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Bubble Bubble. can you spot the bubble [W:153]

Vern

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I see cons really like posting a Case shiller graphs based on an 1890 purchase price. They claim it proves the Bush Mortgage Bubble started in 1997 (or any year other than 2004). It does show home prices going up. (I wonder if it factors out indoor plumbing?). But prices simply going up doesn’t prove a bubble especially since Bush, the fed and mortgage data say the Bush Mortgage Bubble started in late 2004. Home prices did seem to go up a little faster in the Bush Mortgage Bubble timeframe but nothing really is jumping off the page. Lets look at some graphs. This shows Case Shiller 20 city index and the OFHEO nationwide index. For some reason Case Shiller USA index is not available at FRED and only goes back to 2000 but as you see its pretty much the same graph. The OFHEO data is higher because its based on 1975 dollars and CS is 2000 dollars

1_mm.jpg


Well those that have actually researched the Bush Mortgage Bubble know that California, Arizona, Nevada and Florida were ground zero for the Bush mortgage bubble (how many ground zeroes can one president have?) mmmmm, I wonder what California looks like


2_mm.jpg

Holy Cow. So that's what a bubble actually looks like. Maybe somebody can find a Case Shiller graph of just California going back to 1890. mmmm, probably not, it wouldn't support the conservative narrative.
 

Vern

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mmmm, I wonder what the rest of the bubble states look like

3 mm.jpg

Double Holy Cow! no wonder they call them the bubble states. Again that's what a bubble looks like. Anyhoo, it does look like the bubble in California started a little earlier than late 2004 but the Bush Mortgage Bubble wasn’t about home prices. It was about banks lowering their lending standards and Bush’s regulators cheering them on. That started late 2004 after Bush preempted all state laws against predatory lending (to name one of his many toxic housing policies) and his successful reelection campaign touting the strength of his housing market.

And if it was only about prices then the bubble started in 1890. Maybe we could call it the “indoor plumbing” bubble. Now let me just go ahead and cut off the “wah wah you’re cherry picking wah wah” posts. I'm just picking the bubble states and those four states are the bubble states. I wonder what another 'sunshine' state looks like. What the heck, lets add Texas

4_m.jpg

Not a bubble state. In fact if the whole country looked like Texas we wouldn't have had the Bush Mortgage Bubble. But sadly Bush's regulators not only allowed the bubble they preempted all state laws against predatory lending.
 

Vern

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what the heck. Lets add Michigan. They're in the news today.

5_mm.jpg

poor Michigan. Not only did they not really even get the short term euphoria of the Bush Mortgage Bubble, their prices are down there only beating Nevada. ouch. The auto industry was really hit hard by the Great Bush Recession that the Bush Mortgage Bubble caused. Bush should apologize to Detroit. Can somebody get a "too big to fail" bank to tell Bush to apologize. He seems to jump when they tell him to.
 

Velvet Elvis

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Never saw someone talk to themselves in a thread before.
 

dnsmith

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what the heck. Lets add Michigan. They're in the news today.

View attachment 67150678

poor Michigan. Not only did they not really even get the short term euphoria of the Bush Mortgage Bubble, their prices are down there only beating Nevada. ouch. The auto industry was really hit hard by the Great Bush Recession that the Bush Mortgage Bubble caused. Bush should apologize to Detroit. Can somebody get a "too big to fail" bank to tell Bush to apologize. He seems to jump when they tell him to.
The housing bubble did not belong exclusively to Bush. Housing inflation started up significantly in 1999, and many of the monetary and fiscal policies which caused the bubble to burst belong to Clinton. The housing crash caused the recession which in turn caused unemployment beyond that of the construction industry's fall, all of which contributed to the inability to pay mortgages, especially under water mortgages.us_home_prices_vs_rents.jpg

Owner equivalent rent effectively equals actual value. Inflated house prices approached 120% by Jan 2001 when Bush took over. http://fora.tv/2009/06/29/Thomas_Sowell_The_Housing_Boom_and_Bust#chapter_19
 
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Threegoofs

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Bubble Bubble. can you spot the bubble

I dont really care which political party gets the blame these days.

I care more about who is trying to fix the root causes of the crash and wants to reform the system to prevent it from happening again.
 

specklebang

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Since I live at ground zero of the bubble, Las Vegas, I recognize that chart very well and 1999 indeed is the start point. Bush carries much blame because he not only ignored it, he acerbated it. Some leader he turned out to be:roll:

Assigning blame does little good. Housing is back to affordable again (here) and has been rising again for the last year. It's so far from the bubble top though that even today, I see it's leveling off and the rush of invstors from 2009-2011 is slacking off. So, even today, you can buy a house for 60% of the 2002 prices and about 25% of the 2005 prices.
 

Threegoofs

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Bubble Bubble. can you spot the bubble

Since I live at ground zero of the bubble, Las Vegas, I recognize that chart very well and 1999 indeed is the start point. Bush carries much blame because he not only ignored it, he acerbated it. Some leader he turned out to be:roll:

Assigning blame does little good. Housing is back to affordable again (here) and has been rising again for the last year. It's so far from the bubble top though that even today, I see it's leveling off and the rush of invstors from 2009-2011 is slacking off. So, even today, you can buy a house for 60% of the 2002 prices and about 25% of the 2005 prices.

