“Several GOP candidates have pinned blame for the crisis on Fannie and Freddie. The firms successfully used their lobbying clout to resist tougher capital standards before the boom, but the loans they backed still performed better than mortgages that were packaged into securities by the Wall Street firms, which steadily eroded Fannie and Freddie’s market share…

…From 2003 to 2006, the period in which the housing bubble inflated most dramatically, the share of loans backed by Fannie and Freddie fell from more than half to around a third, according to Inside Mortgage Finance, an industry newsletter. Crisis-era loans packaged into securities by Fannie and Freddie have experienced realized loss rates of around 3%, compared with 23% for those packaged into securities by Wall Street, according to Mark Zandi, chief economist atMoody’s Analytics.”, Nick Timiraos, “The Financial Crisis Still Divides GOP, Democrats”, The Wall Street Journal, January 12, 2016

“This is a false comparison by Moody’s Analytics. (Mark Zandi is a well-known advisor to and supporter of liberal politicians.) With the benefit of years of hindsight, it’s clear that Fannie and Freddie (as government sponsored enterprises) had the best rates/prices, so they cherry-picked all the lowest-risk non-conforming Alt-a and subprime mortgage loans from mortgage originators, for their own portfolios. Leaving the riskier mortgages to be securitized by Wall Street in private MBS. In addition, the government created mortgage programs for Fannie, Freddie, FHA, and VA mortgages that allowed these borrowers to modify and/or refinance their loans and dramatically lower their mortgage rates and payments (and even reduce principal balances), even if they were underwater (their mortgage exceeded their home’s value) or could not document their income. Underwater and/or Alt-A borrowers in Wall Street’s private MBS could not even refinance their mortgages to take advantage of lower mortgage rates. As a result, private MBS borrowers defaulted early on and the loans were sold on either a distressed basis or the homes were sold into a housing bust, before the Fed’s monetary policies (QE)…historically low mortgage rates…..caused nominal housing prices to once again rise significantly from the bottom. I am happy to go on and on, but this is just not a fair or relevant comparison. P.S. By the way, Fannie and Freddie bought hundreds of billions of AAA Alt-a and subprime private MBS from Wall Street, driving this marketplace.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Posted on January 25, 2016, in Postings. Bookmark the permalink. Leave a comment.

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