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Originally Posted by SunsetSail
I certainly wasn't talking about the housing bubble in my post. I noted that I thought that government intervention caused the problems we are seeing in the mortgage market as noted by the OP. The Fannie Mae, Freddie Mac, and the CRA post was in response to a request if I had evidence that government intervention was creating these problems.
I specifically addressed the problems of mortgage lending in the US market, so citing US agencies and legislation seems logical to me. I could see how someone might read my post and infer that I thought part of what caused home prices to rise was an exodus of money from equity markets (even though this would be a gross oversimplification), but I can't see how anyone could read my post to even remotely imply that I thought Fannie Mae, Freddie Mac, and the CRA caused a world-wide housing bubble.
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OK, fair enough. I posted that data to show the rise, and current fall in prices worldwide. It's hard to get consistent international data on default rates, or the equivalent for home financing instruments worldwide, just because the definitions change with the common practices and current laws in each country. The fact that home prices hit a bubble worldwide, and are now dropping at a good clip does indicate that perhaps a problem exists worldwide.
So, lets just look at the US market. We can divide mortgage financing into two pools, those made under the Community Reinvestment Act (CRA), or which were financed through 'easy credit' from Fannie Mae/Freddie Mac GSEs and a pool of financing made through mortgage service companies not subject to federal supervision and banks or thrifts not subject to routine supervision or examinations.
It turns out that about half of all subprime loans were made by the mortgage service companies in that second pool, and another 30% were made by banks and thrifts in that second pool. About 20% of the subprime loans were CRA or GSE backed.
Nothing in the CRA or the GSes required 'No Money Down' mortgages, or insanity such as moving the Loan to Value ratio from 80% up to 120%.
No legislation made the ratings agencies (Fitch, Moody's, S&P) assign AAA ratings to securitized junk paper.
We can also look at the biggest problem areas: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida; San Diego, California. These are affluent, non-minority regions, with high default rates and a massive decline in home values. I don't see how the CRA can be blamed here.
Let's look at what sorts of mortgages are showing higher delinquency rates; Cheaper mortgages that include GSE backed or CRA loans, or the million dollar-plus market. There's a chart the NY Times put together from CoreLogic.
Um. One in seven of the million dollar plus mortgages for owner occupied homes are delinquent? Those aren't CRA or GSE loans.
No, if you want to find the cause of the mortgage market problems, it's not government intervention. It's shortsighted speculation, greed, and sloppiness on the part of folks writing loans, folks cheating on loan applications (often with the help of folks writing the loans), folks fudging the appraisals in exchange for more business, folks fudging the rating of loans for securitization, folks cutting deals to line their pockets while dumping AAA rated junk on other folks who didn't take the time to understand what they were buying, and generally too damn much cash sloshing about to tempt the greedy and stupid. Feel free to blame the government, or at least the Fed, for the cash supply. The lenders were clearly irresponsible, for which I blame their management. A low level of regulatory oversight may have encouraged them, but their management clearly encouraged or permitted some pretty stupid behavior.
Here's a nice timeline that shows how we helped move the situation along in this country. Similar activity can be found for Euro-land and other places around the world.
A Memo Found in the Street - Barrons.com
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