Assigning blame does do some good though.

It ensures the idiots won't get reelected. That was done mostly in 2008, but I'm afraid the US has a short memory.
 

specklebang

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When your choices are limited to idiots, you will inevitably elect an idiot.

Politics requires a certain mentality to succeed at. Unfortunately, the talent is to become elected, not to govern. Have you listened to these pompous asholes speak? They mostly blather and BOMFOG. They aren't smart - they're cunning. They aren't caring, they're completely self-centered.

We sure as **** aren't a Meritocracy.


Assigning blame does do some good though.

It ensures the idiots won't get reelected. That was done mostly in 2008, but I'm afraid the US has a short memory.
 

Vern

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Well that’s two cons that cant see the bubble.
The housing bubble did not belong exclusively to Bush. Housing inflation started up significantly in 1999, and many of the monetary and fiscal policies which caused the bubble to burst belong to Clinton. The housing crash caused the recession which in turn caused unemployment beyond that of the construction industry's fall, all of which contributed to the inability to pay mortgages, especially under water mortgages
No shock that Dn couldn’t see the bubble. He clings to the disproven narrative that the Great Bush Recession caused all the defaults. He has to ignore the sharp increase in defaults started soon after banks lowered their lending standards. I’ve proven it but he pretends he didn’t see the proof. .
Since I live at ground zero of the bubble, Las Vegas, I recognize that chart very well and 1999 indeed is the start point. Bush carries much blame because he not only ignored it, he acerbated it. Some leader he turned out to be:roll: .
I’m a little surprised you don’t see the bubble speckle. But not shocked. As far as your linkless anecdotal story goes, the Case Shiller and the OFHEO data on Las Vegas shows the same massive spike in prices in 2004 again proving the dates of the Bush Mortgage Bubble. But again, home prices going up doesn’t cause a world wide recession. A dramatic increase in defaults causing a credit freeze does. And the defaults starting mid 2005 were caused by lower lending standards starting in late 2004. In addition to the graphs that prove my point, let Bush explain it to you.

Bush’s Working Group on Financial Markets October 2008
The Presidents Working Group’s March policy statement acknowledged that turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007.
http://www.treasury.gov/resource-center/fin-mkts/Documents/q4progress update.pdf

Assigning blame does little good.
It lets you know which party destroyed the economy of the planet thus they should not be given another opportunity to do it.
 

Vern

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I dont really care which political party gets the blame these days.

I care more about who is trying to fix the root causes of the crash and wants to reform the system to prevent it from happening again.

The good news Three is the root causes of the crash has been addressed. As I've shown in my FAQ thread, the dates of the Bush Mortgage Bubble as given by Bush's working group, the fed and actual mortgage data (including the graphs above) coincided with a sharp increase in No Doc loans. To create buyers out of unqualified buyers, banks literally stopped checking income in addition to using teaser rates and initial ARM rates to put people in homes they couldn't afford.

So every regulatory effort has been to make sure people have the ability to repay. Dodd Frank covers it. Numerous states have implemented similar policies. Here's the Fed's policy as it specifically relates to subprime loans.

FRB: Testimony--Braunstein, Mortgage lending reform--March 11, 2009

Concerning the four key protections for higher-priced mortgage loans:

"First, lenders are prohibited from making any higher-priced mortgage loan without regard to the borrower's ability to repay the obligation from income and assets other than the home. The rule requires the lender to take into account future, predictable changes in payments in determining repayment ability. Lenders comply, in part, by assessing repayment ability using the highest scheduled payment in the first seven years of the loan, rather than the consumer's initial monthly payment. For example, for an adjustable rate mortgage (ARM) with a discounted initial interest rate that is fixed for five years, the lender determines repayment ability using the scheduled payment in the sixth and seventh years, which is based on the fully indexed rate.

Second, lenders are prohibited from making "stated income" loans and are required in each case to verify the income and assets they rely upon to determine borrowers' repayment ability. Lenders must also verify and consider the borrower's other debt obligations, such as by using a credit report. The rule is intended to ensure that creditors do not assess repayment ability using overstated incomes or understated payment obligations. The rule is sufficiently flexible to allow lenders to adapt their underwriting process to accommodate a borrower's particular circumstances, such as when the borrower is self-employed.
"
They also did away with prepayment penalites and require escrow accounts be set up for homeowners.
 

iguanaman

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I dont really care which political party gets the blame these days.

I care more about who is trying to fix the root causes of the crash and wants to reform the system to prevent it from happening again.

