No, I am saying that this was the early beginning of an attempt to tweak the market dictum that only those who could truly afford to own or repay should use leveraged money.
''Chairman Ben S. Bernanke
Subprime mortgage lending and mitigating foreclosures
Before the Committee on Financial Services, U.S. House of Representatives
September 20, 2007
Chairman Frank, Ranking Member Bachus, and members of the Committee, I am pleased to appear before you to discuss the origins of the problems in the subprime-mortgage market and the response of the Federal Reserve to these developments. I will also discuss some possible legislative options for addressing these concerns.
Recent Developments in the Subprime-Mortgage Sector
Let me begin with some background on the subprime-mortgage sector. Subprime mortgages are loans intended for borrowers who are perceived to have high credit risk. Although these mortgages emerged on the financial landscape more than two decades ago, they did not begin to expand significantly until the mid-1990s. The expansion was fueled by innovations--including the development of credit scoring--that made it easier for lenders to assess and price risks. In addition, regulatory changes and the ongoing growth of the secondary mortgage market increased the ability of lenders, who once typically held mortgages on their books until the loans were repaid, to sell many mortgages to various intermediaries, or "securitizers." The securitizers in turn pooled large numbers of mortgages and sold the rights to the resulting cash flows to investors, often as components of structured securities. This "originate-to-distribute" model gave lenders (and, thus, mortgage borrowers) greater access to capital markets, lowered transaction costs, and allowed risk to be shared more widely. The resulting increase in the supply of mortgage credit likely contributed to the rise in the homeownership rate from 64 percent in 1994 to about 68 percent now--with minority households and households from lower-income census tracts recording some of the largest gains in percentage terms.''
Link:
FRB: Testimony--Bernanke, Subprime mortgage lending and mitigating foreclosures--September 20, 2007
The appearance of lenders not subject to strict federal auditing and the attempt to get more Americans into their own homes created laxity concerning qualifications and gave rise to loan packaging by predatory lenders. Since this problem has been with us for sometime, why didn't the Senate Committee on Banking chaired by Chris Dodd do anything about it?
They let it fester and took the usual course...blame George Bush.
Chales Schumer, also a member bears a large part of the blame...
''Schumer Caused Banking Crisis, Not O.T.S.
Posted by Hans Bader
Senator Charles Schumer recently triggered a massive bank failure by publicizing a letter claiming IndyMac Bank was on the verge of collapse. That caused a run on the bank by its panic-stricken depositors. (Taxpayers may end up paying up to $8 billion to bail out the bank). He’s been criticized for that by many, including the Wall Street Journal.
Schumer is a legendary loudmouth with an ego to match. But what he really deserves criticism for is for undermining America’s banking system as a whole. He has long blocked reform at the government-sponsored mortgage giant Fannie Mae, a fraud-ridden institution that is now being bailed out at a cost of billions of dollars (and which purchased (and thus created a market for) risky mortgages issued by subprime lenders) .
Equally importantly, he and his liberal colleagues have long pressured banks into making risky loans, leaving them financially unstable when the mortgage crisis arose. In the name of “affordable housing” and “diversity,” banks have long been pressured by legislators and regulators to make risky loans to minority applicants with low credit scores who cannot afford a substantial downpayment. (Fannie Mae thoroughly adopted this mantra in its own risky business practices, boasting that it was a “leader in diversity” and “affordable housing“).
Banks that refuse to make such risky loans can end up facing sanctions under laws like the Community Reinvestment Act, a regulatory nightmare dreamed up by liberal lawmakers. They also end up being accused of racism and discrimination. (To avoid being subject to such charges, they sometimes pay off corrupt left-wing groups like ACORN, which promoted practices that helped spawn the mortgage crisis, like “liar loans”).
During the housing bubble, liberal lawmakers and activists trumpeted a ridiculous Boston study that claimed that borrowers won’t default, even if they lack the savings for a downpayment and have low credit scores, as long as they receive “credit counseling” before receiving the loan. (That same study faulted lenders that adhere to traditional, responsible lending criteria like requiring high credit scores and substantial downpayments, claiming that masked racial discrimination).
Now, after the housing bubble has collapsed, we see the results of this nonsense, as borrowers with no equity in their homes simply walk away from their mortgages, leaving the lender (and, ultimately, the taxpayer) holding the bag.
Schumer refuses to accept his responsibility for this. Instead, he blames the Office of Thrift Supervision (O.T.S.), which enforces federal regulations designed to maintain banks’ solvency, for the bank’s collapse. But the fault lies with Schumer, not O.T.S.''
Link:
OpenMarket.org Archive Schumer Caused Banking Crisis, Not O.T.S.
So we have disturbed the market's equilibrium by a well-meaning liberal attempt to help the underprivileged and now the market demands payment.
