Results 1 to 2 of 2

Thread: Another Subprime Crisis = Deja Vu

  1. #1
    Banned Eric Stoner's Avatar
    Joined
    Oct 2006
    Location
    NYC
    Posts
    5,150
    Thanks
    1,261
    Thanked 1,430 Times in 888 Posts

    Default Another Subprime Crisis = Deja Vu

    It's been two years since the taxpayers bailed out Fannie and Freddie. Unfortunately, Thanks to Obama and the Dems we are going to have to do it again. The root cause of the first Subprime crisis was weak lending standards serving the goal of affordable housing for all. The rate of homeownership NOW is the same as it was in 1993 before Clinton and Andrew Cuomo "liberalized" lending standards. Congress gladly went along. We went from 1990 when one half of 1 % of all government insured home purchase loans had down payments of 3% or less. By 2003 it was over 14% and by 2006 about 1/3 were no money down.

    Under Cuomo and the Clintonistas at Fannie and Freddie borrowers no longer needed down payments; steady incomes ; verified employment and a good credit history. This also inflated housing prices by creating artificial demand. This was done despite the lesson of 1929 when any invesor could buy stock with as little as 10% down. After the crash it was raised to 50%. One would think that the Congress would apply the same principles now.

    Part of the reason for Congressional failure is political : Cheap housing wins votes and part of the paradigm includes the home mortgage interest deduction. It's no accident that our next door neighbor Canada did NOT experience a housing crash.
    They maintained their lending standards and do not have a mortgage interest deduction.

    Part of the blame falls on the media for perpetuating the prevailing narrative that our troubles were caused by a greedy private sector and/or greedy execs at Fannie and Freddie and/or insufficient regulation.

    Amazingly Obama and the Dems refuse to reinstitute sound underwriting to home lending. The Dodd - Frank bill which Obama signed omitted down payment requirements and did not require a good credit history. The Corker Amendment which would have required both was defeated. Worse yet , the regulator of Fannie and Freddie , the Federal Housing Finance Agency folllowed the 2008 Congressional mandate and just laid out its Federal affordable housing goals and guidelines. Incredibly these new goals relate almost exclusively to very low and low income borrowers. Read that last sentence as many times as necessary until cold sweat and nausea set in. The ONLY way to meet those goals is to let those people borrow money; the repayment of which is Federally guaranteed. That means low (and maybe even no) down payments and lousy credit histories.

    I gather that Congress seriously thinks that reining in "predatory" lenders will be sufficient to prevent bad lending.

    This is nothing more than a recipe and blueprint for a repeat disaster. The only way to avoid it is to require 20% down with solid credit and verified documentation. The easiest way to get Congress to do that is to invest all Congressional pension assets in funds backed solely by the very high risk loans mandated by the Congress.
    Last edited by Eric Stoner; 09-14-2010 at 07:34 AM.

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Another Subprime Crisis = Deja Vu

    big blurbs about the new Fannie zero down program in a number of mainstream media outlets today. You can certainly tell that this is an election year !

Similar Threads

  1. Replies: 0
    Last Post: 12-18-2008, 02:56 PM
  2. Replies: 0
    Last Post: 05-30-2008, 12:29 PM
  3. Subprime cartoon
    By Adelina in forum Dollar Den
    Replies: 5
    Last Post: 02-16-2008, 12:52 PM
  4. Replies: 3
    Last Post: 11-18-2007, 08:18 PM
  5. subprime humor !
    By Melonie in forum Dollar Den
    Replies: 3
    Last Post: 07-16-2007, 09:23 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •