>> > >> >>> >> >>>>> >> >>>>>>> >> >>>>>>>> So, Congress made (created) the sub-prime ("affordable
>> >>>>>>>> housing") loans and the market for them.
>> >>>>>>> No, Congress did not the F & F loans are the conforming ones.
>> >>>>>> Yet F^2 owns half the subprime mortgages, right?
>> >>>>>>>> Once these instruments were created, all sorts of
>> >>>>>>>> perverse derivatives, bets, and insurances were invented
>> >>>>>>>> to game all sorts of things, causing more mess and loss,
>> >>>>>>>> but those could not have existed or evolved without the
>> >>>>>>>> loans themselves: no dog, no fleas.
>> >>>>>>> The bulk of the loans wee not F & F loans
>> >>>>>> This is my understanding:
>> >>>>>>
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>> >>>>>> "Fannie Mae and Freddie Mac grew to become monsters,
>> >>>>>> accounting for nearly half of all U.S. mortgage loans.
>> >>>>>> At the time of their bailouts this month, they held
>> >>>>>> $5.4 trillion in loans on their books. About $1.4
>> >>>>>> trillion of those were subprime."
>> >>>>>> That's a /lot/ of junk (subprime) mortgages snapped up by F^2,
>> >>>>>> making a market for same.
>> >>>>> The Fannie Mae and Freddie Mac mortgages are not the "sub prime" ones.
>> >>>>>
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>> >>>>> The market in subprime mortgages is where the credit default swap etc
>> >>>>> I was talking about applied. The bubble was not in the mortgages
>> >>>>> themselves it was in the mortgage backed securities market.
>> >>>> It's actually in both, and the government's role is even
>> >>>> worse than you think. Freddie and Fannie were buying
>> >>>> sub-primes AND derivatives, driving the market for both
>> >>>> questionable sub-prime loans AND the risky, leveraged
>> >>>> gambling bets made on them, the derivatives, as clarified
>> >>>> here:
>> >>>> (from the Wall Street
Journal)
formatting link
> >>>> "Fannie and Freddie buy loans from lenders and package
>> >>>> them into securities, held in their own portfolios or
>> >>>> sold to investors world-wide. Neither company has been
>> >>>> a significant direct buyer of subprime loans. Instead,
>> >>>> they have bought AAA-rated portions of subprime-mortgage
>> >>>> securities packaged by Wall Street firms."
>> >>> Note the bit about neither being a significant buyer of sub prime
>> >>> loans. Your site is contradicting your suggestion about what they
>> >>> were doing. Yes F & F did buy some securities but these were "triple
>> >>> A" rated ones. This means that the ratings agencies called them "as
>> >>> safe as can be".
>> >>> This is a case of the folks at F & F trusting the ratings agencies.
>> >> Maybe you're skimming over this, but The Wall Street Journal
>> >> quote above says Freddie & Fannie bought:
>>
>> >> a) sub-prime-mortgages that had been
>> >> b) packaged into securities, then
>> >> c) hedged (i.e., assured / "insured" with
>> >> one of a selection of perverse gambles)
>>
>> > No I did not skim over that. That is the mortgage backed securities
>> > that had been through the swap and tronc process several times.
>>
>> >> to produce a combined product that was supposed
>> >> to be AAA-quality.
>>
>> > The "supposed to be" triple A quality is where you seem to have missed
>> > an important point. There are ratings agencies like Standard & Poor's
>> > that rate these things they are not the folks who did the transactions
>> > they are independent companies that are paid to rate bonds etc. It
>> > was in the opinion of these agencies that that the triple A rating was
>> > given.
>>
>> I think we're addressing different issues. I was supporting
>> my original contention: that Congress promoted both sub-prime
>> lending (via the CRA), and the market for sub-prime loans
>> (via F & F).
>
>You used the term "drove the market". I am suggesting that the F & F
>problem may have been the lit match but it wasn't the pool of
>gasoline. There is no doubt that F & F were part of the problem but
>not the reason that the entire credit markets were knocked for a loop.
