Q&A: Who really caused the sub-prime crises Democrats?

Question by america first: Who really caused the sub-prime crises Democrats?
The Subprime Debacle
by Dr. Kuni Michael Beasley
30 Years in Gestation

The Democrats are doing a lot to try to pin the subprime debacle on the Republicans and the Bush administration. However, there is a long tail to this problem that just happened to pop at this time.

Now, for the rest of the story. Definitions first.

Fannie Mae is the Federal National Mortgage Association (FNMA), founded in 1938 as a publically traded government sponsored enterprise (GSE) that is stockholder owned that makes loans and issue loan guarantees.
Its cousin is Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC), founded in 1970 as another GSE created to expand the secondary market for mortgages. Freddie Mac buys individual mortgages on the secondary market, pooled them into packages, and sold them to investors on the open market.

The secondary market packaged mortgages as collateral and issues securities called collateralized mortgage obligations (CMO) and collateralized debt obligations (CDO), to reduce the risk of individual loans. CMOs are a separate entity that is the actual legal owner of the mortgages it has in a “pool.” CMOs sell bonds to investors based on the value of the mortgages. Investors receive payments based on the increased value of the loans in the pool. The collateral for the bonds are the actual mortgages.

CDOs are a separate entity like CMOs, but are more focused on fixed income assets such as, but not limited to mortgages (and can include commercial mortgages and corporate loans). The focus is cash flow and slices (tranches) of these cash flows are sold to investors.

The subprime mortgage crisis surfaced first in 2007, but it had been incubating for years, indeed, decades. Though roots can be traced back to the New Deal legislation in the 1930’s, the current crisis actually draws its source from the Community Reinvestment Act (CRA) [1977] during the Carter administration that forced banks to lend money to less credit worthy clients. Lending institutions were evaluated to determine if it met the “credit needs of the community” and this was factored into regulatory decisions of the federal government such as applications for facilities, mergers, and acquisitions.

Interest in the CRA resurfaced in the Clinton administration when regulations in the CRA (which could be manipulated without any participation of congress) essentially forced institutions to offer loans to higher risk individuals and businesses. The term “Ninja” loans emerged describing high risk loans made to people with No Income, No Job, and no Assets, but completed a particular bank’s portfolio sufficient to keep federal regulators off their backs.

As access to easy money for high risk borrowers increased, certain institutions began to take advantage of these new opportunities to score fed points and make easy money. Name dropping here: Countrywide began to process, package, and offer investment instruments (CMOs) based on these loans. Revisions to the CRA by the Clinton administration allowed mortgage companies to offer loans without the relative reserve of deposits normally required of banks and other financial institutions.
In addition, this allowed for securitization of sub prime mortgages based on the pooling and packaging of cash-flow producing assets into securities that could be sold to investors – with the asset value not tagged to actual value of the property, but to the value of the cash flow produced by the asset held (sounds weird). The first public securitization of CRA loans was started in 1997 by (familiar name) Bear Stearns!

Now, let’s understand sub-prime loans for a moment. A sub-prime loan is a mortgage offered at a deep discount on interest the first year or two so the borrower could qualify for a larger loan and more expensive house, betting that their economic profile would get better and they could afford large payments later. Adjustable Rate Mortgages (ARMs) are a form of this where the entry rate is low and rises based on certain criteria such as the rates for government securities.

Simply put, lenders (not necessarily banks, but more often mortgage
companies) offered low cost, low entry rate mortgages to people who would not normally qualify for that amount of debt.

These loans were “warehoused” by financial institutions, where a financial institution like Merrill Lynch would set up a separate, but wholly owned mortgage company (First Franklin) to attract loans.
Merrill Lynch would retain control of the loans as a “trustee” or “servicer,” and derive benefits from fees for “managing” the loans and increase assets by keeping escrow deposits. In turn, these loans would be sold to Fannie Mae or Freddie Mac (who were assumed to guarantee the loans), who, in turn, repackaged them for the secondary market.

In 2003 the Bush administration tried to head-off what they saw as a potential crisis by moving the supervision of Fannie Mae and Freddie Mac under a new agency

Best answer:

Answer by Hater Police
Both parties are to blame AND financial companies AND consumers.

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Q&A: Do you agree this is what caused the economic crisis?

Question by what?: Do you agree this is what caused the economic crisis?
I found this on fact check

The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.

Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.

Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.

Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.

The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.

An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.


Best answer:

Answer by new mom
uh, yep that about sums it up

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Q&A: What caused the US to go into a recession?

Question by nothing: What caused the US to go into a recession?
Why do we have a recession in the US right now?
Thanks for all answers in advance!

