RE: And you wonder where the problem is....

[Community Development Banking List]

Original message from: kjones@enterprisecommunity.com

Phyllis,

I absolutely agree with you. It has now become the media and popular opinion mantra that "Joe Homeowner" brought the Masters of the Universe to their knees. Not the Credit Default Swap that was essentially named as such to avoid the regulatory frame work of insurance. Not the CMBS that ads even more complication to unwinding the depth of the crisis.

It is deplorable that so many community development finance professionals believe the hype.

Kristyna


-----Original Message-----
From: bounce-3137412-4991700@list.cornell.edu on behalf of Myron Rosenblum
Sent: Sat 10/4/2008 11:02 PM
To: George Samuels
Cc: Chris Duncan; Community Banking; Gina Williams; Debbie Lehmen
Subject: Re: And you wonder where the problem is....

It is important to point out here that the problem's origin had nothing or extraordinarily little to do with the low and moderate income pressures put on Fannie Mae. It had a lot to do with Wall Street's discovery of a whole new animal--the subprime mortgage (usually a refi). This way of thinking (blaming it on minority lending or low mod lending) has been bogus from the beginning. As one of the former most outspoken critics of the subprime mortgage business (and left my wonderful job over it), and as one of the first to spearhead the use of the community homebuyer program of Fannie Mae, I feel sad indeed to read this on a web site full of community development professionals.

Phyllis Rosenblum (former head of Community Development at HSBC Bank USA).



On Oct 4, 2008, at 7:46 PM, George Samuels wrote:


What "problem" are you talking about in particular Mr. Duncan? The current credit crisis?

And is this article suppose to sum it up? I don't think so.

There is something called asset valuation. Wall Street is responsible for that part.

Yes the spigot was open and running, but it was the market's responsibility to price these mortgage assets accordingly......it did not. It overpriced them, and people, top level people, ran away with billions of dollars.

We are bailing out Wall Street here. The taxpayer will get nothing, despite all the "sugar-coated" stuff we hear. Many Americans have already lost their homes and their savings. The stories are endless, as I have mentioned before. We can go around the country, and we will find millions that were duped out of millions.

This article only brings to light a small part of the problem, not the major force behind it.

George








________________________________

From: chris@jumbocdi.com
To: communitydevelopmentbanking-l@cornell.edu
CC: gina@uarkfcu.com; debbie@dakotalandfcu.com
Subject: And you wonder where the problem is....
Date: Fri, 3 Oct 2008 06:39:22 -0700


Here is an article from 1999 that was published in the NYT. I think it almost says it all. Bolding is mine.

Chris Duncan :O)

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
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 addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
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.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

***********************************
Here is the link to the article. http://query.nytimes.com/gst/fullpag...=&pagewanted=1

Chris Duncan

Jumbo C.D. Investments, Inc.
Dixon, CA
1-800-234-4605
www.jumbocdinvestments.com <http://www.jumbocdinvestments.com/>
www.jumbocdinvestments.com/cd_rates_blog

Securities offered through Gill Capital Partners, Inc.
Member: FINRA - SIPC

Life is not measured by the number of
breaths we take but by the moments that
take our breath away.


CDB list instructions http://www.runonthebank.net/cdblist.htm


________________________________

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[Community Development Banking List]

Original message from: ejdodson@comcast.net

On 10/4, Phyllis Rosenblum wrote:

It is important to point out here that the problem's origin had nothing or
extraordinarily little to do with the low and moderate income pressures put
on Fannie Mae. It had a lot to do with Wall Street's discovery of a whole
new animal--the subprime mortgage (usually a refi). This way of thinking
(blaming it on minority lending or low mod lending) has been bogus from the
beginning. As one of the former most outspoken critics of the subprime
mortgage business (and left my wonderful job over it), and as one of the
first to spearhead the use of the community homebuyer program of Fannie Mae,
I feel sad indeed to read this on a web site full of community development
professionals.

Phyllis Rosenblum (former head of Community Development at HSBC Bank USA).

