frank was a strong advocate in congress for using gov't authority to force lower underwriting standards in housing finance. he was successful in establishing what were called "affordable housing" (hence the mistake on my part mentioning 'making home affordable') requirements on fannie mae and freddie mac way back in the early 90's. which lead to no-doc underwriting and ultimately the sub-prime debacle. prior to that, frank, dodd and others thought the standard was too difficult for low income borrowers, they thought it would be a good idea to impose gov't quotas on fannie & freddy when they purchased loans from mortgage originators. the gov't even filed suit under this act to get banks to lower credit standards and approve high risk loans, and one of the plaintiff’s lawyers was obumble himself.
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill. ) FH-IL-0011
i understand that this information is probably new to you because how could you know about this with your eyeballs duct taped to the rachel maddow show 24/7.
I watch Rachel Maddow often. She provides great investigations and explanations. She's often comedic at the same time.
However, I didn't get any info from Rachel about this. I didn't need to -- I knew what went wrong long before Rachel did. I have a bachelors degree in finance, and I have worked in the financial services industry for over 26 years. I hold licenses for insurance and securities, and I used to hold a mortgage lending license until I let that one terminate 3 years ago due to the mortgage mess (why continue spending $2500/year on a license when nobody is eligible?). So, I am not a newby, uneducated or unaware.
The no-doc underwriting didn't come from a government mandate -- it came from the expediency of technology. A no-doc loan doesn't mean that there is no documentation whatsoever. Their is plenty, actually, but that documentation can be meaningless.
The "no doc" part refers to an individual's sources of income and/or assets that will be used to purchase a home. A person who applies for a no-doc loan either doesn't want to reveal his/her income (typically because they make a lot and want to keep it quiet), has sporadic income (seasonal work, entertainers) or would not qualify for the loan if they actually provided the documentation (whoops!). So while the first two are typically high-wage earners, that last one sometimes is not. The last category is not just poor people applying for mortgages -- its for people applying for mortgages they cannot afford to pay back regardless of their income level. The rule of thumb is that you can afford up to 3x your annual salary for a mortgage. So if you make $100K you can afford a $300K mortgage. It's not a good idea to hit the 300% level but you certainly never want to go over it. Using that last category of no-doc qualifiers, plenty of applicants ended up going well over 300%.
When you call to qualify for a loan a mortgage broker will start the process by asking you basic information (name/address/dob/ssn) and do an instant spot check on whether your credit score qualifies you for a loan and which type, then their system will show which interest rate you'll get. Unless you want to provide additional proof about your finances to try to get a better deal, you will end up in your original slot as a no-doc loan.
Real estate agents have an incentive to sell a house for more than the asking price -- they get a commission and the seller is happy. Mortgage brokers have an incentive to sell more, longer and larger mortgages because they also get a commission on the amount financed. Together, these two groups can team up to wreak havoc on the financial system of a country. For example, when I bought my house back in 2000, the real estate agents were encouraging buyers to offer more than the asking price for a home with the reasoning that these places are going fast and we know others buyers will bid up the price. Why would you ever pay more for a house than what the seller is asking for it? There is no reason to do that. Never do that. However, real estate agents conned buyers into offering more than the asking price or to get into bidding wars. Fine. That's their job for the seller.
But, here's the real twist ... the only way you can afford to offer more for a house is if you qualify for a lower interest rate or a longer term or a different type of loan such as ARMs or interest-only mortgages. A small downward adjustment of the interest rate can make a higher offer on a house look very tempting. Put a bunch of real estate agents, mortgage brokers and their favorite appraisers together in a group meeting (or at a fully-stocked bar at happy hour) to chat about how no one is auditing anything, and you have the recipe for disaster.
I witnessed many buyers purchase homes that were not within their financial means. I saw people making $100K buying a house for $600K with a $500K mortgage. Greed? Probably. Low-income beneficiaries of government largesse? Definitely not. Between the real estate agents, the mortgage brokers and the appraisers, I heard people being told that their house will continue to appreciate 20-30% each year, and then you can refinance this 2yr ARM to a 30yr mortgage because you will have substantial equity in the house. I saw mortgage brokers falsify applications by stating that people made more money than they actually did or worked at places where they never worked -- all because they had great credit scores or the mortgage companies made lending at great rates sooo easy to obtain.
The financial crisis happened because of greed, and it happened without any internal or external oversight, no checks and balances. Many of the big lenders and lots of smaller lenders engaged in this activity. No-doc loans allowed mortgage brokers to flat-out lie on applications -- but better than that they could often lie or fudge documented loans because nobody was auditing them. This house sold for $450,000 in 2004 and your appraisal now shows $800,000 in 2006? Yeah, that's a gigantic red flag that everyone was happily driving by. Mortgage companies were in no way whatsoever forced to provide these loans. They did so out of their own greed. Period.
You can cry all you want about liberal democratic whatever
but this was pure greed, and I'm betting that a lot of the people in charge of the big greed machines were not liberal democrats.
Credit default swaps were created because somebody who loved risk was bored one day because they weren't getting enough of a high while staring at the numbers on the computer screen.
wtf...? source please...
If you want a source for that, you are ridiculous.
CDSs weren't created by Granny Clampett, a professor at Yale or some mid-level accounting executive at Goldman Sachs. They were created by risk takers who just wanted more.
why not do a some investigation, some reading, some contemplation, be skeptical of what you read or hear, ask questions of others and then decide what likely caused something else to happen?
to my fellow wwgha forum members ??? is this statement above, considering the context, irony...?
I've done a lot of reading, contemplating and understanding, far more than you have. It's part of my job. Every day.
It's Edith's job to bring you a beer every day when you get home.