Then you should be watching the Congressional bank hearings very carefully. Banks and bankers are the root and they have not stopped their shenanigans one bit.
They are now in the process of buying up commodities at a dizzying pace and the next bubble can't be far behind.

http://p.nytimes.com/email/re?location=4z5Q7LhI+KVBjmEgFdYACPLKh239P3pg5T3mWUw2cKJEczARywFxliH9BND6f20I4fOhmlorgqgH4JeqBI1AxL7dUMMEXmcKYnJurB8Ldno0fpY7agQKE2zXi1VU9xZil7XXOWbHuirPBL30b00ipkZXKmiQ5jYG167E1qFou6dVB0590wJ8jA==&campaign_id=129&instance_id=30677&segment_id=48693&user_id=558ba203d7c37d7d039b5abfccbdd443&regi_id=28152600
 

specklebang

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Gee Vern, are you just arguing for the sake of arguing? I was here and saw what I saw. If you think that housing didn't rise dramatically before 2005 and you want to be sure to give 100% of the blame, that's fine by me. I didn't like Bush and never voted for him. My "linkless" story was presented as anecdotal and since I am the source of the data, why don't we just skip the expense of the link.

As far as using history for voting, sure, whatever. Since the Democrats instigated Vietnam, I can never vote for them again since 50,000 American deaths are on their plate. Does that seem logical?

Housing was the only thing that kept the recession at bay for the 5 year period before the collapse. Everybody was rich (temporarily) and since a lot of poor people got "rich" very suddenly through home purchases encouraged by dishonest banks and brokers, as they say "poor people have poor ways". As prices skyrocketed, they refinanced and bought a ton of useless crap only to find themselves upside down in the aftermath and hence the great recession.

If inflating values is so evil, why is it being done right now - again? Of course, you won't see those lofty heights of 2005, indeed, these prices just might stick.

I'll let that con remark slide this time since you were polite about it. If you've managed to overlook my 7000 posts I suppose that anyone who doesn't agree with you (and in this case we agree on more than we disagree on) is a GOP, a Con etc. then you aren't paying attention. Hyper-partisans have no influence. Independent thinkers do.




Well that’s two cons that cant see the bubble.


I’m a little surprised you don’t see the bubble speckle. But not shocked. As far as your linkless anecdotal story goes, the Case Shiller and the OFHEO data on Las Vegas shows the same massive spike in prices in 2004 again proving the dates of the Bush Mortgage Bubble. But again, home prices going up doesn’t cause a world wide recession. A dramatic increase in defaults causing a credit freeze does. And the defaults starting mid 2005 were caused by lower lending standards starting in late 2004. In addition to the graphs that prove my point, let Bush explain it to you.


http://www.treasury.gov/resource-center/fin-mkts/Documents/q4progress update.pdf


It lets you know which party destroyed the economy of the planet thus they should not be given another opportunity to do it.
 

Vern

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Gee Vern, are you just arguing for the sake of arguing? I was here and saw what I saw. If you think that housing didn't rise dramatically before 2005 ….
Speckle, its not what I think. Its what I’ve proven. Prices didn’t rise “dramatically” until 2004. The graph shows it. The rise you claim you saw in 1999 didn’t look any different before 1999 or after 1999. It looked ‘dramatically’ different in 2004. And the graph is identical to the Las Vegas specific data: steady appreciation and then shots up 2004. And speckle, I’m not just mindlessly posting a graph and saying “see this one metric proves it started [put any year here when Bush was not president]”. I posting facts. The graphs in this thread are just but a small piece of the overwhelming evidence that the Bush Mortgage Bubble started in 2004 because of Bush’s policies and regulators.

My "linkless" story was presented as anecdotal and since I am the source of the data, why don't we just skip the expense of the link.
I’m wasn’t telling you to post a link. I’m just pointing out that your version is not only not supported by the facts, its refuted by the facts.

If inflating values is so evil, why is it being done right now - again? Of course, you won't see those lofty heights of 2005, indeed, these prices just might stick.
Er uh speckle, I find cons often argue something I didn’t post. “inflating values” being evil is Dn’s narrative. I have posted consistently about “lower lending standards” and I’ve proven it.

I'll let that con remark slide this time since you were polite about it. If you've managed to overlook my 7000 posts I suppose that anyone who doesn't agree with you
You are not disagreeing with me, you are ignoring the facts I’ve posted. And because of the posts of yours that I’ve read, I was surprised you would look at something that clearly shows prices didn’t rise “dramatically” until 2004 and then not see it.
 

dnsmith

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us_home_prices_vs_rents.jpgNo matter how much some people won't accept it, the government monetary and fiscal policy showed significant inflation in housing prices starting in 1999. By Jan 2001 when Bush took office the inflationary prices of housing was already up 20% over 1998. Bush made it worse by continuing and creating more inflation with bad monetary and fiscal policies.
 

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Never saw someone talk to themselves in a thread before.

And it's not even interesting. The title should simply be "It is all Bush's fault!" with a content of "I can't get over Bush, and everything is his fault!".

Would have been more to the point without so many words.
 

Vern

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And it's not even interesting. The title should simply be "It is all Bush's fault!" with a content of "I can't get over Bush, and everything is his fault!".

Would have been more to the point without so many words.

Sorry Arbo, I'm just posting facts. At least Dn is posting facts but they are not relevant. Sadly it requires him to ignore the facts I've posted that disprove his narrative. As I posted above, Bush's working group said it "was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007". Now what would 'trigger a dramatic weakening' and prevent Bush's regulators from enforcing them? Why Bush and his policies, that's who. This is his most toxic policy.

