management know that they were selling on toxic waste in order to get it off their books? (If so, there's the smoking gun.)

That fact would hardly exculpate either Fa or Fr from fraudulence. And, let’s not forget, five of these management honchos, some years ago, shared a bonus worth more than $100M. For doing what, pray tell?

What was the purpose of giving a management bonus within a company that has privileged access to money market funds because it is a GSE? What "performance measurement" was met that justified such an hallucinatory bonus?

F & F may not be the culprits that the Ridiculous Right would have us believe they are. But, they are culprits in the way they lobbied fast and furiously their way around DC in order to protect and further a “lucrative business” that was, in fact, intended as a Public Service to promote home ownership lower on the economic totem pole.

Perp-walk ‘em. Somebody, somewhere, is guilty of fraud. The subprime mess did NOT just happen all by itself.

[ken melvin]

They move to the markets. Six million excess houses needed be sold; necessity mothered the invention.

[Lafayette]

KM: Six million excess houses needed be sold; necessity mothered the invention

The annual sales of "existing homes" in the US in 2006 and 2007 has been 6,478 and 5652 respectively. I doubt your figure for foreclosed housing can be greater than the total on sale, which includes both subprime and not subprime homes.

The above two numbers come from here.

I think there may be therefore a discrepancy between yours and mine. Where is your number from?

[Lafayette]

To KM: the figures given are in thousands.

[Widespread]

Nouriel Roubini was on C-Span yesterday.

He said:
1. Yes, there were borrowers who bought homes with no intention of making a payment, knowing they would be tossed out after a year of "free rent".
But a far greater number were victims of predatory lending.

2. Yes, Fannie Mae and Freddie Mac contributed to the problem, but the great majority of sub-prime loans were made in the private sector by way of non-conforming loans (loans that do not meet Fannie and Freddie's underwriting criteria).

Daniel Gross of Slate/Newsweek also has a good article about the unfairness of blaming poor people for the economic downturn.

http://slate.com/id/2201641/

[brian holt]

Media matters has a similar report:

http://mediamatters.org/items/200810100022?f=h_latest

[Lafayette]

What did they know and when did they know it

Wide: but Fannie Mae and Freddie Mac contributed to the problem, but the great majority of sub-prime loans were made in the private sector by way of non-conforming loans

There's no but about it.

The management of FaM&FrM decided that it was coincident with their charter to invest in mortgages allowed to a certain class of the population. They therefore bought the toxic waste from private companies packaging them, their management justifying the purchase in exactly those terms.

Later they reduced their percentage of such loans on their books. The point is this: Did they know that they had bought toxic waste and why did they get rid of it without telling anyone -- which makes them complicit in a fraudulent manipulation of their accounts.

Later the management of one of these GSE's celebrated their exalted "performance" by sharing a bonus of more than 100 megabucks.

Both were renowned for peddling influence in Washington and they are not Snow White by any means. They deserve to be dismantled and reopen under changed management, one that does not have its year end bonus as a priority.

En passant

FaM&FrM had always monetized or securitized their own mortgages issued in exactly the same manner -- the original idea coming from these two GSE's -- thereby providing them with fresh funds with which to make further housing loans. Private finance companies simply borrowed the idea, but with lower or non-existent credit worthiness criteria applied to clients, which was clearly stupid.

In fact, FaM&FrM could have enlisted private financing companies to do their job, perhaps with better national coverage, but WITH THE SAME CREDIT-WORTHINESS criteria applied to borrowers. Had they done so, under proper auditing of the mortgages, this sub-prime mess would not be of the seriousness it is today.

Why was this not done? Because someone was asleep at the wheel. Meaning this: The need for lower-class housing is always there. We need only find a mechanism that serves properly that "market".

What must be found is a minimized-risk manner in which to make the credit available to credit-worthy applicants. Perhaps, for instance, first-time buyers are allowed to default in case of unemployment whereupon they pay an even lower rent. This would be a lease-purchase scheme of sorts.

In any event, it is now obvious that we left self-regulation to the Finance Industry and for this supreme foolishness we are paying a colossal cost.