Ed Dodson here:
HSBC was, as you indicate, one of the lenders who embraced Fannie Mae's
Community Homebuyer initiative. As you undoubtedly recall, coming up with
the eligibility and creditworthiness criteria for this business involved an
enormous amount of discussion. This part of the business did require a
moderate amount of subsidy, as pricing for the increased risk would have
made the mortgage loans less affordable for people who needed the benefits
of lower down payments, higher qualifying ratios, and acceptance of lower
credit scores. Most of us expected a higher rate of delinquency from these
loans, which is why a high level of effort was made to make substantive
homebuyer education available.

The journalists and analysts covering the mortgage meltdown have not taken
the time to distinguish between Alt-A business, the sub-prime market and
predatory lending practices. For quite a few years, many states (thru their
banking commissioners) tried to respond to complaints of predatory lending,
but in my experience did not have the resources to prioritize prosecution of
those guilty of fraud. We all know of the cases of mortgage brokers forced
to close down in one state and showing up under a new name somewhere else to
continue taking advantage of people.

The GSEs and FHA were guilty of adding fuel to the speculative nature of the
market. By increasing their maximum loan amounts each year in response to
the increase in median housing prices, the pool of potential homebuyers was
propped up and housing (actually, land) prices were pulled up even more.
Then, the necessary response was to find ways to approve buyers with lower
down payments, higher ratios, little funds in the bank after closing, etc.
etc.

Although I retired early in 2005, it was already clear to many of us at
Fannie Mae that the emergence of the giant mortgage lenders, such as
Countrywide, made it increasingly difficult to impose discipline on such
lenders. When 80% or 90% of your business is coming from fewer than ten
lenders, the pressure to grant variances and to chase lower guarantee fees
than risk models indicate are appropriate is very real.

[Community Development Banking List]

Original message from: roseviola@earthlink.net

Ed,
I appreciate your thoughtful reply. It would probably be helpful to
know what % of the failed mortgages are mortgages that ever touched
Fannie/Freddie. I suspect it isn't the overwhelming number. The
subprime business was so much refi business. Often the victims were
refinanced out of conventional mortgages and into the new subprime
stuff. This type of data is hard to get at. I have been in
conversations a few years ago (2005 and early 2006) with analysts at
major Wall Street firms trying to work with activists and others that
indicated this wasn't the Fannie/Freddie business at all. This is
just my hunch coupled with their insights.

While I am sure I oversimply here I remain convinced that Wall
Street's greed really drove this engine beyond anyone's wildest
dreams. Why else did they start buying the originators of the
subprime garbage? they didn't want middle men like Fannie any
longer. It galled me then and it galls me now.

Thanks.

Phyllis

On Oct 7, 2008, at 10:33 AM, Edward Dodson wrote:

On 10/4, Phyllis Rosenblum wrote:

It is important to point out here that the problem's origin had
nothing or
extraordinarily little to do with the low and moderate income
pressures put
on Fannie Mae. It had a lot to do with Wall Street's discovery of a
whole
new animal--the subprime mortgage (usually a refi). This way of
thinking
(blaming it on minority lending or low mod lending) has been bogus
from the
beginning. As one of the former most outspoken critics of the
subprime
mortgage business (and left my wonderful job over it), and as one of
the
first to spearhead the use of the community homebuyer program of
Fannie Mae,
I feel sad indeed to read this on a web site full of community
development
professionals.

Phyllis Rosenblum (former head of Community Development at HSBC Bank
USA).

Ed Dodson here:
HSBC was, as you indicate, one of the lenders who embraced Fannie
Mae's
Community Homebuyer initiative. As you undoubtedly recall, coming up
with
the eligibility and creditworthiness criteria for this business
involved an
enormous amount of discussion. This part of the business did require a
moderate amount of subsidy, as pricing for the increased risk would
have
made the mortgage loans less affordable for people who needed the
benefits
of lower down payments, higher qualifying ratios, and acceptance of
lower
credit scores. Most of us expected a higher rate of delinquency from
these
loans, which is why a high level of effort was made to make
substantive
homebuyer education available.