Subprime lending has grown rapidly over the past decade. Rising concerns about abusive practices by subprime lenders have been a byproduct of this growth. By early 2004, these concerns prompted Georgia and more than 30 other states to pass laws designed to eliminate abusive or predatory lending practices by the financial services firms, including those with federal charters, operating within their boundaries.

Acting on a request from a national bank, the OCC in 2003 concluded that federal law preempts the provisions of the Georgia Fair Lending Act (GFLA) that would otherwise affect national banks’ real estate lending. At this same time, the OCC also proposed a final rule to clarify the types of state laws that are applicable to national banks. In early 2004, the OCC adopted a final rule providing that state laws that regulate the terms of credit are preempted. The main features of state anti-predatory lending statutes are typically provisions that restrict or prohibit certain loan terms.

now why would Bush do that besides the fact that banks told him to? that's easy, to increase subprime lending

In addition, clarification of the applicability of state laws to national banks should remove disincentives to subprime lending and increase the supply of credit to subprime borrowers.

http://www.occ.gov/publications/publications-by-type/economics-working-papers/2008-2000/wp2004-4.pdf
 
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Fenton

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Yayyy, VERN's at it again....

OK, here's page after page of evidence that disputes his "crazy"..

In the Spring and Summer of 1994, Secretary Henry Cisneros met with leaders of major national organizations from the housing industry to solicit their views about establishing a national homeownership partnership.”
- HUD, "Partners in the American Dream", May 1995

“In 1994, at the President’s request, the U.S. Department of Housing and Urban Development (HUD) began work to develop a National Homeownership Strategy with the goal of lifting the overall homeownership rate to 67.5 percent by the end of the year 2000. While the most tangible goal of the National Homeownership Strategy was to raise the overall homeownership rate, in presenting the strategy HUD pointed explicitly to declines in homeownership rates among low-income, young, and minority households as motivation for these efforts.” - U.S. Department of Housing and Urban Development Office of Policy Development and Research website

"At the request of President Clinton, HUD is working with dozens of national leaders in government and the housing industry to implement the National Homeownership Strategy, an unprecedented public-private partnership to increase homeownership to a record-high level over the next 6 years.” - Urban Policy Brief Number 2, August 1995

“Federal institutions, policies, and programs alone cannot meet President Clinton's goal of record-high levels of homeownership within the next 6 years. HUD has forged a nationwide partnership that will draw on the resources and creativity of lenders, builders, real estate professionals, community-based nonprofit organizations, consumer groups, State and local governments and housing finance agencies, and many others in a cooperative, multifaceted campaign to create ownership opportunities” - The National Homeownership Strategy

Action 11: Removing Barriers to Mortgage Financing for Starter Homes
Action 29: Alternative Approaches to Homebuying Transactions
Action 35: Home Mortgage Loan-to-Value Flexibility
Action 36: Subsidies to Reduce Downpayment and Mortgage Costs
Action 44: Flexible Mortgage Underwriting Criteria
Action 45: Public-Private Leveraging for Affordable Home Financing


By 1996, HUD was directing the GSE's to provide at least 42% of their mortgage financing to low-income borrowers and 12% of their portfolios to “special affordable” loans. NOT BUSH'S GREAT RECESSION, CLINTONS GREAT RECESSION....

"This unprecedented public-private partnership is founded on a deeply rooted and almost universally held belief that homeownership provides important advantages that merit continued public support. The National Homeownership Strategy cites four fundamental benefits:” Urban Policy Brief Number 2, August 1995

"Through homeownership, a family...invests in an asset that can grow in value and... generate financial security."
"Homeownership enables people to have greater control and exercise more responsibility over their living environment."
"Homeownership helps stabilize neighborhoods and strengthen communities."
"Homeownership helps generate jobs and stimulate economic growth."

Commonsense & Wonder: Remember Janet Reno threatening the banks?

A great link for how the Clinton administration forced banks to lend.....

CONT...
 

Fenton

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ACORN's influence on lowering lending standards....

In the late-1980s and early-1990s ACORN and other community groups claimed that Fannie and Freddie were standing in the way of their efforts to replace traditional underwriting with flexible underwriting. They lobbied Congress to force the GSEs to abandon their traditional underwriting standards. The goal was to force the GSEs to replace their conservative underwriting standards with flexible ones, knowing that this would spur the rest of the market to do the same.

