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Fannie Mae brings back no-downpayment mortgages
Topic Started: Aug 7 2010, 01:19 AM (296 Views)
LTC8K6
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Assistant to The Devil Himself
:bump:

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What could go wrong?


http://blogs.ajc.com/kyle-wingfield/2010/08/06/fannie-mae-brings-back-no-downpayment-mortgages/
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cks
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Meanwhile responsible people (those who do not buy a house that they cannot afford) see that once again they are being taken for saps. They will bear the brunt of falling home values when the homes in their neighborhoods purchased for nothing down by those who could not afford them, wind up in default because said homeowners cannot afford them and then abandon them.
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kbp

Stupid is as stupid does!

I actually believe there is benefit to the idea behind Freddie & Fannie, but the politics that is involved destroy it.

I've never known of a mortgage that did not require PMI with less than 10% down, it used to be 20%. The absence of PMI certainly throws the risk into a totally different setting. There is no PRIVATE pool of funds to cover faulty notes then, well, none except the tax payers if that is how Fannie & Freddie operate.
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Baldo
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Scam Scam Scam!

Does anyone remember the S & L Scandal of the late 80's & early 90"s?

Summary
The savings and loan crisis of the 1980s and early1990s produced the greatest collapse of U.S. financial institutions since the Great Depression. Over the 1986–1995 period, 1,043 thrifts with total assets of over $500 billion failed. The large number of failures overwhelmed the resources of the FSLIC, so U.S. taxpayers were required to back up the commitment extended to insured depositors of the failed institutions. As of December 31, 1999, the thrift crisis had cost taxpayers approximately $124 billion and the thrift industry another $29 billion, for an estimated total loss of approximately $153 billion. The losses were higher than those predicted in the late 1980s, when the RTC was established, but below those forecasted during the early to mid-1990s, at the height of the crisis.

http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf


Consequences
While not part of the savings and loan crisis, many other banks failed. Between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance.[20]

From 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645.[10] This was primarily, but not exclusively, due to unsound real estate lending.[21]

The market share of S&Ls for single family mortgage loans went from 53% in 1975 to 30% in 1990.[2] US General Accounting Office estimated cost of the crisis to around USD $160.1 billion, about $124.6 billion of which was directly paid for by the US government from 1986 to 1996.[1] That figure does not include thrift insurance funds used before 1986 or after 1996. It also does not include state run thrift insurance funds or state bailouts.

The US government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of approximately $124 billion dollars by the end of 1999.[22]

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II. [2]

Some commentators believe that a taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis.[23]

http://en.wikipedia.org/wiki/Savings_and_loan_crisis


So what was the reaction of the US Congress & Feds to this horrific failure in the mortgage industry?

Ten years later they were back at it again and this time they doubled down.

DC is a cesspool! I am not kidding when I say dunking chairs should be lined on on the Potomac. You, your kids, and their kids will be paying for the sub-prime meltdown. It was all preventable. They were warned, they had a huge example in front of them, yet they went right ahead and did it again.
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Mason
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All the evidence shows the number one determinant in people defaulting or walking away is how much money they have invested in the home. These programs where the buyer puts little into the purchase upfront have resolutely failed.

The only reason to believe this program would work is Owebama's own radical redistributive beliefs that have little to no attachment to reality.

.
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kbp

The cause of the 80’s S&L fiasco was entirely TAXES, or to be more specific, the change in the depreciation allowed on property investments. Reagan looked to be showing signs of Alzheimer’s when he let some of the old Democratic roots in him slip out and he did NOT veto that bill.

The limit on depreciation was an immediate and drastic change that would not allow an offset or expense on income any greater than the income from that specific property. At the minimum, there should have been a transitional rate adjustment period factored into the changes, instead of the immediate full change in the law. All that had made LONG-TERM investments were just using the rules and hoping to see immediate tax benefits along with a break on “capital gains” tax rates years later when they sold the real estate (too bad, the rules changed, pay Uncle Sam!).

Investments were being made in property to have expenses that could be used to offset other income. While in all other business that is an accounting practice the IRS finds to be acceptable, the concerns were that it created a false value in the real estate investments because people would pay a higher price knowing they could use the depreciation towards avoiding taxes on other income.

This was a practice that led many to buying properties to rent, even single-family homes, so it hit the first-time home buyers with higher priced purchases, restricting home ownership somewhat.

After they realized what the sudden change did to the market, a deflation in real estate values, they decided to solve the next concern with another ridiculous immediate change in the rules. The problem was S&L’s holding too many bad loans, in which the value of the collateral had decreased, so the azzhats decided to change the percentage of cash the S&L’s (and banks) must have “on hand”, in another overnight change.

At least the Bush crew had enough sense to put the TARP act in place to avoid immediate defaults by all the big banks, but the new financial regulations appear to resemble just another play at repeating the same mistakes history has shown us do not work.

A bigger difference between now and then, in my eyes anyway, is that the Reagan crew had private business moving well with the tax laws and a gain in world trade resulting from the SOUND military which made the US dollar a secure investment for all of the world.
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Mason
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Doesn't it seem like he's putting these people at risk by placing them in homes with this economic and jobs situation?

Maybe fix the jobs situation before tending to his strong, community organizer urges.

.
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Baldo
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I have a friend who was part of the S & L investigation and travelled throughout the USA. The RTC hired this major firm she worked for to review all bad loans so that they could be tranched and sold in bundles to a limited number of investors for pennies on the dollar.

