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Thread: W:1083,1531:2983:3137]******Bush Mortgage Bubble FAQs

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    W:1083,1531:2983:3137]******Bush Mortgage Bubble FAQs

    I still see alot of misconceptions about the Bush Mortgage Bubble and the Bush policies that encouraged, funde and protected it so I thought I would start an FAQ section. Since the resulting destruction of the housing and financial sector are still a drag on the economy today, it seems relevent

    Q When did the Bush Mortgage Bubble start?

    A The general timeframe is it started late 2004.

    From Bush’s President’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-cen...s%20update.pdf

    "Since 1995 there has been essentially no change in the basic CRA rules or enforcement process that can be reasonably linked to the subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in poor performance of mortgage loans made between 2004 and 2007. "
    The Fed - Page not found

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Q Why is it commonly called the “subprime bubble” ?

    A Because the Bush Mortgage Bubble coincided with the explosive growth of Subprime mortgage and politics. Also the subprime MBS market was the first to collapse in late 2006. In 2003, 10 % of all mortgages were subprime. In 2006, 40 % were subprime. This is a 300 % increase in subprime lending. (and notice it coincides with the dates of the Bush Mortgage bubble that Bush and the Fed said)

    “Some 80 percent of outstanding U.S. mortgages are prime, while 14 percent are subprime and 6 percent fall into the near-prime category. These numbers, however, mask the explosive growth of nonprime mortgages. Subprime and near-prime loans shot up from 9 percent of newly originated securitized mortgages in 2001 to 40 percent in 2006.[1]”
    http://www.dallasfed.org/research/ec...07/el0711.html

    Q. Er uh, didn’t you notice your link said the explosive growth of subprime mortgages started in 2001?

    A. It did kinda say that didn’t it? However, the link below clearly states subprime was 10 % in 2003. 9% in 2001 to 10% in 2003 is only a 1% increase. A 1 % increase over 3 years is flat not explosive. 10 % in 2003 to 40% in 2006 is explosive. So the explosive growth started in 2004 which lines up pretty good but not exactly with the timeframe of the Bush Mortgage Bubble.


    “In dollar terms, nonprime mortgages represented 32 percent of all mortgage originations in 2005, more than triple their 10 percent share only two years earlier
    "
    FRB: Finance and Economics Discussion Series: Screen Reader Version - 200899

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Q Well there was a 300 % increase in subprime loans. Why not call it a “Subprime Bubble”?

    A Subprime loans refers to the credit score of the borrower. It doesn’t make it a bad loan if proper underwriting standards are used. Bush’s working group said it was “triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages,”. He leaves out the part where it “quickly spread to all mortgages”. In 2004, 4.3 % of all mortgages were No Doc loans. In 2006 over 50% of all loans were No Doc loans. That’s over a 1000 % increase in loans where the borrowers income was not fully documented or documented at all. “Another form of easing” is a nice way of saying “lower lending standards”. And notice it lines up with the dates already posted. In addition to No Docs, banks allowed piggyback loans, teaser rates, I/0 and even negative amortization loans.

    (from Dallas Fed link above)

    "Another form of easing facilitated the rapid rise of mortgages that didn't require borrowers to fully document their incomes. In 2006, these low- or no-doc loans comprised 81 percent of near-prime, 55 percent of jumbo, 50 percent of subprime and 36 percent of prime securitized mortgages."

    Q HOLY JESUS! DID YOU JUST PROVE THAT OVER 50 % OF ALL MORTGAGES IN 2006 DIDN’T REQUIRE BORROWERS TO DOCUMENT THEIR INCOME?!?!?!?

    A Yes.

    Q WHO THE HELL LOANS HUNDREDS OF THOUSANDS OF DOLLARS TO PEOPLE WITHOUT CHECKING THEIR INCOMES?!?!?

    A Banks.

    Q WHY??!?!!!?!

    A Two reasons, greed and Bush's regulators let them. And then they sold the loan and risk to investors and GSEs clamoring for the loans. Actually banks, pension funds, investment banks and other investors clamored for them. Bush forced Freddie and fannie to buy an additional 440 billion in mortgages in the secondary market.
    Last edited by Vern; 04-07-13 at 10:26 AM.

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Quote Originally Posted by Vern View Post
    I still see alot of misconceptions about the Bush Mortgage Bubble and the Bush policies that encouraged, funde and protected it so I thought I would start an FAQ section. Since the resulting destruction of the housing and financial sector are still a drag on the economy today, it seems relevent

    Q When did the Bush Mortgage Bubble start?

    A The general timeframe is it started late 2004.