The journalists and analysts covering the mortgage meltdown have not
taken
the time to distinguish between Alt-A business, the sub-prime market
and
predatory lending practices. For quite a few years, many states
(thru their
banking commissioners) tried to respond to complaints of predatory
lending,
but in my experience did not have the resources to prioritize
prosecution of
those guilty of fraud. We all know of the cases of mortgage brokers
forced
to close down in one state and showing up under a new name somewhere
else to
continue taking advantage of people.

The GSEs and FHA were guilty of adding fuel to the speculative
nature of the
market. By increasing their maximum loan amounts each year in
response to
the increase in median housing prices, the pool of potential
homebuyers was
propped up and housing (actually, land) prices were pulled up even
more.
Then, the necessary response was to find ways to approve buyers with
lower
down payments, higher ratios, little funds in the bank after
closing, etc.
etc.

Although I retired early in 2005, it was already clear to many of us
at
Fannie Mae that the emergence of the giant mortgage lenders, such as
Countrywide, made it increasingly difficult to impose discipline on
such
lenders. When 80% or 90% of your business is coming from fewer than
ten
lenders, the pressure to grant variances and to chase lower
guarantee fees
than risk models indicate are appropriate is very real.

[Community Development Banking List]

Original message from: ejdodson@comcast.net



Paul Turney wrote:

Being an advocate for affordable homeownership for low-income households
(who can afford their mortgage payment) I would like to know what
percent of the failed mortgages are actually attributable to low income
borrowers. It is hard to believe the media regardless of who you choose
to listen to or read. Any hard data available on that one?

Ed Dodson here:
See the news story below, which sheds some light on the situation.

***

WASHINGTON, DC, Sep 25, 2008 (MARKET WIRE via COMTEX) -- New analysis of
loan performance of mortgages made to low-income homeowners who have
participated in homeownership education programs through NeighborWorks
organizations shows a foreclosure start rate that is twenty (20) times less
severe than that for subprime borrowers, and three (3) times better than the
prime mortgage market.

"The facts tell the real story," said Kenneth D. Wade, CEO of NeighborWorks
America. "The vast majority of mortgages facilitated by NeighborWorks
organizations are to buyers with low- and moderate-incomes and less than
perfect credit scores, yet by providing quality mortgage advice these
homeowners have been able to sustain homeownership during the most severe
housing crisis since the Great Depression."

Comparing foreclosure data provided by the Mortgage Bankers Association,
NeighborWorks shows that while its own loan portfolio had a foreclosure
start rate of 0.21 percent in the second quarter of 2008, the overall
market's foreclosure start rate was 1.08 percent, more than five times as
great.

Moreover, NeighborWorks mortgages hold up very well against a comparison to
only the conventional conforming market. According to the MBA, the
foreclosure start rate for conventional conforming mortgages was 0.61
percent in the second quarter, compared again to 0.21 percent for
NeighborWorks mortgages.

"NeighborWorks organizations have a track record of providing one-on-one
mortgage advice, encouraging homebuyers to avoid loans that they can not
afford for the long-term," said Wade. "That dedication to community
stability and strength is the foundation of what we're doing in more than
4,400 communities around the country every day.
"The idea that some observers now are pointing to low income people as the
cause of the financial crisis we're facing today is just wrong."

[Community Development Banking List]

Original message from: pturney@bvahc.org

Being an advocate for affordable homeownership for low-income households
(who can afford their mortgage payment) I would like to know what
percent of the failed mortgages are actually attributable to low income
borrowers. It is hard to believe the media regardless of who you choose
to listen to or read. Any hard data available on that one?