Evidence:

1991: A community organizer tells the U.S. Senate Committee on Banking, Housing, and Urban Affairs:

“It is becoming increasingly clear that [Fannie and Freddie had] been a hidden loan officer at the loan origination table.”21

1991: HUD’s Advisory Commission on Regulatory Barriers to Affordable Housing reports:

“The market influence of Fannie Mae and Freddie Mac extends well beyond the number of loans they buy or securitize; their underwriting standards for primary loans are widely adopted and amount to national underwriting standards for a substantial fraction of all mortgage credit.”22


"Fannie Mae’s and Freddie Mac’s underwriting standards are oriented towards ‘plain vanilla’ mortgages."23

1991: Testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs:

"'Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting.’ This point was reinforced over and over again by other [community advocacy] witnesses."24

----------------------------------------------------------------
These groups were successful in convincing Congress to impose affordable housing (AH) mandates on Fannie and Freddie. This set in motion 14 years of ever looser loan standards:

Evidence:

1992: Congress passes the inaptly named “Federal Housing Enterprises Financial Safety and Soundness Act” (GSE Act). Instead of requiring safe and sound operations, ACORN and other groups successfully lobby for affordable housing mandates.25 As a result, Fannie and Freddie are forced to progressively loosen their underwriting standards and, for the first time, become competitors with FHA and traditional subprime lenders.

Facts:

Fannie embraced AH mandates in order to buy the political protection it would use to defeat any unwelcome changes to its lucrative charter benefits. To this purpose, it vows to “transform” the housing finance system. The strategy worked–Fannie was politically unassailable until 2008.

Evidence:

1994: “Fannie Mae Chairman Commits Company to 'Transforming the Housing Finance System;' Vows Company Will Provide $1 Trillion in Targeted Lending"26

------------------------------------------------------------

Facts

The government implements the National Homeownership Strategy with the goal of replacing traditional underwriting with flexible standards.

Evidence:

1995: President Clinton and HUD announce the “National Homeownership Strategy” (Homeownership Strategy):27,28

"[Having] forged a nationwide partnership that will draw on the resources and creativity of lenders, builders, real estate professionals, community-based nonprofit organizations, consumer groups, State and local governments and housing finance agencies, and many others in a cooperative, multifaceted campaign to create ownership opportunities and reduce the barriers facing underserved populations and communities."

The explicit goal was to draft the entire mortgage industry into making:

"Financing more available, affordable, and flexible [in order to]:

[Increase] ownership opportunities among populations and communities with lower than average homeownership rates;


Reduce downpayment requirements and interest costs by making terms more flexible, providing subsidies to low- and moderate-income families, and creating incentives to save for homeownership; and

Increase the availability of alternative financing products in housing markets throughout the country."

The mortgage meltdown and subsequent financial crisis were the result of these well-articulated government policies.

--------------------------------------------------------

Facts:

Dissenting voices (Peter Wallison among them) predicted that these efforts to transform housing finance would end in disaster.

Evidence:

1998: "After the warm and fuzzy glow of ‘flexible underwriting standards’ has worn off; we may discover that they are nothing more than standards that led to bad loans. Certainly, a careful investigation of these underwriting standards is in order. If the ‘traditional’ bank lending processes were rational, we are likely to find, with the adoption of flexible underwriting standards, that we are merely encouraging banks to make unsound loans. If this is the case, current policy will not have helped its intended beneficiaries if in future years they are dispossessed from their homes due to an inability to make their mortgage payments. It will be ironic and unfortunate if minority applicants wind up paying a very heavy price for a misguided policy based on badly mangled data.”29

1999: “Fannie Mae Eases Credit to Aid Mortgage Lending:”30


"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. . . .

‘Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,’ said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ‘Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.’ . . .

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

'From the perspective of many people, including me, this is another thrift industry growing up around us,’ said Peter Wallison a resident fellow at the American Enterprise Institute. ‘If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'"

----------------------------------------------------------------

Facts:

As flexible lending expands, the volume and risk characteristics of so-called prime loans increases markedly, yet these loans were still called prime. For example, loans with no downpayment acquired by Fannie are called prime merely because Fannie is now willing to acquire them. The same logic applies to loans with impaired credit. HUD acknowledges this in a 2000 rule making.

Evidence:

"Because the GSEs have a funding advantage over other market participants, they have the ability to under price their competitors and increase their market share. This advantage, as has been the case in the prime market, could allow the GSEs to eventually play a significant role in the subprime market. As the GSEs become more comfortable with subprime lending, the line between what today is considered a subprime loan versus a prime loan will likely deteriorate, making expansion by the GSEs look more like an increase in the prime market. Since . . . one could define a prime loan as one that the GSEs will purchase, the difference between the prime and subprime markets will become less clear. This melding of markets could occur even if many of the underlying characteristics of subprime borrowers and the market's (i.e., non-GSE participants) evaluation of the risks posed by these borrowers remain unchanged."31
[Emphasis added.]

----------------------------------------------------------------------

The United States, alone among developed countries, turned its prudential regulation of underwriting standards over to a social welfare agency, namely HUD. In 2004, HUD extols its “revolution in affordable lending.”

Evidence:

2004: “Over the past ten years, there has been a ‘revolution in affordable lending’ that has extended homeownership opportunities to historically underserved households. Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution in affordable lending.' During the mid-to-late 1990s, they added flexibility to their underwriting guidelines, introduced new low-downpayment products, and worked to expand the use of automated underwriting in evaluating the creditworthiness of loan applicants. HMDA data suggest that the industry and GSE initiatives are increasing the flow of credit to underserved borrowers. Between 1993 and 2003, conventional loans to low income and minority families increased at much faster rates than loans to upper-income and non-minority families.”32

-------------------------------------------------------------------------

Facts:

The National Homeownership Strategy resulted in the substantial elimination of downpayments.

