Re: [RC] Re: [ RC ] Freddie and Fannie and the crash of 2008 and beyond

[David R. Block]

Title: "Free speech is meant to protect unpopular speech

Some of this is CoreLogic "inside baseball." Feedback we get from client Mortgage Companies and Banks. They thought that they were staying out of trouble with these CRA loans, only to find themselves beaten over the head later for having done them. Damned if you do, damned if you don't. Fantastic options!!! Oh wait..... David   "Free speech is meant to protect unpopular speech. Popular speech, by definition, needs no protection."—Neal Boortz   On 4/13/2012 9:41 PM, bil...@aol.com wrote:   David : I'm impressed. Thoughtful essay, backed up with all kinds of specific information. And NOT   -as far as I know at this time-   available anywhere else. That is, I simply don't know of anyone else who so thoroughly rakes Fanny and Freddie over the coals. A real contribution to RC.org.   This said, I am not 100 % sold. But I am approximately 50 % sold. That is, thanks to Kevin Phillips to begin with, and this dates to the early 90s in my life, I definitely do demonize not "Wall Street" in total,  but "Wall Street" as shorthand for finance capital only.   See my e-mail to Ernie for short form critique that deserves lengthy elucidation that, for now, I cannot invest that kind of time to carry out. In any event I more-or-less picture finance capital along the lines of the movie "Wall Street" with many or most finance capital types as different versions of Gekko in the film.   HOWEVER, after months of prodding by you and now this well-said essay, I am happy to announce that Fannie and Freddie also deserve to be demonized. Maybe not the institutions per se, which date to the late 1930s and served useful purposes for many years when they were modest size institutions,  but certainly management. My skepticism began when seeing a TV interview some years ago when "Herman Cain" was appointed to run Fannie.    No, it wasn't "the" Herman Cain but it was someone who was obviously unqualified for the position, who oozed special pleading in his mindset, at least to the extent that the interview / news segment allowed anyone to say. Clearly his was a political appointment to serve as appeasement / payment to the "minority community."     Forgotten exactly when this was but at some point in the Clinton era. It either took place when I was in the midst of 3 years of research into economics, or was something that contributed to deciding to spend that time doing economic research.     OK., the next stage in the process, but no way to know when I can finally get around to this, should be "testing" your theory. This cannot be soon, we are talking weeks from now, but this is useful stuff.   But throw whatever can be found against it and see if it breaks. That's pretty much what any researcher would do with anyone's theory about something important. But there is a good deal of testable material to work with and a hard hitting point of view.   I will say this much for today :  I may not end up being convinced by the totality of your theory but it certainly has real value and if I did not use at least parts of it in any analysis of the crisis of 2008 I would be remiss in my responsibility.     Billy     ======================================                 4/12/2012    david.r.bl...@verizon.net writes:     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 <RadicalCentrism@googlegroups.com> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org     -- Centroids: The Center of the Radical Centrist Community <RadicalCentrism@googlegroups.com> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org -- Centroids: The Center of the Radical Centrist Community <RadicalCentrism@googlegroups.com> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org