Paul Turney
4001 E. 29th St., Ste. 180
PO Drawer 4128
Bryan, TX 77805-4128
979 / 595 / 2809 ext. 5 phone
979 / 595 / 2816 fax
979 / 777 / 1915 cell

-----Original Message-----
From: bounce-3147348-4989726@list.cornell.edu
[mailto:bounce-3147348-4989726@list.cornell.edu] On Behalf Of Myron
Rosenblum
Sent: Tuesday, October 07, 2008 9:52 AM
To: Edward Dodson
Cc: 'George Samuels'; 'Chris Duncan'; 'Community Banking'; 'Gina
Williams'; 'Debbie Lehmen'
Subject: Re: And you wonder where the problem is....

Ed,
I appreciate your thoughtful reply. It would probably be helpful to
know what % of the failed mortgages are mortgages that ever touched
Fannie/Freddie. I suspect it isn't the overwhelming number. The
subprime business was so much refi business. Often the victims were
refinanced out of conventional mortgages and into the new subprime
stuff. This type of data is hard to get at. I have been in
conversations a few years ago (2005 and early 2006) with analysts at
major Wall Street firms trying to work with activists and others that
indicated this wasn't the Fannie/Freddie business at all. This is
just my hunch coupled with their insights.

While I am sure I oversimply here I remain convinced that Wall
Street's greed really drove this engine beyond anyone's wildest
dreams. Why else did they start buying the originators of the
subprime garbage? they didn't want middle men like Fannie any
longer. It galled me then and it galls me now.

Thanks.

Phyllis

On Oct 7, 2008, at 10:33 AM, Edward Dodson wrote:

On 10/4, Phyllis Rosenblum wrote:

It is important to point out here that the problem's origin had
nothing or
extraordinarily little to do with the low and moderate income
pressures put
on Fannie Mae. It had a lot to do with Wall Street's discovery of a
whole
new animal--the subprime mortgage (usually a refi). This way of
thinking
(blaming it on minority lending or low mod lending) has been bogus
from the
beginning. As one of the former most outspoken critics of the
subprime
mortgage business (and left my wonderful job over it), and as one of
the
first to spearhead the use of the community homebuyer program of
Fannie Mae,
I feel sad indeed to read this on a web site full of community
development
professionals.

Phyllis Rosenblum (former head of Community Development at HSBC Bank
USA).

Ed Dodson here:
HSBC was, as you indicate, one of the lenders who embraced Fannie
Mae's
Community Homebuyer initiative. As you undoubtedly recall, coming up
with
the eligibility and creditworthiness criteria for this business
involved an
enormous amount of discussion. This part of the business did require a
moderate amount of subsidy, as pricing for the increased risk would
have
made the mortgage loans less affordable for people who needed the
benefits
of lower down payments, higher qualifying ratios, and acceptance of
lower
credit scores. Most of us expected a higher rate of delinquency from
these
loans, which is why a high level of effort was made to make
substantive
homebuyer education available.

The journalists and analysts covering the mortgage meltdown have not
taken
the time to distinguish between Alt-A business, the sub-prime market
and
predatory lending practices. For quite a few years, many states
(thru their
banking commissioners) tried to respond to complaints of predatory
lending,
but in my experience did not have the resources to prioritize
prosecution of
those guilty of fraud. We all know of the cases of mortgage brokers
forced
to close down in one state and showing up under a new name somewhere
else to
continue taking advantage of people.

The GSEs and FHA were guilty of adding fuel to the speculative
nature of the
market. By increasing their maximum loan amounts each year in
response to
the increase in median housing prices, the pool of potential
homebuyers was
propped up and housing (actually, land) prices were pulled up even
more.
Then, the necessary response was to find ways to approve buyers with
lower
down payments, higher ratios, little funds in the bank after
closing, etc.
etc.

Although I retired early in 2005, it was already clear to many of us
at
Fannie Mae that the emergence of the giant mortgage lenders, such as
Countrywide, made it increasingly difficult to impose discipline on
such
lenders. When 80% or 90% of your business is coming from fewer than
ten
lenders, the pressure to grant variances and to chase lower
guarantee fees
than risk models indicate are appropriate is very real.