Evidence:

2007: From only 0.5 percent of home purchase loans in 1990, the proportion of loans with down payments of 3 percent or less steadily increased so that by 2007 they accounted for 40 percent of all home purchase loans.


" You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.” So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home-buyers fitting this profile to a group of far-left “community organizers” called ACORN, for assistance. In retrospect, of course, encouraging customers like this to buy homes seems little short of madness."

CONT.....
 

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Clinton's DOJ bullies Banks into lowering lending standards based on the false narrative of " discrimination"..



" At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agencies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders' credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

For the first time, Washington's army of bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press" "


CONT.....
 

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Clinton's appointment of Andrew Cuomo to the position the Secretary of HUD, the agency that was given strong regulatory control over the GSE's and the agency that oversaw a ever increasing Quota of bad loans purchased by the GSE's kicked the buying of crap loans by Fannie and Freddie into High Gear.

That along with Clintons appointing of Franklin Raines to the CEO position of Fannie Mae allowed that specific GSE to first, start turning those crap loans into securities and then to start lowering their standards for purchasing crap loans.

What did the Liberals give Cuomo for his complicity ? A Governorship. Yep, it's the low information Americans who have plotted our path.


" Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why."

" What he did is important—not just because of what it tells us about how we got in this hole, but because of what it says about New York's attorney general, who has been trying for months to don a white hat in the subprime scandal, pursuing cases against banks, appraisers, brokers, rating agencies, and multitrillion-dollar, quasi-public Fannie and Freddie.
"


" In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don't actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD's secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie."
 

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More on the ACORNS complicity..

Militant ACORN

At the time, however, that 1995 Chicago newspaper article represented something of a triumph for Barack Obama. That same year, as a director at Chicago’s Woods Fund, Obama was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN’s way from his post as board chair of the Chicago Annenberg Challenge. Through both funding and personal-leadership training, Obama supported ACORN. And ACORN, far more than we’ve recognized up to now, had a major role in precipitating the subprime crisis.

I’ve already told the story of Obama’s close ties to ACORN leader Madeline Talbott, who personally led Chicago ACORN’s campaign to intimidate banks into making high-risk loans to low-credit customers. Using provisions of a 1977 law called the Community Reinvestment Act (CRA), Chicago ACORN was able to delay and halt the efforts of banks to merge or expand until they had agreed to lower their credit standards — and to fill ACORN’s coffers to finance “counseling” operations like the one touted in that Sun-Times article. This much we’ve known. Yet these local, CRA-based pressure-campaigns fit into a broader, more disturbing, and still under-appreciated national picture. Far more than we’ve recognized, ACORN’s local, CRA-enabled pressure tactics served to entangle the financial system as a whole in the subprime mess. ACORN was no side-show. On the contrary, using CRA and ties to sympathetic congressional Democrats, ACORN succeeded in drawing Fannie Mae and Freddie Mac into the very policies that led to the current disaster.

In one of the first book-length scholarly studies of ACORN, Organizing Urban America, Rutgers University political scientist Heidi Swarts describes this group, so dear to Barack Obama, as “oppositional outlaws.” Swarts, a strong supporter of ACORN, has no qualms about stating that its members think of themselves as “militants unafraid to confront the powers that be.” “This identity as a uniquely militant organization,” says Swarts, “is reinforced by contentious action.” ACORN protesters will break into private offices, show up at a banker’s home to intimidate his family, or pour protesters into bank lobbies to scare away customers, all in an effort to force a lowering of credit standards for poor and minority customers. According to Swarts, long-term ACORN organizers “tend to see the organization as a solitary vanguard of principled leftists...the only truly radical community organization.”

ACORN’s Inside Strategy

Yet ACORN’s entirely deserved reputation for militance is balanced by its less-well-known “inside strategy.” ACORN has long employed Washington-based lobbyists who understand very well how the legislative game is played. ACORN’s national lobbyists may encourage and benefit from the militant tactics of their base, but in the halls of congress they play the game with smooth sophistication. The untold story of ACORN’s central role in the financial meltdown is about the one-two punch to the banking system administered by this outside/inside strategy.

Critics of the notion that CRA had a major impact on the subprime crisis ask how a law passed in 1977 could have caused a crisis in 2008? The answer has a lot to do with ACORN — and the critical years of 1990-1995. While the 1977 Community Reinvestment Act did call on banks to increase lending in poor and minority neighborhoods, its exact requirements were vague, and therefore open to a good deal of regulatory interpretation. Banks merger or expansion plans were rarely held up under CRA until the late 1980s, when ACORN perfected its technique of filing CRA complaints in tandem with the sort of intimidation tactics perfected by that original “community organizer” (and Obama idol), Saul Alinsky.

