Dad2three
Gold Member
Androw, you are clueless. Sub prime loans had been originated and closed since way back in the early 1980ties. Maybe before. But in the early 1980ties when I first started writing loans, there were sub prime mortgages. And they actually served a good, necessary purpose in limited quantities.
Funny how you all leave out the loan officers manning the phone banks dialing zip codes which pretty much assured the loan officer they wouldn't find any real knowledgeable borrowers at those addresses. Made it easier to make a killing when the borrower has no knowledge pf the lending process.
And the Realtors. Who do you think it was that steered the home buyers to the sub prime loan officers after they had been denied a conforming loan?
Mac seems to think this was an "organic" event. It just happened.
I can assure you that this was a very well planned event. If on the street loan officers KNEW that we were originating "bad loans", how could anyone figure that the executives of all these banks and mortgage companies didn't know they were making bad loans? They knew. That's why the were packaged and sold so fast. Let some other sucker take the hit was the idea. We already got our money.
Greed is a tremendous motivator.
The problem with the 'greed' theory is this.... Has anything changed in human nature over the last 100 years?
I never suggested that sub-prime didn't exist prior to 1997, only that they were not sold as mortgage backed securities on the open market. They were a very small niche market.
So why didn't the bankers go crazy in the 70s? Or 80s? Or early 90s? Were all the bankers benevolent altruistic people back then? And what happened? Did a greed virus get released in the water? Did martians beam down, and zap them all with greed guns?
Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?
See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started.
That can't be random. People don't just wake up one morning, and decide "hey everything we thought was too risky for the last 30 years, is magically safe from now on!"
There had to be a trigger.
And isn't it interesting that the two biggest crashed, were also to of the original companies involved in making Sub-prime Freddie Mac Securitized loans? First Union, which became Wachovia, and Bear Stearns.
Coincidence? I don't think so.
The difference between me and Captain Party Hack over there (whose spam I have on ignore forever more), is that I don't deny that Bush continued bad policies. Absolutely he did. But the truth is, even if Bush had not, we would still be where we are right now. By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005.
But again, I go back to the cause. Something happened in 1997, that fundamentally changed the market.
The evidence shows that for the first time in US history, the Federal Government, through Freddie Mac, placed their seal of approval on Sub-prime loans, at the same time they were suing banks to make those loans.
Last note... I even agree that some people played the game to earn a quick buck. Absolutely, some banks knew those loans were bad, and made them anyway, because they knew they could make a buck before the market crashed. Absolutely.
Still doesn't change the start. What was the cause? Because they could have done that 30 years ago. Why did it start in 1997? Again, Freddie Mac, and the Federal government, pushing those bad loans.
Read the book, The Financial Crisis and the Free Market Cure, by John A. Allison.
Allison was CEO of BB&T bank, when the regulators showed up and demanded they lower their lending standards in the late 1990s. They said their lend standards were 'discriminator' but yet couldn't describe how, and only required they be lowered.
The Government pushed this. That's all there is to it.
SO YOU'LL STICK WITH MYTHS, DISTORTIONS AND LIES. GOT IT
"So why didn't the bankers go crazy in the 70s? Or 80s? Or early 90s? Were all the bankers benevolent altruistic people back then? And what happened? Did a greed virus get released in the water? Did martians beam down, and zap them all with greed guns?
Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?
See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started."
When did the Bush Mortgage Bubble start?
A The general timeframe is it started late 2004.
From Bushs Presidents Working Group on Financial Markets October 2008
The Presidents Working Groups March policy statement acknowledged that turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007.
"Since 1995 there has been essentially no change in the basic CRA rules or enforcement process that can be reasonably linked to the subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in poor performance of mortgage loans made between 2004 and 2007. "
http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf
"Another form of easing facilitated the rapid rise of mortgages that didn't require borrowers to fully document their incomes. In 2006, these low- or no-doc loans comprised 81 percent of near-prime, 55 percent of jumbo, 50 percent of subprime and 36 percent of prime securitized mortgages."
https://www.dallasfed.org/assets/documents/research/eclett/2007/el0711.pdf
Q HOLY JESUS! DID YOU JUST PROVE THAT OVER 50 % OF ALL MORTGAGES IN 2006 DIDNT REQUIRE BORROWERS TO DOCUMENT THEIR INCOME?!?!?!?
A Yes.
Q WHO THE HELL LOANS HUNDREDS OF THOUSANDS OF DOLLARS TO PEOPLE WITHOUT CHECKING THEIR INCOMES?!?!?
A Banks.
Q WHY??!?!!!?!
A Two reasons, greed and Bush's regulators let them.
Q Why would Bushs regulators let banks lower their lending standards?
