What Lead to the Collapse of Fannie Mae and Freddie Mac - Part 3

Posted by The Diva on 2008 Economy Downturn

Nice Job Dems! A Prime Example of Social Engineering Gone Wild!

Bush Lie…Fannie and Freddie Die! OOPPSSS! Wrong Protest!

Video: Democrats insist “nothing wrong” at Fannie Mae, Freddie Mac in 2004

Tags: AIG, Bill Clinton, Fannie Mae, Freddie Mac, John McCain, Lehman Brother, Merrill Lynch, Subprime Lending, Subprime Market, Washington Mutual

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29
Sep

What Lead to the Collapse of Fannie Mae and Freddie Mac - Part 2

Posted by The Diva on 2008 Economy Downturn

For the past couple week, we’ve been hearing all the bad news about the US economic situation, from the cable TV news (CNN, MSNBC, FOX news, CNBC) to local news (ABC, CBS, Fox etc.) For those of you that don’t know what’s been going on for the past couple weeks, here’s what’s happened:

1) Lehman Brother filed the largest bankruptcy in American history

NEW YORK (AFP) — Lehman Brothers declared bankruptcy Monday and Merrill Lynch announced a rescue sale in a series of dramas in the US financial system which hit European stocks as soon as trading began.

The stunning fall of Lehman Brothers, one of the highest profile investment institutions, came after a frantic weekend marking a dangerous new chapter in the financial crisis sparked by failings in the subprime home-loan market. [..]

2) Merrill Lynch got bought by Bank of America

NEW YORK (MarketWatch) — As the financial world crumbled around it, venerable brokerage firm Merrill Lynch & Co. sought refuge and agreed to be taken over by Bank of America in an all-stock deal that could be worth $50 billion, but investors seemed cool to the idea by the time the markets closed Monday. [...]

3) AIG was bailed out by the US Goverment by giving them a loan

WASHINGTON (MarketWatch) — Saying that a disorderly failure of American International Group would add stress to fragile financial markets, the Federal Reserve agreed late Tuesday to lend the giant insurance firm $85 billion. [...]

4) Fannie Mae and Freddie Mae Collapsed and Taken Over by the US Government

The U.S. government seized control of the mortgage giants Fannie Mae (FNM: 1.83, -0.11, -5.67%) and Freddie Mac (FRE: 2.00, +0.14, +7.52%) on Sunday, placing the liabilities of more than $5 trillion of mortgages onto the backs of the U.S. taxpayer. [...]

5) Washington Mutual (WAMU) collapses. This is by far, the biggest US bank failure to date. JPMorgan Chase purchases parts of WAMU for 1.9 billion dollars.

The financial turmoil in the United States has claimed another institution in what is being called the biggest banking failure in American history.

US regulators have seized Washington Mutual and sold some of its assets to JPMorgan for nearly $2 billion. [...]

If you want, you can check out all the economic events that are part of this US Financial Crisis here.

Okay…here’s the deal. If you notice, none of the financial instutions above was taken over by the government other than Fannie Mae and Freddie Mac. What does that mean? It means, the US government now is the creditor of $ 5 trillions worth of mortfage loans. That means the US government now is the creditor of $ 5,000,000,000,000 worth of mortgage loans! WOW! By taking Fannie and Freddie over, it means now mortgagors (i.e. homeowners) owe their mortgage to the US Government instead of Fannie and Freddie. U.S. Government - U.S. Taxpayers - US, the people. So, how did Fannie Mae and Freedie Mac get dragged into this financial mess? It all started since they started buying paper (mortgage notes) from other lending institutions that lent morgage to the subrprime market. What is subprime market? See this article, “Going Subprime, Will Low-Income Homebuyers Gain or Lose When Fannie Mae and Freddie Mac Move Into the Subprime Lending Market”

The recent foray into the subprime mortgage market by Fannie Mae and Freddie Mac has renewed the debate over their role in the affordable housing arena. The subprime market targets borrowers with credit problems or limited credit histories who do not qualify for cheaper, prime loans. Fannie and Freddie traditionally have purchased a small share of these loans, but this figure is expected to grow significantly in the next few years. Proponents say that the two huge intermediaries can bring better pricing for some subprime borrowers and help to curb predatory lending. Competitors and some analysts say they will only cream the least risky borrowers, making other subprime loans even more costly to borrowers who need them. Still others forecast that a bigger role in the subprime market may pave the way for making traditional prime loans more expensive for some borrowers [...]

The subprime market targets borrowers with credit problems or limited credit histories who do not qualify for cheaper, prime loans. Hmm…last time I checked, if you have credit problems or limited credit histories, you can’t even apply for a credit card…but you can buy a HOUSE?

Let me tell you…I have some friends here that long to buy a house, to be homeowners, but realize that because financially they have some constraints, they decide to put that dream on hold. But sadly, there are people out there that do not have such common sense and responsibility to educate themselves (for homeowners) or the potential homeowners (for mortgage brokers, lenders, real estate agents) that this dream of home ownerships, while it is everybody’s dream, it is also a dream that once achieved, comes with a great of financial responsibility!

So going back to the subprime loans, how did it all start? When and how financial institutions start lending money to the subprime market? Here’s what I’ve found:

A great example of how we got to the credit-market meltdown

An LA Times Article about low income housing (See Below)

Minorities’ Home Ownership Booms Under Clinton but Still Lags Whites’

Social Engineering at the very best! Good job Bill!

The writing’s already on the wall that these lavish and excessive subprime loans paper buying by Fannie Mae and Freddie Mac is going to end up the way it did. Few folks have raised the flag on it:

Whose policies led to the credit crisis?

New Agency Proposed to Oversee Freddie Mac and Fannie Mae

McCain’s attempt to fix Fannie Mae, Freddie Mac in 2005

S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005

Even Heritage Foundation wrote an article about the need to tighten the Fannie Mae and Freddie Mac oversight in 2005!

Okay…okay…I hope all the information above didn’t make your head spin! So, to ensure that you get all the information you need without feeling overwhelmed, you can just watch the video below. If want to know the details, you can start clicking on all the articles I’ve provided above. Enjoy and please…don’t be a cool aid drinker!