At first, ACORN’s anti-bank actions were relatively few in number. However, under a provision of the 1989 savings and loan bailout pushed by liberal Democratic legislators, like Massachusetts Congressman Joseph P. Kennedy, lenders were required to compile public records of mortgage applicants by race, gender, and income. Although the statistics produced by these studies were presented in highly misleading ways, groups like ACORN were able to use them to embarrass banks into lowering credit standards. At the same time, a wave of banking mergers in the early 1990's provided an opening for ACORN to use CRA to force lending changes. Any merger could be blocked under CRA, and once ACORN began systematically filing protests over minority lending, a formerly toothless set of regulations began to bite.

ACORN’s efforts to undermine credit standards in the late 1980s taught it a valuable lesson. However much pressure ACORN put on banks to lower credit standards, tough requirements in the “secondary market” run by Fannie Mae and Freddie Mac served as a barrier to change. Fannie Mae and Freddie Mac buy up mortgages en masse, bundle them, and sell them to investors on the world market. Back then, Fannie and Freddie refused to buy loans that failed to meet high credit standards. If, for example, a local bank buckled to ACORN pressure and agreed to offer poor or minority applicants a 5-percent down-payment rate, instead of the normal 10-20 percent, Fannie and Freddie would refuse to buy up those mortgages. That would leave all the risk of these shaky loans with the local bank. So again and again, local banks would tell ACORN that, because of standards imposed by Fannie and Freddie, they could lower their credit standards by only a little.

So the eighties taught ACORN that a high-pressure, Alinskyite outside strategy wouldn’t be enough. Their Washington lobbyists would have to bring inside pressure on the government to undercut credit standards at Fannie Mae and Freddie Mac. Only then would local banks consider making loans available to customers with bad credit histories, low wages, virtually nothing in the bank, and even bankruptcies on record.

Democrats and ACORN

As early as 1987, ACORN began pressuring Fannie and Freddie to review their standards, with modest results. By 1989, ACORN had lured Fannie Mae into the first of many “pilot projects” designed to help local banks lower credit standards. But it was all small potatoes until the serious pressure began in early 1991. At that point, Democratic Senator Allan Dixon convened a Senate subcommittee hearing at which an ACORN representative gave key testimony. It’s probably not a coincidence that Dixon, like Obama, was an Illinois Democrat, since Chicago has long been a stronghold of ACORN influence.

Dixon gave credibility to ACORN’s accusations of loan bias, although these claims of racism were disputed by Missouri Republican, Christopher Bond. ACORN’s spokesman strenuously complained that his organization’s efforts to relax local credit standards were being blocked by requirements set by the secondary market. Dixon responded by pressing Fannie and Freddie to do more to relax those standards — and by promising to introduce legislation that would ensure it. At this early stage, Fannie and Freddie walked a fine line between promising to do more, while protesting any wholesale reduction of credit requirements.

By July of 1991, ACORN’s legislative campaign began to bear fruit. As the Chicago Tribune put it, “Housing activists have been pushing hard to improve housing for the poor by extracting greater financial support from the country’s two highly profitable secondary mortgage-market companies. Thanks to the help of sympathetic lawmakers, it appeared...that they may succeed.” The Tribune went on to explain that House Democrat Henry Gonzales had announced that Fannie and Freddie had agreed to commit $3.5 billion to low-income housing in 1992 and 1993, in addition to a just-announced $10 billion “affordable housing loan program” by Fannie Mae. The article emphasizes ACORN pressure and notes that Fannie and Freddie had been fighting against the plan as recently as a week before agreement was reached. Fannie and Freddie gave in only to stave off even more restrictive legislation floated by congressional Democrats.

A mere month later, ACORN Housing Corporation president, George Butts made news by complaining to a House Banking subcommittee that ACORN’s efforts to pressure banks using CRA were still being hamstrung by Fannie and Freddie. Butts also demanded still more data on the race, gender, and income of loan applicants. Many news reports over the ensuing months point to ACORN as the key source of pressure on congress for a further reduction of credit standards at Fannie Mae and Freddie Mac. As a result of this pressure, ACORN was eventually permitted to redraft many of Fannie Mae and Freddie Mac’s loan guideline.

Clinton and ACORN

ACORN’s progress through 1992 depended on its Democratic allies. Whatever ACORN managed to squeeze out of the George H. W. Bush administration came under congressional pressure. With the advent of the Clinton administration, however, ACORN’s fortunes took a positive turn. Clinton Housing Secretary Henry Cisnersos pledged to meet monthly with ACORN representatives. For ACORN, those meetings bore fruit.

Another factor working in ACORN’s favor was that its increasing success with local banks turned those banks into allies in the battle with Fannie and Freddie. Precisely because ACORN’s local pressure tactics were working, banks themselves now wanted Fannie and Freddie to loosen their standards still further, so as to buy up still more of the high-risk loans they’d made at ACORN’s insistence. So by the 1993, a grand alliance of ACORN, national Democrats, and local bankers looking for someone to lessen the risks imposed on them by CRA and ACORN were uniting to pressure Fannie and Freddie to loosen credit standards still further.