A. Federal regulators at the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision work for Bush and he was pushing his Ownership Society programs that was a major and successful part of his re election campaign in 2004. And Bushs regulators not only let banks do this, they attacked state regulators trying to do their jobs. Bushs documented policies and statements in timeframe leading up to the start of the Bush Mortgage Bubble include (but not limited to)
Wanting 5.5 million more minority homeowners
Tells congress there is nothing wrong with GSEs
Pledging to use federal policy to increase home ownership
Routinely taking credit for the housing market
Forcing GSEs to buy more low income home loans by raising their Housing Goals
Lowering Invesntment banks capital requirements, Net Capital rule (Going from 12-1 to 35+-1 in 2004, flooded the market cheap money)
Reversing the Clinton rule that restricted GSEs purchases of subprime loans (2004)
Lowering down payment requirements to 0%
Forcing GSEs to spend an additional $440 billion in the secondary markets
Giving away 40,000 free down payments
PREEMPTING ALL STATE LAWS AGAINST PREDATORY LENDING
But the biggest policy was regulators not enforcing lending standards.
"By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005."
The American mortgage market was about $500 billion in 1990. During the 1990s, it went up to nearly $1 trillion in 1993, peaked in 1998 at around $1.5 trillion. In 2000, it
stood at $1 trillion a year. The real surge in the mortgage market began in 2001 (the year of the stock market crash). From 2000 -2004, residential originations the U.S. climbed from about $1trillion to almost $4 trillion.
About 70% of this rise was accounted for by people refinancing their conventional mortgages at lower interest rates
http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf
Predatory origination practices were especially prevalent
within the HEL segment.
Alt-A and subprime mortgages (sometimes called B/C mortgages to denote their lower credit quality) were sold to people with impaired credit history, or people who lacked the ability to make a large down payment, or people who did not have verification of their income. Alt-A is not strictly defined but is generally viewed as an intermediate category that encompasses borrowers with FICO scores to qualify for prime but who lack some other qualification.
The term subprime actually has a set of formal definitions. To qualify for a prime or conventional mortgage, a person needed 20% down and a credit FICO score of 660 or above (the average score is 710 on a scale from 450-900). Mortgagees who did not have these qualifications were not eligible for prime or conventional mortgages
In 2004, for the first time, these four categories of loans exceeded the prime market or conventional market. In 2001, the largest conventional (prime, government-insured) originator did 91% of its origination business in the conventional market, and only 9% in the non-prime market.
In the peak of the mortgage craze in 2006, fully 70% of all loans that were made were unconventional mortgages.
http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf
The historical "originate and hold" mortgage model was replaced with the "originate and distribute" model. Incentives were such that you could get paid just to originate and sell the mortgages down the pipeline, passing the risk along. The big investment banks simply connected the investors to the originators, helped by the AAA ratings.
Given CEOs' proclivity for government bashing, any lenders being driven to write bad loans by the CRA would have been on CNBC screaming at the top of their lungs.
But that dog that didn't bark.
Federal Reserve Paper (San Francisco) on California
long paper: http://www.frbsf.org/publications/community/wpapers/2008/wp08-05.pdf
short paper:
http://www.frbsf.org/publications/community/cra/cra_lending_during_subprime_meltdown.pdf
"... we believe that this research should help to quell if not fully lay to rest the arguments that the CRA caused the current subprime lending boom by requiring banks to lend irresponsibly in low- and moderate-income areas. First, the data show that overall, lending to low- and moderate-income communities comprised only a small share of total lending by CRA lenders, even during the height of subprime lending in California.
Second, we find loans originated by lenders regulated
under the CRA in general were significantly less likely
to be in foreclosure than those originated by IMCs (Independent Mortgage Companies). This held true even after controlling for a wide variety of borrower and loan characteristics, including credit score, income, and whether or not the loan was higher priced."
There was no requirement in the Community Reinvestment Act that required banks to lend to marginal borrowers, just encouragement to try to lend to weaker borrowers in areas where the banks opened branches.
Further, most all sub-prime loans were not done by banks. They were done by non-bank lenders which were not covered by the CRA.
The common factor is an explosion in funny mortgage products and low interest loans, that had no connection to the actual risk of the loan. This allowed people to purchase more house than ever before, and drove a bubble. The reason you could detach the risk from availability of loans was that they found a way to hide the actual risk from the end purchasers of the loans. Furthermore, they found a way to insulate the people who could and should have known about the risks, from the consequences of the risk (yet those people still harvested the upside with little or no exposure to the downside). In most cases it was an adoption of the failed ideology of markets can take care of themselves that allowed these absurd situations to develop without regulators or politicians stopping them.