They would fly in teams of experience underwriters who would be briefed by the local US Attorney and accountants. In LA the instruction was to assume each loan was fraudulent and houses were churned from real estate agent to loan officer to appraiser to buyer to a family relative and repeated over and over again. Each person would take a commission and repeat the cycle again. The loans were fraudulently made. The specific instruction was they didn't care about any fraudulent loans under $500,000 as there were too many for the US Attorney's Office in LA to handle..

In essence what happen in the sub-prime mortgage meltdown is that Loans were made to unqualified buyers, hell they didn't even check the qualifications, but this time the were purchased or backed up by Freddie & Fannie who tranched them into securitized instruments which were brokered and re-arranged into sometimes exotic instruments by the large Law Street Institutional Banks, who in turn sold them to investors.

At each step everyone took a cut or commission, including using Freddie & Fannie as a place were ex-Clinton staffers could go and make a bundle.

Of course this is a simple explanation as it took regulations, tax changes, and a gross failure in Credit Rating Agencies who took their commissions.

What I am basically saying it was a gross violation of business & government ethics that allowed both crises to happened. It took real people who looked the other way and enjoyed those fees when they knew the instruments were riskyor even illegal. It went from Main Street to Congress to Wall Street. The Feds knew about the dangers along with the US Treasury

Greed: the root of it means an eager desire or longing. In this case it was money.
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kbp

It got a little more complicated than what involved only Fannie & Freddie, and I admit it is difficult for me to understand all of it, especially when you run into the methods used to hedge (derivatives) against loss on investments made in those mortgage packages.

The packages sold by Freddie & Fannie seemed to force the private mortgage packages to find some form of security to market their product, otherwise the rate of return versus risk made the rates too high for home loans. That is where it ties into AIG type businesses and the oversight that involved our present Federal Reserve leader who approved of HOW the AIG companies operated.

It appeared to me that Congress created a competition for investors to choose between packages of private mortgages versus packages of mortgages secured by Uncle Sam (indirectly, considering the way Freddie & Fannie were set up). Private mortgages had to be secured = less risk/lower rates.
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kbp

Speaking of "friends", a gentleman I knew well from contracts I had done at a local college was hired by the RTC as #2 in charge over what I believe was a 4 state region. He made a killing and retired about 10 years sooner than he had anticipated before the S&L crisis.
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sdsgo

kbp
Aug 7 2010, 09:27 AM
Stupid is as stupid does!

I actually believe there is benefit to the idea behind Freddie & Fannie, but the politics that is involved destroy it.

I've never known of a mortgage that did not require PMI with less than 10% down, it used to be 20%. The absence of PMI certainly throws the risk into a totally different setting. There is no PRIVATE pool of funds to cover faulty notes then, well, none except the tax payers if that is how Fannie & Freddie operate.

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The VA loan program was introduced after World War II. Its purpose was to offer veterans the opportunity to own their own homes. The VA doesn't lend money or issue mortgages. Instead, it insures mortgages, protecting the lender against any loss if the borrower defaults. Because VA loans are guaranteed they're often easier to get.

VA loans are a good deal for several reasons. First, down payments are not required for VA loans. So it's a great option if you can't make a large down payment, or if you'd prefer to make a smaller down payment and keep some of your money in the bank.

There's also no PMI with a VA loan. PMI means "private mortgage insurance." If you pay less than 20% down on a conventional home loan, you'll have to pay PMI until you have at least 20% equity in your house. Because VA loans don't require 20% down, PMI isn't an issue

URL=http://www.loan.com/loans/are-va-loans-a-good-deal.html]Source[/URL]
Edited by sdsgo, Aug 7 2010, 01:26 PM.
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kbp

I have never dealt with any VA loan properties. I'm not sure what covers the costs related to the PMI, except for the VA itself.

The idea of the PMI is to cover the difference between the principal owed and what the foreclosed property sale recovers. Just like any insurance pool of funds, there has to be payments made for the policy if it is to coevr that risk.

Without PMI, or sufficient equity, the mortgage packages are less secure. That shifts the risk to either the investor holding the package or the party securing that package. Maybe Fannie & Freddie are paying for that risk also now!
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Baldo
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kbp
Aug 7 2010, 12:04 PM
Speaking of "friends", a gentleman I knew well from contracts I had done at a local college was hired by the RTC as #2 in charge over what I believe was a 4 state region. He made a killing and retired about 10 years sooner than he had anticipated before the S&L crisis.
That is exactly what my friend the underwriter said. The bundles of loans were packaged up at ridiculously low prices and sold by the RTC to a select few. In other words the properties were package at a cost way below a real value and basically given to preferred customers that the RTC had selected.

Who lost? We the People. Who lost in the sub-prime mess? We the people.

same old - same old. They are playing with funny money in DC,

Corruption in- Corruption out!

If the Republicans wanted to really win in Novemeber they would make a Contract with Amercia to fully investigate the Corruption & Fraud at Freddie & Fannie including the false loans and low qualifications made by everyone. No Republican, No Democrats would be safe. It should be transparent with full disclosure.

But I doubt it will happen. No one in DC really wants to look deeply, witness the 2 years that have gone by with little being done.
Edited by Baldo, Aug 7 2010, 03:24 PM.
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