Lenders are not in business to lose money. Before politicians stuck their nose in this business perspective buyers had to meet strict loan requirements. Income, income to debt ratio, employment, down payment, and all this had to be verified they just didn't take your word for it. This was the way it worked for decades.
Then politicians looking to get reelected demolished the lending standards. Pressured Fannie and Freddie into lowering their requirements. Look, lenders no longer hold these loans long term they immediately sell the loans to Fannie and Freddie. But prior to interference from politicians Fannie and Freddie refused to purchase risky loans, hence lenders did not make risky loans because they couldn't sell them on the secondary mortgage market.
Trust me on this, politicians screwed the whole thing up then pretended like it wasn't their fault. I still remember Frank the banking chair in congress insisting there was nothing at all wrong at Fannie and Freddie. Then when the housing bubble blew up in his face he was the first one to blame everyone else but himself.
You're focusing on the Fannie & Freddie aspect of this, and there's simply much more to it that has nothing to do with that crap.
The lenders
didn't have to worry about losing money, because they were immediately packaging the dog shit sub-prime mortgages into dog shit CMO's and double dog shit CDO's, getting COMPLETELY FRAUDULENT AAA ratings from the ratings agencies who were making a ton
literally selling ratings, and POOF, the dog shit was OFF THE BOOKS, sold to some unsuspecting investors who foolishly thought that AAA ratings actually MEANT something. Ha! Dumb shits! Suckers!
Meanwhile, AIG is making a SHITLOAD selling a few hundred billion dollars of CDS's with ZERO (0) actual "money" to back up those bets, to institutions that
thought (suckers!) they were hedging their bets on those CDO's and other shit, only to find out that AIG NEVER HAD THE MONEY TO PAY THEM OFF. THEY NEVER HAD THE ******* MONEY, YET THEY TOOK THE FEES. WHAT A DEAL! Holy crap, talk about a boffo business model! But that's okay - they called the gubmit, told them they forgot to keep money in reserve (oops!), and got bailed out! How cool is THAT!
Oh yeah, it gets better -- THEN the banks were creating and selling these horrific dog shit CMO's and CDO's and selling them with their phony dog shit AAA ratings, while AT THE SAME TIME they were BUYING CDS's to ******* SHORT THE VERY SHIT THEY WERE SELLING. Brilliant! Win/Win! My personal FAVE was the Goldman Sachs/John Paulson crime partnership that made Paulson $1 billion, GS even more, and fucked over all KINDS of people with shit CDO's that they had PURPOSELY MADE shit CDO's. Whoopee!
So what does ANY of this have to do with Fannie and Freddie? And by the way....
- Why were the ratings agencies getting away with slapping AAA - TREASURY LEVEL - ratings for SHIT securities?
- Why was AIG able to sell hundreds of billions of dollars in swaps with NO RESERVE REQUIREMENTS?
- Why were the creators of these shit securities able to bring them to market in the FIRST PLACE?
- Why were no limits placed on the amount of CDS's that could be bought to transfer risk?
- Why were there ZERO controls on the types of debt that were being shoved into these shit securities?
- Why were banks allowed to be in bed with companies that were selling hyper-toxic "synthetic CDO's" with zero ******* oversight?
- Why were the banks getting away with manipulating the value of CDS's, as they were buying them themselves?
- Why were the banks getting away with SHORTING the very crap securities they were creating and selling?
Because there was no one saying "stop, we need to look at this". That's what a regulator does. In a normal world.
Are you really going to blame the Democrats ALONE for all that? Holy crap, come on.
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