“…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.”

Selfless John McCAin… Brother!

Glad you like this format! It’s easier to maintain and is a cleaner look; I continue to get good feedback on it.

As I mentioned to Kevin here in the comments, I agree that the Federal Reserve is the key piece of the puzzle. I’ve written a good amount about the Fed in the past, and here I wanted to give an overview of the secondary mortgage market and the government’s obsession with “home ownership” stemming from Herbert Hoover (supposedly the laissez faire president who didn’t want to intervene in anything). Hoover had always seen home ownership as a worthy governmental endeavor since he became Secretary of Commerce, and not too many people know about this.

Anyway, I fully agree with your statements about the Fed and monetary policy. I wanted this article to focus more on the mortgage market and government’s ambitions in home ownership. I believe these policies would have been disastrous with or without the Fed, but there is no doubt the Fed played a major role in allowing this to go as far as it did.

Thanks for your comment!

Best,

David

I understand space is limited and with a subject like this it could take up a lot of pages.

You’re also right about being plenty of blame to spread around. The Bush administration is no angel in this matter, although they did realize there was a problem. I’m sure many people on both sides of the asile knew there were problems but either didn’t care, couldn’t do anything about it or even wanted it to continue.

I’ve read that much of the housing problems started under the Carter administration. I haven’t had time to research it, but maybe I will.

No doubt the Fed has it’s hands in this mess as well. All the more reason to audit their books! If the Fed didn’t have anything to hide, why not open their books…. I’m just saying.

Did you know the Fed made $76 Billion last year (or so I’ve heard) and the year before that they made $50 Billion +/-. That $50 Billion was the most money any company in the history of the world has ever made in one year. I would be willing to bet that $76 Billion is another record breaker. How come BP (i.e. Big Oil) gets slammed for obscene profits and yet people never hear a peep about the Fed??

I’ve got your CAPS blog bookmarked now, so we’ll definitely be staying in touch. Keep up the great work and if you ever want to collab on something do let me know; I’d love to help promote your work.

You’re certainly correct regarding the corruption this whole decade. Barney Frank has been a stalwart objector to transparency and accountability with government organizations, however I didn’t feel I had the space in this article to go into that.

Bush took similar positions to Bill Clinton on using government to lower lending standards, so it’s certainly not an issue of party. While Clinton pressured Fannie and Freddie, Bush primarily used the Federal Housing Administration (I believe FHA lending standards were lowered to the point that hundreds of thousands of people got loans regardless of their ability to pay them back. Nice idea, but we’re feeling the consequences of that today.)

There are many culprits responsible for growing the artificial housing bubble, the most major one I believe is the Federal Reserve which gave banks the extra liquidity to begin with. For this article I primarily wanted to focus on the agencies created in the Great Depression and the role they played in today’s collapse.

Thanks for mentioning Barney Frank and the other factors that helped get us to where we are today. If I ever get the time to write a longer piece on the housing situation I’ll be sure to mention them. I’m just trying to give people a basic overview of the secondary mortgage market and the understanding that there hasn’t been a free market in mortgages for a long time.

Thanks again for your comment! It’s much appreciated as always.

Do you think government intervention and lowering of lending standards didn’t play any part in the current mortgage mess? I think it’s clear that government involvement played a large role in creating the housing bubble and collapse. I didn’t mention the Federal Reserve in this article but artificially low interest rates had a major role in expanding banks liquidity, which they subsequently lent out in higher risk mortgages.

I appreciate the book tip, I’ll take a look! Thanks for your comment.

Rep. Barney Frank, a well known homosexual, had a partner who was the number two guy in (Freddie/Fannie?) at the time this was going on. Doesn’t this pose any ethical problems? Can you imagine a Republican whose wife was the number two person in charge of Freddie/Fannie and this happening?? Not to mention the fact that one of his friends/partners (I’m not sure which) was running a male prostitution ring out of one Barney’s homes. (He was cleared of any wrongdoing… I’m sure he’s totally innocent).

IMHO Barney Frank is one of the primary, if not the main reason we are in this housing debacle. He has stymied every attempt at correcting the housing problem and to this day the problem hasn’t been solved. It is only a matter of time before this comes back and hits us again.

Furthermore, Mr. Frank is the chairman of the House Financial Services Committee. Using his position he is personally blocking the audit of the Fed. Even thought 300+ Representatives and Senators want to audit the Fed, Mr. Frank can, as chairman, block this audit (or rather not bring a bill before congress).

On top of all this housing crap, they give the leadership (Franklin Raines and others) of Freddie/Fannie almost 100 million in bonuses. Of course it was proven they (Raines) were fraudulently doctoring the books and had to give a lot of the money back… BUT criminal charges were never filed AND Franklin Raines was “promoted” to another organization.

There is so much corruption at Freddie/Fannie it’s unbelievable.
http://en.wikipedia.org/wiki/Freddie_Mac

“Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac.” (can you say Barney Frank and others?)

One more interesting tidbit, the government now owns approximately 96% of all mortgages in the USA. Does that concern anyone besides me?

I know your time is limited, but keep digging on this housing “bubble” caused by government interference. There is a lot more to it than many people realize.

As you say, the government needs to get out of the housing market and let the Free Market do what it does best!