    From Bush’s President’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-cen...s%20update.pdf

    "Since 1995 there has been essentially no change in the basic CRA rules or enforcement process that can be reasonably linked to the subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in poor performance of mortgage loans made between 2004 and 2007. "
    http://www.federalreserve.gov/newsev...3_analysis.pdf
    Those of us on the ground (selling real estate) see the bubble quite differently. It quite easily began in 2000, if not a year or so before then. Most Realtors would put the cause squarely on the backs of lenders for developing smoke- and-mirror mortgage products specifically for low-income bums who couldn't buy lunch, much less pay a mortgage...on the backs of FNMA and FHA for issuing and guaranteeing these products...on the backs of the rating agencies like Standard & Poors, Moody's and Fitch for rating junk as Triple A.
    The devil whispered in my ear, "You cannot withstand the storm." I whispered back, "I am ​the storm."

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Quote Originally Posted by MaggieD View Post
    Those of us on the ground (selling real estate) see the bubble quite differently. It quite easily began in 2000, if not a year or so before then. Most Realtors would put the cause squarely on the backs of lenders for developing smoke- and-mirror mortgage products specifically for low-income bums who couldn't buy lunch, much less pay a mortgage...on the backs of FNMA and FHA for issuing and guaranteeing these products...on the backs of the rating agencies like Standard & Poors, Moody's and Fitch for rating junk as Triple A.
    Don't interrupt him with reality while he's trying to make a point.

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Q Why would Bush’s regulators let banks lower their lending standards?

    A. Federal regulators at the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision work for Bush and he was pushing his “Ownership Society” programs that was a major and successful part of his re election campaign in 2004. And Bush’s regulators not only let banks do this, they attacked state regulators trying to do their jobs. Bush’s documented policies and statements in timeframe leading up to the start of the Bush Mortgage Bubble include (but not limited to)

    Wanting 5.5 million more minority homeowners
    Tells congress there is nothing wrong with GSEs
    Pledging to use federal policy to increase home ownership
    Routinely taking credit for the housing market
    Forcing GSEs to buy more low income home loans by raising their Housing Goals
    Lowering Invesntment bank’s capital requirements, Net Capital rule
    Reversing the Clinton rule that restricted GSEs purchases of subprime loans
    Lowering down payment requirements to 0%
    Forcing GSEs to spend an additional 440 billion in the secondary markets
    Giving away 40,000 free down payments
    PREEMPTING ALL STATE LAWS AGAINST PREDATORY LENDING
    But the biggest policy was regulators not enforcing lending standards.

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Apparently he doesn't realize that the laws that allowed the housing bubble to happen was enacted under Clinton...which he later regretted. He also apparently does not know that Bush tried to stop the practice but was blocked twice by democrats.

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    The bubbles, not just housing but other things as well, began in the late 80s and early 90s. By the late 90s, those of us who were watching were already seeing the first signs that the bubbles were going to burst. There was a dramatic downturn in many markets in 99 and 2000... before Bush even took office.

    The fact is there is a LOT of blame to spread around for the economic disasters we've experienced over the past decade-plus... including at least three presidents, innumerable Senators and Reps, and a lot of Wall Street types.


    Laying it all at Dubya's feet is just hyper-partisanship.

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Q My conservative friends blame policies from 1864, 1977, 1992, 1995, 1999 and 2000. Why aren’t those policies responsible for the Bush Mortgage Bubble?

    A Those policies had nothing to do with banks lowering their lending standards in late 2004 and they had nothing to do with Bush’s regulators not their jobs and had nothing to do with Bush’s regulators blocking state regulators from doing their jobs.

    Q I have a friend who's a realtor and she insists the Bubble started in 2000, if not a year or so before then. What about that?

    A Well I cant answer for anecdotal statements that are simply not supported by any data. I can only post clear straightforward points and back them up with solid factual links. Bush's working group told you it started late 2004. The fed told you it started in the same timeframe. Subprime loans increased 300 % a little before that timeframe and No Doc loans ROCKETED UP 1000% in that exact timeframe laid out by Bush's Working Group.

    How can anybody argue with that?

    A no, I ask the questions.

    Q sorry

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    re: Bush Mortgage Bubble FAQs[W:1083,1531]

    Q Seriously, my conservative friends are really really adamant that the Bush Mortgage Bubble started in 1864, 1977, 1992, 1995, 1999 or 2000 or any year other than when Bush was president. How could those policies not affect the Bush Mortgage Bubble?

    A The thousands of housing policies implemented before Bush was president didnt cause Banks to lower their lending standards and the thousands of housing policies implemented before Bush had nothing to do with Bush's regulators doing nothing to stop banks from lowering their lending standards.

    Q Can you prove Bush’s regulators didn’t enforce lending standards.
    A Yes.

    From Bush's President’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-cen...s%20update.pdf

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