Well said. Thanks for the clarification. -- Ernie P.
On Apr 12, 2012, at 9:07 PM, David R. Block wrote: > This is to answer some questions that some might have about my somewhat > regular panning of Freddie and Fannie and their role in the Housing boom and > bust. > > Full disclosure: I currently work for CoreLogic, the largest producer of > housing market data and analytical products. CoreLogic also has a Tax Escrow > Service (that's my piece), flood insurance, Relocation unit, and the > currently growing Default unit (gee, I wonder why?). > > Derivatives and Credit Default Swaps: I don't think that derivatives (or > Credit Default Swaps) stem from direct orders by Freddie and Fannie. I DO > believe that if those sub-prime mortgages had not been so encouraged (by > their interpretation of the Community Reinvestment Act) that their numbers > would be lower and the attendant risk lower as well. The Derivatives and the > Credit Default Swaps-both intended to be "ass covering" by the financial > institutions-spread further and wider due to their volume. A volume that > Freddie and Fannie encouraged to grow. Having the underlying mortgages > government insured in the first place was an attempt to play down the risk. > With hindsight the only thing that can reasonably be said about how that > worked out is EPIC FAIL. It was not realized by the institutions or the > regulators that instead of mitigating the risk, all that the Derivatives and > Credit Default swaps did was amplify the damage. In most other areas, the > volume and the corresponding dollar amount of the Derivatives and Credit > Default Swaps is much lower. The Law of Unintended Consequences is a bitch. > > Housing Bubble: With more folks getting these relatively easy mortgages, > buyers entered the market that otherwise strict credit standards would have > kept out. So the price of housing steadily went up as the demand went up. > Until, that is, the buyers could no longer afford the prices no matter how > sweet that mortgage deal sounded. Then the prices came down a little, and > builders quit building. Guess who the builders employ? Folks on the lower end > of the pay scale. As their adjustable rate mortgage was adjusting upward, > their jobs and income were adjusting downward. That's not a good thing. And > the contraction fed itself, even to the point of endangering the very banks > that had originated those mortgages-with a little government prodding. It all > came crashing down and in some places continues to come down. The Dallas, TX > market is a lagging indicator. Detroit is a leading indicator. > > Blaming Freddie and Fannie exclusively: Saying that there is more bile and > venom in the mortgage industry against Freddie and Fannie than Wall Street is > not to exonerate Wall Street. In our business, our customers are the Banks > and Mortgage companies, and only secondarily the people paying the mortgages. > The people paying the mortgages get more attention from us if the bank has > outsourced their escrow processing to us. We even have folks that answer the > Phone with the Name of the bank that they support. I am not > unsympathetic to their plight, but neither am I unsympathetic to the Bankers > who were "following directions" and then kicked out in the morning when it > came crashing down like the hooker who overstayed her welcome. Had the > bankers just said "no," and taken their lumps, who knows where we would be > today?? So they have the spine of a jellyfish. > > From the Viewpoint of the Bankers and the Mortgage industry: The banks see, > with some reason, that Freddie and Fannie encouraged the extreme risk taking > and then with the rest of the Obama and Bush administrations turned on them > and demonized them for doing exactly what Fannie and Freddie encouraged that > they do. This is not "Do as I say not as I do," but rather "Do as I say and > if it works out you will not get sued for race discrimination in lending, and > if it doesn't work out it is ALL your fault." Lord knows that with Franks > over the oversight committee, it's not going to be Fannie and Freddie holding > the bag. The bag will be put in the hands of the banks, post-haste. As the > tour buses of protestors at AIG executives' houses demonstrated. > > Nice to see that the strategy of Obama and the Commiecrats to demonize Wall > Street has been so successful. Or, you know, not. > > Chronology: Some may trace this back to the early 1970s, but the Community > Reinvestment Act was passed under Carter in 1977. So to hang this Act on > Johnson, Nixon or Ford does not fit the chronology. See Wikipedia. > > http://en.wikipedia.org/wiki/Community_Reinvestment_Act > > There's that small matter of an election in 1976 won by Carter, so this baby, > passed by an almost 2/3 Democratic House, belongs solely to the Democratic > Party. Others may have pushed it for their own political ends, but it only > traces back to Jimmy. > > This Wikipedia article lists some positions, pro and con, on the origination > of sub-prime loans being primarily from unregulated mortgage companies vs > those from CRA covered banks. Independent mortgage companies like Countrywide > of Dallas (one of our "competitors" because they did their own tax service > and offered it to others). Countrywide failed and was taken over by Bank of > America (BofA went to Countrywide's Tax Service and left our Tax > Service in 2010). So there was an apparent need for regulation of independent > mortgage companies. No mention is made of any attempt, either successful or > failed, at regulating these institutions. > > Seeing that Ron Paul agrees with me does give me pause. :-) > > David > -- > "Free speech is meant to protect unpopular speech. Popular speech, by > definition, needs no protection."—Neal Boortz > > > -- > Centroids: The Center of the Radical Centrist Community > <[email protected]> > Google Group: http://groups.google.com/group/RadicalCentrism > Radical Centrism website and blog: http://RadicalCentrism.org -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org
