tag:blogger.com,1999:blog-3395111825224617694.post6935764170638853716..comments2023-12-18T16:32:44.437-08:00Comments on Caveat Emptor: So why do you want intrusive government?H.A. Blackhttp://www.blogger.com/profile/09028988783310116580noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3395111825224617694.post-44275532977700254152010-01-19T04:40:24.316-08:002010-01-19T04:40:24.316-08:00John, What is generally said is that since the ori...John, What is generally said is that since the originators could pass the risk on to Freddie and Fannie by selling the loans, then they did not care how risky they were. When Freddie and Fannie package the loans and sell them to investors (securitize them), F&F guarantee to the buyer timely payment of principal and interest on the loans regardless of whether they are current. Perhaps this is what is meant by F&F "insuring" the loans. That is they are not insuring the loans to the originator but to the investors who bought the mortgage pools.H.A. Blackhttps://www.blogger.com/profile/09028988783310116580noreply@blogger.comtag:blogger.com,1999:blog-3395111825224617694.post-44897412176419516172010-01-11T14:31:20.527-08:002010-01-11T14:31:20.527-08:00Im confused. I've heard several people refer t...Im confused. I've heard several people refer to f&f insured loans or f&f backed loans, what do they mean if its actually f&f owned loans. Also, what is the financial incentive for reputable banks to give loans to risky people during a property bubble. I mean,even I knew that property prices were inflated as far back as 05-06. How could the smart bank people allow their money to be loaned out at fairly low rates knowing there was a bubble that would burst and leave them vulnerable to default on an upside-down loan(due to the devaluation of the home). Seems too stupid to expect from a large bank, maybe its just me. Risky sub-prime loans seem like a bad idea in bulk unless there is some incentive(high rates,large down payment,undervalued property amount)or insurance against default to protect the banks money during a bubble. Basically, the story seems to lack common sense to me which always says to me that Im missing something. I know it's an old subject, and maybe too complicated, but maybe could you please write a blog about what happened to cause the housing crash?(looking back from what is known now).Thanks for your patience.John in Kynoreply@blogger.comtag:blogger.com,1999:blog-3395111825224617694.post-29404575728541580612010-01-02T12:50:43.902-08:002010-01-02T12:50:43.902-08:00John, As you noted, when Fannie and Freddie bought...John, As you noted, when Fannie and Freddie bought the mortgages, they removed the risk from the originator and assumed it themselves. So Fannie and Freddie are not insuring loans on the banks' books. The only insurance is on the liability side (deposits) not on the asset side (loans). Fannie and Freddie's losses were not on insurance payouts (which they do not have) but on the surge in defaults which reduced the cash flow on the mortgages they had securitized. Keep reading and commenting. All the best, HBH.A. Blackhttps://www.blogger.com/profile/09028988783310116580noreply@blogger.comtag:blogger.com,1999:blog-3395111825224617694.post-92070447349865130742009-12-21T20:33:44.439-08:002009-12-21T20:33:44.439-08:00I have a theory on the bank bailout that I would l...I have a theory on the bank bailout that I would love your thoughts on. The Community Reinvestment Act encouraged banks to make risky sub-prime loans. The govt. had Fannie and Freddie insure or own a large % of those mortgages to remove most of the risk off the lenders. This created the incentive to loan that brought about low-doc, no-doc, and the housing bubble. When the govt. had to bailout Fannie and Freddie first, I assume due to losses from paying out on loan insurance, they saw the trouble coming. If things were to continue as they should, F&F would go under or need constant govt. bailout, putting the focus on the CRA, F&F,and the dems largely responsible for the bubble. They came up with a plan to force banks to take money to shore up their books. This may be way off , but I wonder why the banks that were insured by F&F against loan default would have any major loss to worry about. Maybe you can explain how the F&F insurance works and what the banks are paying for when they buy it. Thanks and Merry Christmas.John in Kynoreply@blogger.com