From Stark:
Back in June 2005, the Federal Open Market Committee, a key component of the Federal Reserve system, discussed an ominous real estate bubble that was building in south Florida.
The Federal Reserve has just now released a transcript of that meeting, and the invaluable Calculated Risk blog has already offered some highlights.
The transcript runs to 171 pages and I don’t plan to speed-read it this afternoon. But it contains some interesting insights into our recent civil conversation here about the role of Fannie and Freddie, aka “The GSEs” in the housing bubble.
Among other things, the committee members note that the “interest only” loans that were causing concern were being transferred to private bond investors, not to Fannie and Freddie.
Maybe some of you would enjoy studying it over the weekend and reporting back here next week. 
Coming from the federal reserve makes it a little (more than!) suspect and I’s hate homework, but if you insist!!!!
AFY!!theheelotsheepdog!!!
Mortgage securitization and the failure of the ratings agencies to perform proper risk assessment on CDO’s and even worse, Mezzanine CDO’s coupled with no shortage of buyers looking for ‘AAA’ rated securities and a corrupt banking system led to the bubble.
Read ‘The Big Short’ by Michael Lewis.
Just reading the first page in the link why would anyone build or lend in such an environment?? With the large number of bank failures it appears that not all were able to securitize and sell off their loans. We are all victims of a tremendous number of unsophisticated lenders who literally bought into the developers dreams and visions.
Had the ratings houses done their job,
or if they’d been paid by the buyers of the securities instead of the brokers,
nobody woulda bit on the risky garbage they contained.
At least not unknowingly.
“It is hard to believe, but it looks like the government will soon use the taxpayers’ checkbook again to create a vast market for mortgages with low or no down payments and for overstretched borrowers with blemished credit. As in the period leading to the 2008 financial crisis, these loans will again contribute to a housing bubble, which will feed on government funding and grow to enormous size. When it collapses, housing prices will drop and a financial crisis will ensue. And, once again, the taxpayers will have to bear the costs.
In doing this, Congress is repeating the same policy mistake it made in 1992. Back then, it mandated that Fannie Mae and Freddie Mac compete with the Federal Housing Administration (FHA) for high-risk loans. Unhappily for both their shareholders and the taxpayers, Fannie and Freddie won that battle……
Since the federal takeover of Fannie and Freddie in 2008, the government-sponsored enterprises’ (GSEs’) regulator has limited their purchases to higher-quality mortgages. Affordable housing requirements Congress adopted in 1992 and the Department of Housing and Urban Development (HUD) administered until 2008 have been relaxed. These had required Fannie and Freddie to buy the low-quality mortgages that ultimately drove them into insolvency and will cause enormous losses for the taxpayers……
What is the answer? The Dodd-Frank Act needs significant amendment, so that it applies quality standards to FHA and other government agencies. This should not seriously impair credit availability for low-income borrowers with good credit. For many years, until it had to compete with Fannie and Freddie for affordable loans, FHA had reasonably good standards for the mortgages it would insure. As late as 1990, only 4 percent of the loans it insured had down payments of 3 percent or less, though by 2008 this number was 44 percent.
Establishing reasonable lending standards for the FHA, while still allowing it to make loans to low-income borrowers, would assure that the agency does not become the unworthy successor to Fannie and Freddie.
Dodd-Frank was badly designed in numerous ways. Many observers have noted that it did not address the government housing policies that caused the financial crisis. A first order of business for the new Congress should be to correct this error by requiring that the FHA and other government mortgage lenders abide by reasonable mortgage lending standards.
http://www.american.com/archive/2010/november/how-the-government-is-creating-another-housing-bubble
AFY!!theheelotsheepdog!!!
Dr. Housing Bubble is an interesting blog that follows real estate prices in southern California:
http://bit.ly/gVPFoh
“Financially dreaming in California – 50 percent of California households with a mortgage cannot afford the home they are living in. The lingering effects of Alt-A mortgages and negative equity.”
Yes,
It isn’t the widespread fraud of Collateralized Debt Obligations,
or even the junk sold worldwide as AAA Mortgage Backed Securities,
it’s the format of the mortgage sold to the homeowner at an inflated LTV!
The Public secondary market for sub-prime mortgages didn’t exist so private money and the lack of oversight allowed a huge profit for a very few players and put everyone’s equity at risk.
Now, anti-Fannie squawkers are hearing the single tune only they can justify.
How effen typical.