At this point, both ACORN and the Clinton administration were working together to impose large numerical targets or “set asides” (really a sort of poor and minority loan quota system) on Fannie and Freddie. ACORN called for at least half of Fannie and Freddie loans to go to low-income customers. At first the Clinton administration offered a set-aside of 30 percent. But eventually ACORN got what it wanted. In early 1994, the Clinton administration floated plans for committing $1 trillion in loans to low- and moderate-income home-buyers, which would amount to about half of Fannie Mae’s business by the end of the decade. Wall Street Analysts attributed Fannie Mae’s willingness to go along with the change to the need to protect itself against still more severe “congressional attack.” News reports also highlighted praise for the change from ACORN’s head lobbyist, Deepak Bhargava.

This sweeping debasement of credit standards was touted by Fannie Mae’s chairman, chief executive officer, and now prominent Obama adviser James A. Johnson. This is also the period when Fannie Mae ramped up its pilot programs and local partnerships with ACORN, all of which became precedents and models for the pattern of risky subprime mortgages at the root of today’s crisis. During these years, Obama’s Chicago ACORN ally, Madeline Talbott, was at the forefront of participation in those pilot programs, and her activities were consistently supported by Obama through both foundation funding and personal leadership training for her top organizers.

Finally, in June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced the administration’s comprehensive new strategy for raising home-ownership in America to an all-time high. Representatives from ACORN were guests of honor at the ceremony. In his remarks, Clinton emphasized that: “Out homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton meant that informal partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers “who have historically been excluded from homeownership.”

Disaster

In the end of course, Clinton’s plan cost taxpayers an almost unimaginable amount of money. And it was just around the time of his 1995 announcement that the Chicago papers started encouraging bad-credit customers with “dog-food” wages, little money in the bank, and even histories of bankruptcy to apply for home loans with the help of ACORN. At both the local and national levels, then, ACORN served as the critical catalyst, levering pressure created by the Community Reinvestment Act and pull with Democratic politicians to force Fannie Mae and Freddie Mac into a pattern of high-risk loans.

Up to now, conventional wisdom on the financial meltdown has relegated ACORN and the CRA to bit parts. The real problem, we’ve been told, lay with Fannie Mae and Freddie Mac. In fact, however, ACORN is at the base of the whole mess. ACORN used CRA and Democratic sympathizers to entangle Fannie and Freddie and the entire financial system in a disastrous disregard of the most basic financial standards. And Barack Obama cut his teeth as an organizer and politician backing up ACORN’s economic madness every step of the way.


CONT....
 

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The National Bureau of Economic Research's analysis on CRAs influence on the Sub-Prime Collapse....

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru
NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s): AP CF

"Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming."

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?


A article from the New York Times on Clintons successful attempt to extend home loans to low income people..

Nyt...

From September 30, 1999:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

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.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
 

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Clinton's appointees and their culpability and corruption.

Fannie Mae Avoids Criminal Charges Over Accounting

The Justice Department has told Fannie Mae that it does not plan to seek criminal charges against the company, an important step for the District-based mortgage funding giant as it tries to move beyond a multibillion-dollar accounting scandal.

Fannie Mae announced yesterday -- and a Justice Department spokesman confirmed -- that the nearly two-year-old criminal investigation of the company had ended. Coupled with settlements reached this year with two regulatory agencies, the decision clears Fannie Mae of prosecution for years of accounting mistakes that are costing hundreds of millions of dollars to correct.

The company still faces shareholder litigation over the value lost when the accounting problems were revealed and the stock price plunged.

And former Fannie Mae executives remain under scrutiny.

The Justice Department is still investigating whether former Fannie chairman and chief executive Franklin D. Raines and former chief financial officer J. Timothy Howard committed perjury when they testified about the company's accounting practices before a House of Representatives panel in 2004, said Channing Phillips, a spokesman for the U.S. attorney for the District of Columbia.

In addition, the Securities and Exchange Commission has not ruled out civil charges against individuals in the accounting matter, according to an SEC source, who spoke on condition of anonymity because it is SEC policy not to comment on pending investigations."

Democrat Franklin Raines Conveniently Absent From Fannie Lawsuit - Investors.com

Subprime Scandal: Obama adviser Franklin Raines is glaringly absent from an SEC lawsuit against Fannie Mae and Freddie Mac executives for defrauding investors. How convenient.
Raines first plunged Fannie into the subprime abyss as its chairman and chief executive from 1999 to 2005 while cooking the mortgage giant's books to score fatter bonuses for himself and other Democrats on its board.
In its complaint against Fannie, however, the Obama administration covers only the period from 2006 to 2008 and names Raines' successor and former protege, Daniel Mudd, as the main defendant. Raines is nowhere to be found in the SEC's 60-page court filing.
Instead, Mudd and two of his top aides are accused of covering up the full extent of Fannie's subprime exposure. But that exposure and cover-up began under Raines, who rolled out Fannie's first subprime mortgage line, known as Expanded Approval.
The program let Fannie's customers rubberstamp borrowers who would have been formerly classified as "Refer with Caution" by Fannie's automated underwriting system.
Raines had Fannie buy billions of dollars worth of the risky mortgages, which were described in internal emails as "clearly subprime," to meet "affordable housing" quotas set by HUD. In May 2001, Mudd wrote a memo to his boss warning that EA loans "are the highest default risk loans we have ever done."
 
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