[Community Development Banking List]

Original message from: Staci.Glenn@huntington.com

But isn't the key to this report that the borrowers attended a
homeownership training program first? Our loans, that involve a
non-profit and homeownership counseling, always have performed better
than those that have not had an active non-profit partner involved in the
process and a homeownership education program. I wonder what the numbers
are when there is no homeownership counseling involved?


Staci Glenn-Short
Community Development Director
The Huntington National Bank
Community Development
7575 Huntington Park Drive - HM2324 * Columbus, OH 43235
Office: 614-480-6065
www.Huntington.com



"Edward Dodson" <ejdodson@comcast.net>
Sent by: bounce-3150756-8116506@list.cornell.edu
10/07/2008 06:37 PM
Please respond to
"Edward Dodson" <ejdodson@comcast.net>


To
"'Paul Turney'" <pturney@bvahc.org>, "'Myron Rosenblum'"
<roseviola@earthlink.net>
cc
"'George Samuels'" <georgey10@hotmail.com>, "'Chris Duncan'"
<chris@jumbocdi.com>, "'Community Banking'"
<communitydevelopmentbanking-l@cornell.edu>, "'Gina Williams'"
<gina@uarkfcu.com>, "'Debbie Lehmen'" <debbie@dakotalandfcu.com>
Subject
RE: And you wonder where the problem is....








Paul Turney wrote:

Being an advocate for affordable homeownership for low-income households
(who can afford their mortgage payment) I would like to know what
percent of the failed mortgages are actually attributable to low income
borrowers. It is hard to believe the media regardless of who you choose
to listen to or read. Any hard data available on that one?

Ed Dodson here:
See the news story below, which sheds some light on the situation.

***

WASHINGTON, DC, Sep 25, 2008 (MARKET WIRE via COMTEX) -- New analysis of
loan performance of mortgages made to low-income homeowners who have
participated in homeownership education programs through NeighborWorks
organizations shows a foreclosure start rate that is twenty (20) times
less
severe than that for subprime borrowers, and three (3) times better than
the
prime mortgage market.

"The facts tell the real story," said Kenneth D. Wade, CEO of
NeighborWorks
America. "The vast majority of mortgages facilitated by NeighborWorks
organizations are to buyers with low- and moderate-incomes and less than
perfect credit scores, yet by providing quality mortgage advice these
homeowners have been able to sustain homeownership during the most severe
housing crisis since the Great Depression."

Comparing foreclosure data provided by the Mortgage Bankers Association,
NeighborWorks shows that while its own loan portfolio had a foreclosure
start rate of 0.21 percent in the second quarter of 2008, the overall
market's foreclosure start rate was 1.08 percent, more than five times as
great.

Moreover, NeighborWorks mortgages hold up very well against a comparison
to
only the conventional conforming market. According to the MBA, the
foreclosure start rate for conventional conforming mortgages was 0.61
percent in the second quarter, compared again to 0.21 percent for
NeighborWorks mortgages.

"NeighborWorks organizations have a track record of providing one-on-one
mortgage advice, encouraging homebuyers to avoid loans that they can not
afford for the long-term," said Wade. "That dedication to community
stability and strength is the foundation of what we're doing in more than
4,400 communities around the country every day.
"The idea that some observers now are pointing to low income people as the
cause of the financial crisis we're facing today is just wrong."

[Community Development Banking List]

Original message from: chris@jumbocdi.com

George,

First, the NYT has never been accused of being a friend of conservatives. However, I was not trying to point political blame.

Second, yes the current crisis has roots that go way back. The article even warned that in an economic down turn the loan portfolio that Freddie/Fannie were building could prove problematic. I would say that it did. And as we now know, it has gone far beyond those two companies.

Next, I think the most important point is Gov't pressure and stock holder pressure don't fair well together. The Gov't wanted more loans, but the stock holders didn't want to make less money. Although, I do feel that many CEOs are making excessive salaries, should the Gov't be in the business of telling people how much they can make? I don't think so. Bill Gates has made billions of dollars , but he also set up a foundation give back large sums of money. The board of directors sets compensation based on the rewards they expect the leaders of those companies to be able produce. I would say, boards should be evaluatiing the current and future packages, long and hard.

