Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans

Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans

www.nytimes.com

Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday.

The development, which began in 2005 and lasted until at least last year, happened as senior executives at the two government-sponsored enterprises ignored repeated warnings from internal risk officers that they were delving too deeply into dangerous territory, according to internal documents released at a Congressional hearing in Washington.

Edward J. Pinto, a former chief credit officer at Fannie Mae, told the House Oversight and Government Reform Committee that the mortgage giants, which have been taken over by the government, now guarantee or hold 10.5 million nonprime loans worth $1.6 trillion — one in three of all subprime loans, and nearly two in three of all so-called Alt-A loans, often called “liar loans.”

(visit the link for the full news article)


Mod edit: Please use exact title of article.

[edit on 12/9/2008 by Hal9000]

Professor Calomiris added that the giants were “not only market players but standard setters, and should have known better.”

Well duh.

This really irks me.

They were warned repeatedly but they were too greedy to care. Or this financial collapse was planned; otherwise I don’t see how this happened. Either greed turned them stupid or they wanted this to happen.


www.nytimes.com
(visit the link for the full news article)

[edit on 9-12-2008 by rapinbatsisaltherage]

[edit on 12/9/2008 by Hal9000]

Well - I for one dont believe Fannie or Freddie would have the balls to overstep their authority. and those be qualified, prime loans freddie and fannie has not junk but the best of the best in mortgages that is... without a job a prime goes subprime in a hurry.

anywho, I currently own 2,000 FRE for disclosure - and they are trying to do a bait and switch ... but who needs a govt agency that backs mortgages -- if the crap continues much longer -- well they will own ever mortgage... I wonder if that is their plan to buy america 100%.

reply to post by rapinbatsisaltherage


You do realise that they where ORDERED to make these loans by the Congress. The Sub-prime mess is a direct result of mandates Congress passed to 'spread the wealth'. Certain banks that are still solvent refused the FEDS requests to go deeper into debt and where penalised in loan garrruntees but still managed to ride out the storm. These where bankers who saw what was going to happen and held their ground. The others just caved and now we have this problem for us tax payers to clean up.

Zindo

reply to post by rapinbatsisaltherage


Oh it was planned alright. We're lead to believe that history repeats itself and that this is just part of the cycle...But that is just an illusion, especially when those cycles are built into the system, and can be called upon at will.

reply to post by ZindoDoone


This hearing was the second (I believe) of hearings about the collapse of two prominent companies. Some of the evidence presented in this instance that indicates why they collapsed goes back four years or more. This is not just about what Congress ordered. The evidence presented entails more than that.

[edit on 10-12-2008 by rapinbatsisaltherage]

Go back 9 years and look again. Whats being presented here is the sanitised version of events that caused both of these loan garrantors as well as many inner city banks to fail due to lending practices demanded of them. Congress did indeed cause this. They usurped the power of the banks to use criteria that has been in place for accepting or denying loans for 200 years!
Zindo

Originally posted by ZindoDoone
Go back 9 years and look again.

Care to post a link? I seriously doubt all the banks actions can be blamed solely on the government, despite what they ordered. But I’m willing to look at the evidence and shift my position.

NY Times

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

...

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

Thanks for the link. However they were never “forced” to ease the credit requirements to the extreme that they did.

Actualy you have to go back to 1977 and then again in 1997, heres the link to what actualy happened and who where the culprits that allowed this sub-prime problem to profulgate!

mises.org...

This is probably the most literate of articles I found and the best explanation!

Zindo

[edit on 12/10/2008 by ZindoDoone]

While one claims it is all the fault of liberals and the government and CRA another makes a good point:

It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did.

Then again this point is sort of lost when the other is mentioning the false accusations of conservatives and twisting certain facts.

The government played a role in this mess; I have no doubts. However the substantial evidence that the companies were at no fault of their own doesn’t exist, the more you dig the more it looks like both were to blame, unless you’re only listening to one ideologically driven side.

Mortgagee is the legal term for the mortgage lender. The main function of the mortgage is to provide security to the lender. Given the large sum of money involved in financing a property, a mortgage lender will usually want security for the loan that will provide a claim upon that security and will take precedence over other creditors. A mortgage accomplishes this security.

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