>
>
>> You seem to be focused on the fact that Freddie and Fannie
>> mostly bought AAA-rated mortgage-backed securities, and not
>> literally sub-prime loans.
>>
>> Whether they bought raw sub-prime mortgages or instruments
>> based on sub-prime mortgages, or merely guaranteed these
>> instruments, doesn't matter to the question of F & F
>> artificially facilitating and driving the market--any
>> one of these actions suffices, and they apparently did
>> all three.
>
>But you see I say they didn't "drive the market" nor were they a big
>enough part of the problem for the "artificially facilitating" to be
>the core issue in the problem. There were 1000 trillion dollars of
>paper that all traced back to the mortgage on Aunt Millie's house and
>one can of tuna. This was the nature of the problem. There was a
>huge market bubble underway. The mortgage problem was only part of
>it.
>
>According to this F & F were less of a fraction of the total mortgage
>market in the last few years than in the past.
>
>
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>
>According to this:
>
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>
>The 1.4 trillion number is not F & F's exposure to the sub-prime
>market it is the total of all in the retained portfolio including the
>prime ones. $182 Billion is the sub-prime exposure. This makes it a
>very small part of the total market that has tanked.
>
>
>> > This is a really huge market. Before the crash there were something
>> > like 1000 trillion dollars worth of securities that were multiple
>> > levels removed by the tronc and swap process. This is why it was
>> > enough to suck up all the credit money when it fell. There are not
>> > enough home mortgages to even make a dent in it. It was the
>> > multiplier effect.
>>
>> >> IOW, by buying these, Freddie and Fannie were buying
>> >> both sub-prime mortgages AND the derivative securities,
>> >> creating a huge market for both. $1.4 trillion+.
>>
>> > 1.4 trillion is peanuts in that market. F & F bought investment
>> > securities in the free market. They did not by a significant fraction
>> > of the ones on the market. 1.4 is a small fraction of 1000.
>>
>> Freddie and Fannie are on the hook for $1.4 trillion in
>> *actual subprime mortgages*. That's ~3 million subprime
>> mortgages, which is a huge percentage, if not an outright
>> majority.
>
>No the 1.4 Trillion is not the "actual subprime mortages" it is a
>different number. But the 1.4 Trillion is still a small part of the
>1000 Trillion market. The whole credit market has dried up not just
>the housing one. Businesses can't get loans and that isn't related to
>housing.
>
>>
>> And that's just the portion they didn't sell. They
>> *sold* mortgage-backed securities to Wall Street.
>> (see QUOTE 2, below)
>
>From numbers I have found, they have a total exposure of 3 Trillion,
>again this is not the subprime exposure number.
>
>> Let's say that again: Freddie and Fannie sold MBSs
>> to Wall Street. F & F were the source, not the
>> reverse.
>
>F & & also bought mortgage backed bonds in the market. If you look at
>one of those sites above you will see that F & F are far from the
>whole market.
>
>[....]
>
>> > They bought things that were rated incorrectly the same as the manager
>> > who runs my 401K did.
>>
>> Right, but my point was that those "things" were, at
>> bottom, a pile of crappy loans + insurance = AAA-rated
>> securities. So they were,in fact, buying the loans too.
>>
>> I know they were AAA-rated securities, not literally
>> sub-prime mortgages, but that doesn't matter to my point.
>
>Yes it does matter to your point. You are making a claim that F & F
>"drove the market" etc. The ratings agencies can be more correctly
>said to have drove the market. They rated them as triple A and they
>were high yeld. In a free market this attracts investors like flies.
>
>> By buying those, F & F were creating a huge market for
>> both the insurance gambles, and the underlying mortgages
>> themselves.
>
>I disagree with the suggestion of them directly creating a market for
>the swaps. The swaps market is a huge market that is basically
>unregulated. It doesn't only impact the mortgage business it appears
>in lots of transactions that have nothing to do with mortgages. The
>swaps done on mortgage backed securities were part of the problem
>because the folks selling the swaps did not correctly rate the risk.