You said Wall Street was responsible for the asset valuation part of the equation. Certainly, they were. Although, who could have predicted that 1% to 2% of loans could prove so toxic? Loans to sub-prime borrowers used to be valued at 3% to 4% above folks with good credit. It would appear that, that spread more accurately reflects the risk that is being taken for those loans.

For the record, and I have written before, I was not and am not a fan of the bail-out. Although, you speak of people losing homes and their life savings. I heard many small to medium business owners express that they would lose their businesses and more without the bail-out and the credit market returning to normalacy.

Finally, I leave you with a comment from someone that opted to be annonymous and a quote.

"Maeve left out one very important responsible party.... THE PEOPLE who took out mortgages in an effort to 'Jones' and live beyond their means. I am a big proponent of personal responsibility. I'm sorry but bad offers don't make bad decisions; just because there out there doesn't mean you have to take them! Maybe Maeve was referring to this with # 5 a little bit. But I think we have to say it more clearly and louder! Take responsibility for yourself!!!!!"
"To be free, to soar, we must be accountable for our lives."
--Unknown

Chris Duncan

Jumbo C.D. Investments, Inc.
Dixon, CA
1-800-234-4605
www.jumbocdinvestments.com
www.jumbocdinvestments.com/cd_rates_blog

Securities offered through Gill Capital Partners, Inc.
Member: FINRA - SIPC

Life is not measured by the number of
breaths we take but by the moments that
take our breath away.



----- Original Message -----
From: Tom Bostelmann
To: George Samuels
Cc: Chris Duncan ; Community Banking ; Gina Williams ; Debbie Lehmen
Sent: Saturday, October 04, 2008 8:19 PM
Subject: Re: And you wonder where the problem is....


This is a good point, George. And I don't think Chris was necessarily pointing all the blame towards the Clinton administration.

I do like this article, though, because it does point out that this has been growing for a while and isn't necessarily systemic of the current administration. I'm a democrat and I've been mailing this around to all of my friends in an attempt to reign in on all the finger pointing.

The last election was full of two-sided animosity and look what happened? I don't think we can afford more accusations - nobody listens to them anyway.

Plus, this list is probably better served if we leave the political spin out

Tom


On Sat, Oct 4, 2008 at 4:46 PM, George Samuels <georgey10@hotmail.com> wrote:

What "problem" are you talking about in particular Mr. Duncan? The current credit crisis?

And is this article suppose to sum it up? I don't think so.

There is something called asset valuation. Wall Street is responsible for that part.

Yes the spigot was open and running, but it was the market's responsibility to price these mortgage assets accordingly......it did not. It overpriced them, and people, top level people, ran away with billions of dollars.

We are bailing out Wall Street here. The taxpayer will get nothing, despite all the "sugar-coated" stuff we hear. Many Americans have already lost their homes and their savings. The stories are endless, as I have mentioned before. We can go around the country, and we will find millions that were duped out of millions.

This article only brings to light a small part of the problem, not the major force behind it.

George









----------------------------------------------------------------------------
From: chris@jumbocdi.com
To: communitydevelopmentbanking-l@cornell.edu
CC: gina@uarkfcu.com; debbie@dakotalandfcu.com

Subject: And you wonder where the problem is....

Date: Fri, 3 Oct 2008 06:39:22 -0700



Here is an article from 1999 that was published in the NYT. I think it almost says it all. Bolding is mine.

Chris Duncan :O)

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
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 addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
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.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

***********************************
Here is the link to the article. http://query.nytimes.com/gst/fullpag...=&pagewanted=1

Chris Duncan

Jumbo C.D. Investments, Inc.
Dixon, CA
1-800-234-4605
www.jumbocdinvestments.com
www.jumbocdinvestments.com/cd_rates_blog

Securities offered through Gill Capital Partners, Inc.
Member: FINRA - SIPC

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breaths we take but by the moments that
take our breath away.


