I keep hearing about different causes of the subprime crisis, but none as ubiquitous as this one. Basically the idea that the subprime crisis was caused by democrats who urged companies like fannie mae to lend to low income families and minorities. These people didn't really deserve the loans, and couldn't have qualified for them in traditional circumstances. Eventually they defaulted and brought the whole real estate market down with them. Sounds ok right? Nope. What is annoying is that this is such a blatantly partisan argument that serves no purpose other than to demonize their political rivals. Anyways here's why they are wrong. 1. Fannie mae is the biggest GSE and its total subprime exposure is/was no more than $50 billion. The total subprime market in this country is $600 billion. A big chunk to be sure, but as you can see, you can hardly blame it all on Fannie Mae when they only hold about 10% of all subprime loans. I'm being generous, I believe the actual exposure is around $25 billion based on their last 10-k annual report, but hey who's counting. I mean really, the argument ends there. But just to be thorough... 2. Subprime loans that were sold to Fannie Mae are called conforming loans. As the name implies this means that the loan conforms to all fannie mae guidelines. The reason FNMA only had a 10% stake in subprime loans is because these guidelines were strict compared to what you could get away with financing in non conforming loans. As a mortgage broker, I never funded a single conforming subprime loan. I really don't know that many people who did. Why? Because it was far easier to get it done elsewhere. Any loan over 417,000 is non conforming. All the exotic ARMS and pay-option arms, no ratio, no doc, no income/no asset etc are ALL non conforming. These are the loans that are going bad now along with FNMA's holdings. Not only is FNMA responsible for only 10% of subprime loans out there, but that 10% were actually subject to underwriting guidelines that were far more strict than the other 90% (but perhaps still not strict enough). 3. Lets say for a second that FNMA didn't only hold 10% of the subprime market, and lets say that they didn't have stricter guidelines than everywhere else. If the low income and minority demographics were solely (or almost solely) responsible than there would be a direct and easily quantifiable correlation between those demographics and the people/loans that are foreclosing. Does that correlation exist? No! Who is foreclosing? Rich people, poor people, middle class people, black people, white people....there is no pattern. That being said FNMA is despicable and I believe it epitomizes the over leveraged and under-regulated secondary mortgage market. Though it seemed like I was sticking up for FNMA, I'm really not. They are simply a small part of a much bigger problem. Also, just to blow a hole in all the partisan BS and prove that this problem is on both sides, check out this vid: http://www.youtube.com/watch?v=kNqQ...&highlight=fannie+mae&feature=player_embedded If you're lazy, it's a clip of President Bush in 2002 endorsing a program that "...uses tax payer's money to help a qualified low-income buyer make a down payment". And that's not taken out of context. If you want my opinion about what caused the whole thing, see attached.
You blew your whole argument before it even started. Fannie Mae does not lend to low income families and minorities. They purchase mortgages that were originated by other lenders.
lol yes, I understand that but the loan HAS to be conforming before the lender will fund it and then sell it to Fannie. Perhaps you should restart with an argument that doesn't involve knowledge of the origination process that you probably lack.
Either you have a reading comprehension problem or you just don't want to read some truths that may be disagreeable to you.
I did not get a chance to read the whole argument, but the reasons are manifold, besides the article. Paulson lobbying for 40:1 leverage in the early 2000's. Greenspan is anything but innocent. Hell, they were questioning derivatives back in the early 1990's. Then the insane credit default swaps. Those of you who were not around back in the 1980's, deregulation of the banking industry opened the doors on this because the lines were blurred between commercial banks and other financial entities. I remember there being quite a bit of debate on it. Finally, you cannot legislate integrity and that is what was absent.