>The sellers of these swaps should be held to account for their failure
>in this.
>
>>
>> This New York Times article gives some perspective on
>> the whole
thing:
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>
>> It graphically illustrates how Congress, politics, and
>> good intentions interacted, and how these distorted
>> Fannie Mae's goals and behavior, stoking the sub-prime
>> disaster:
>>
>> QUOTE 1:
>> "Fannie, a government-sponsored company, had long
>> helped Americans get cheaper home loans by serving
>> as a powerful middleman, buying mortgages from lenders
>> and banks and then holding or reselling them to Wall
>> Street investors. This allowed banks to make even more
>> loans ? expanding the pool of homeowners and permitting
>> Fannie to ring up handsome profits along the way."
>>
>> This is what I mean by "making a market," serving the
>> same role as market-makers do in stock trading.
>
>You said "drive the market". Did you mean to say "make the market".
>A "market maker" is supposed to be a neutral actor who brings the
>buyers and sellers together so that the transactions can happen.
>
>
>> [...]
>>
>> QUOTE 2:
>> "Fannie never actually made loans. It was essentially
>> a mortgage insurance company, buying mortgages,
>> keeping some but reselling most to investors and,
>> for a fee, promising to pay off a loan if the borrower
>> defaulted."
>>
>> Fannie sold the combo of (crappy mortgages + insurance)
>> to investors, giving these combo products the U.S.
>> government's implicit stamp of approval, and guarantee
>> against default.
>
>This action by them was a lot smaller than the swap market which was a
>bigger part of the real problem.
>
>
>> That made them much more marketable, much more appealing
>> investments. (It doesn't really matter what the risk is
>> if the U.S. government has guaranteed you against loss.)
>
>This is still only a small part of the tronc and swap cycle that built
>up the huge problem.
>
>
>> Aside: IOW they were also supposed to be in the
>> risk-assessment business; they were not just hapless
>> consumers of ratings agencies' glowing endorsements.
>
>Unfortunately, they were however depending on the ratings agencies and
>other parts of the free market to be getting things right. They based
>their assessment on the statistics from the market.
>
>
>> [...]
>>
>> QUOTE 3:
>> "With that self-assurance, the company announced in 2000
>> that it would buy $2 trillion in loans from low-income,
>> minority and risky borrowers by 2010."
>>
>> Buying these assets was deliberate.
>
>Yes, those nasty republicans who where in charge really screwed that
>one up :).
>
>But seriously, the "ownership society" idea was to get more of the
>population into owning their own homes. I note also that the above is
>not a direct quote from any policy statement by F or F it is someone
>characterizing that statement. What is the actual quote?
>
>
>> [...]
>>
>> QUOTE 4:
>> "?Everybody understood that we were now buying loans that
>> we would have previously rejected, and that the models
>> were telling us that we were charging way too little,?
>> said a former senior Fannie executive. ?But our mandate
>> was to stay relevant and to serve low-income borrowers.
>> So that?s what we did.?"
>
>You seem to be very focused on the match and ignoring the pool of
>gasoline btw.
>
>>
>> >> P.S. F^2 also bought naked sub-prime loans, per the
>> >> Wall Street Journal link, but not nearly so many. --ja
>>
>> > Other places say they didn't and they their exposure was all indirect.
>>
>> I see the contrary, but it doesn't matter--either way, they
>> made the market.
>
>Is "made the market" the term you wish to stay with?
And exactly why do you prefer some blogger with made up data to respected data sources? Moreover in your very own sources F&F have a good chunk of funky loans, mostly bought and resold as securtized investments with a patina of government investment guarantees.
Moreover the very graphs and data you show account for less than $100 trillion in all total household mortgages in the US; i really doubt that there is so much. After all, with a median price of $250k a trillion dollars represents some 4 million homes, $100 trillion represents 400 million homes. What is the US population again?
Commercial properties probably only double that total in dollars.