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[Community Development Banking List]

Original message from: ejdodson@comcast.net

Josh Silver wrote:

I agree with the other commentary that Fannie and Freddie did not cause the
problem. Instead, it was a mixture of perverse compensation systems for
brokers and an avoidance of negative externalities...brokers and lenders
could quickly selll their loans to hundreds of investors and avoid
significant losses for making loans beyond borrower repayment ability. The
surge in the most problematic lending occured far after 1999....when Wall
Street turned on the spigot of financing and MBS vehicles. The worst
lending occured between 2004 and 2007 when the option ARM, 2/28 and 3/27
ARMs were seized upon as a vehicle.

Ed Dodson:
Another part of the equation was a commitment on the part of the GSEs to
enable smaller mortgage banking firms to compete, and thereby diversify the
lender base producing the business. The problem, of course, was that many
small firms did not have sufficient capital to honor recourse obligations
when a loan defaulted and was found not to meet the terms of a contract or
creditworthiness standards. Moreover, it was always a struggle getting firms
to perform internal quality control on their originations. The way Fannie
and Freddie tried to overcome these shortcomings to move to automated
underwriting systems and electronic delivery of documentation, etc.

It is worth mentioning that a first-time homebuyer making use of Community
Homebuyer provisions was not eligible for an ARM.

[Community Development Banking List]

Original message from: ejdodson@comcast.net

Phyllis Rosenblum wrote:

Ed,
I appreciate your thoughtful reply. It would probably be helpful to
know what % of the failed mortgages are mortgages that ever touched
Fannie/Freddie. I suspect it isn't the overwhelming number. The
subprime business was so much refi business. Often the victims were
refinanced out of conventional mortgages and into the new subprime
stuff. This type of data is hard to get at. I have been in
conversations a few years ago (2005 and early 2006) with analysts at
major Wall Street firms trying to work with activists and others that
indicated this wasn't the Fannie/Freddie business at all. This is
just my hunch coupled with their insights.

While I am sure I oversimply here I remain convinced that Wall
Street's greed really drove this engine beyond anyone's wildest
dreams. Why else did they start buying the originators of the
subprime garbage? they didn't want middle men like Fannie any
longer. It galled me then and it galls me now.

Ed Dodson here:
The reasons for the problems we are experiencing are very complex, and do
involve the failure of regulators (and the lawmakers) to effectively put
controls over the private placement end of the securitization business.

We might recall the near-meltdown of the global financial system that
occurred when LDC after LDC was unable to repay debt made by the banks
during the 1970s run-up in oil and commodity prices. One aspect of the
problem that runs parallel to the residential mortgage world is that
commissions were and are paid to money brokers based on how much money they
move and not how much gets repaid. My recommendation is that all mortgage
originators be paid a salary, plus a bonus based on the ongoing performance
of the loans they originate. Mortgage brokers ought to be licensed and
bonded.

The article in the New York Times about Fannie Mae contains statements
attributed to individuals at Fannie Mae concerning the pressures put on Dan
Mudd by Angelo Mussilo of Countrywide. I cannot speak to the extent to which
these are factual, but I can say that this type of pressure came from some
of Fannie's major customers. There was always a constant strategy of
maintaining a high but not too high market share against Freddie Mac. And,
increasingly, responding to the competitive challenge of the Federal Home
Loan Banks, which were not subject to the same level of oversight and
capital requirements. One can look also at the various FASB rulings and how
these were relied upon to value assets and record revenue streams.

Another element in the financial picture has not been discussed at all. This
is the pressure to produce profits from transactions volume rather than
spreads of interest income over cost of funds. The economics of mortgage
lending and servicing constantly narrowed the profit associated with each
loan, so that revenue could only be made up in volume. The added risk
component was that each mortgage loan was being made at higher and higher
loan-to-value ratios and at higher loan amounts, leaving very little cushion
in the event of a downturn in the economy.