Question #81

Question(s) that have been deleted by me because they weren’t numbered right- numbers 2, 16

Question(s) that have been found to be violations- numbers 40

Question(s) that were deleted because no one answered them- none yet

Best answer:

Answer by jason d
It started from the sub-prime lending. Basically countrywide and other large lenders were giving out mortgages to anyone that was applying for them. To transfer this risk on the buyer they often had adjustable rates built into them. As often happens after a couple years as interest rates rise so do the payments. Many of these households began defaulting on the loans. This was exascerbated since the companies like countrywide package mortgages up and sell them off in a process called securitization where they are supposed to classify them into tranches which are good/fair/poor quality. Well instead of classifying these correctly they lumped them all together. When large wallstreet firms like merrill lynch buy these securities and sell them to mutual funds investing in fixed income (like mortgages and bonds) these funds were buying poor quality misleading securities. As more people began defaulting on their loans a lot of people flee from the market to protect the equity they have left. This is exactly opposite what they should do, but investor psychology often gives way to these wild swings. So the government will continue to lower interest rates which will in turn get more people and more importantly businesses borrowing as it becomes a cheaper and cheaper source of financing to businesses. This in turn (theoretically) will lead to cheaper goods for consumers and ultimately get us spending more. Everything in economics is cyclicle.

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Q&A: has Obama repealed the Community Reinvestment Act yet, since it is what caused the crisis?

Question by Iceman: has Obama repealed the Community Reinvestment Act yet, since it is what caused the crisis?

It is the biggest thing. The subprime mortgage crisis was the foundation for this mess.
future fate – obviously you know nothing about the Community Reinvestment Act. Several economic experts point to this forcing banks to give out bad loans.

Best answer:

Answer by Believe in Possibilities
I wish it were that simple, but it is not what caused the crisis. That is right-wing propaganda.

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What caused the Subprime Mortgage Crisis that Caused 2008 Financial Disaster?

Question by Rocky: What caused the Subprime Mortgage Crisis that Caused 2008 Financial Disaster?
New Study Finds Democrats Fully to Blame for Subprime Mortgage Crisis that Caused 2008 Financial Disaster
Posted by Jim Hoft on Saturday, December 22, 2012, 9:48 AM

In his early activist days, Barack Obama the community organizer sued banks to ease lending practices.

State Sen. Barack Obama and Fr. Michael Pfleger led a protest against the payday loan industry demanding the State of Illinois to regulate loan businesses in January 2000. During his time as a community organizer Barack Obama led several protests against banks to make loans to high risk individuals. (NBC 5 Week of January 3, 2000)

Here’s something that won’t get any play in the liberal media…
A new study by the respected National Bureau of Economic Research found that Democrats are to blame for the subprime mortgage crisis.
Investor’s Business Daily reported:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

To satisfy CRA examiners, “flexible” lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

Republicans warned Democrats of the impending doom in 2004.
Fannie Mae/Freddie Mac Hearings 2004

But Democrats wouldn’t budge.



Best answer:

Answer by Darla
The Gramm(R) Bliley(R) Act of 1999.

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Q&A: Do conservatives really think this recession was caused by regulation?

Question by Wtfsthe Deal: Do conservatives really think this recession was caused by regulation?
Deregulation allowed the merger of banks that created banks that would be systemic risks if they failed
Deregulation allowed massive increases in financial liabilities of banks, through relaxed leverage limits, and led to insolvency after capital reserves decreased by just a few percent
Deregulation allowed the bribery of the ratings agencies
Deregulation allowed the fraudulent trading of derivatives
Deregulation allowed the securitization of mortgages, which encourages predatory lending
Deregulation allowed several insurance policies to be taken out on the same derivative, which brought AIG to its knees.

How on earth could anyone think that regulation caused this crisis?
Being forced? Are you really talking about the community reinvestment act? What a joke.

The securitzation of mortgages relieves local and investment banks from the responsibility if loans they make dont get paid. It placed all the responsibility on the investor and on AIG, and eventually became a system than encouraged the signing of sub prime loans, just to increase the volume of collateralized debt obligations being packaged and sold. It encourages predatory lending. Relaxed limits on leveraged allows banks to loan out as much as 30 times as much as they actually owned, as opposed to the normal 7 times before the conservatives had their way. If banks werent allowed to loan out that much money, as they hadnt been for years, a small decrease in their capital wouldnt have equated to a huge drop in their reserves to liabilities ratio, and they would have remained solvent and never even needed a bailout.
“What both sides fail to understand is that none of this would have happened if Congress didn’t change the laws set in place during the Great Depression.”

Republicans repealed those laws!!! Republicans repealed glass steagle, made derivatives illegal to regulate, and relaxed leverage limits!!! democrats understand it perfectly well.

Best answer:

Answer by shea c
its all Obama fault

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Why do people still think the economic meltdown was caused by Jimmy Carter’s Community Reinvestment Act?

Question by Change Now: Why do people still think the economic meltdown was caused by Jimmy Carter’s Community Reinvestment Act?
This is the most ignorant thing I have heard so far from this economic meltdown.

Don’t people know that securitization of residential and commercial mortgage and the out of control derivatives is what caused this mess.

The CRA contributed, but an extremely minor role. I heard that as little as 1 out of 20 bad mortgages were attributable to the these type of subprimes.

If someone can provide evidence to the contrary, I would be grateful.

Best answer:

Answer by Proud Texan
Fox fictional News and Rush Limbaugh told them to believe it without question.

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