A combination of 100-to-1 leverage and an however small but higher losses on mortages. Which was due to general conditions.

«or why it matters whether housing sales had peaked in 2005?»

Well, for one thing thye GSEs do not handle HELOCs, only first sales, and they only handled up to a certain size.

«Did they stop buying and securitizing at that point? If they had stopped (or slowed down), would we have avoided substantially more problems, or would it not have made a difference?»

A difference to what? To the bubble, no differenc e. The bubble was fed by extraordinarily wide availability of credit at extraordinarily low interest rates that drove house prices to 2-3 times their sustainable level and induced a lot of people to speculate in housing and to extract the newly minted equity in their homes via HELOCs, both of which things were keenly followed as real wages and even family budgets were strained.

The GSEs were serving the healthier part of the market, and their market share went down significantly at the top of the bubble. So they were really a small factor. Their wider significance was just that their debt was widely held by foreign investors whose continued purchased of USA debt is absolutely crucial.

As to the difference to the GSE themselves, well, had they stopped lending at 100-to-1 leverage that would have been nice, but their management and private investors would have never allowed that, backstopped as they felt by the USA.

Look, the GSEs have been a small, relatively healthy part of the story.

The big deal has been thoroughly corrupt rating agencies, investment banks and mortgage brokers, and overall a credit and deregulation crazy administration, first actively egged on by the thoroughly corrupt Republican majority for a decade, and then insufficiently restrained by a not-strong-enough (and somewhat corrupt) Democratic majority that followed.

Bullshit. Point to the paragraph where they claim responsibility for *lowering* lending standards. They talk about how they worked towards getting lenders to use alternative measures of income for mortgages, but I don’t see where they talk about giving mortgages to unqualified individuals or families.

You also seemed to miss this sentence:

“From the lender’s perspective, the AHC counseled mortgage loans have turned out to be low risk loans with low delinquency rates.”

But how can that be, if they’re *lowering* lending standards ?

And what about those standards ? Well, I’ll be, there’s a link right on their page where you can read for yourself:

http://www.acorn.org/index.php?id=688

Hmmm, here’s the money quote right at the top:

“Creditworthiness, the ability to repay, and the value of the property are the major considerations in approving a loan.”

Wow, that’s really radical stuff.

CNG, is Plentiful, and Homegrown!~

The Technology has been well-proved over Decades, it works, and works well.

Past that, to the point of the Post, its ownself: Who Were the Leaders in Lowering Credit Standards?

BR has a preternatural blind-spot for the real answer: The Federal Reserve, in all ways, including the old adage: “Give me Control of a Nation’s Money, and I care not who makes its Laws.”
http://www.thefreedictionary.com/preternaturally

anyway, I am not a fan of Ben Stein, but I stumbled across this 2/10/08 NYT article where he comes out against deregulation and the repeal of Glass-Steagall! I’ll be darned.

“BUT something else was missing here. Since the era of Ronald Reagan, we have been told by powerful groups that regulation is bad and that our economy will grow like magic if we take it away. So regulation was removed from savings and loans, and they were looted mercilessly.

The Glass-Steagall Act was repealed so that large commercial banks could get into selling investments, and we got the near ruin of immense banks. And regulation of the mortgage-based securities was confined to a boilerplate that says everything and means nothing. And the cheerleaders in Washington say, “Now we need even less regulation!” And the Supreme Court, that highest judicial body in the land, just spoke through its cloaks most deep and distinguished, and severely limited the ability of shareholders to file federal class-action suits against investment banks that help a company accused of committing fraud.”

http://www.acorn.org/index.php?id=689

“Early on AHC recognized the need to bring in the secondary market and private mortgage insurers, if these new underwriting standards were to succeed. In response to ACORN pressure, Fannie Mae created the Fannie Mae/ACORN Pilot, which allows Fannie Mae to purchase AHC counseled mortgages using the more flexible AHC style underwriting. This flexibility was a major step forward for Fannie but also required participation by private mortgage insurers who are typically the least progressive link in the home buying chain. To date, four of the major mortgage insurers have signed on to the AHC program: MGIC, CMAC, GE, and UGI.”

Read the whole thing, in it, Acorn gives credit to the CRA for allowing them to browbeat the banks into drastically lowering their lending standards. They also describe how that wasn’t enough, they had to get Fannie and Freddie to lower their standards too, and they succeeded.

Don’t take my word for it, take Acorn’s. They describe the entire process at the link above.

Man, this is going to get ugly.

Anybody in the real estate mortgage business during the boom knows full well that Fannie and Freddie weren’t hardly the cause. I was/am and saw first-hand the insanity that pervaded the transactions.

Take a list of failed mortgage companies: Ameriquest, New Century, WaMu, etc. I did closings where all of these entities were the ultimate lenders, and the transactions were all garbage–especially Ameriquest, which was particularly aggressive.

Ameriquest did a loan once for a blind man on disability to buy his house back from a foreclosure sale. The poor guy went from one sleazy slum lord to another, with thousands of dollars of fees tacked on for good measure. I felt like I needed a shower after the closing. I soon after quit doing business with Ameriquest.

They (Ameriquest, et. al) were most definitely not lending to the guy because ACORN or the CRA required them to. They were doing it because they knew they could sell the loan downstream, even if the chances, given the oppressive terms of the loan, of repayment were practically non-existent. They got their fees (often 10% or more of the loan balance) and laughed all the way to the securitization desk.

The true source of the problem was too much money. The massive trade deficits needing to be financed played a role, but Greenspan’s loose money policy probably played a bigger one.

Fannie and Freddie were late to the subprime game. The loans funded by them were, until about 05-06, straight A stuff. Their main client, CFC, was a big client of mine and the retail branch I worked with didn’t do anything remotely approaching the antics of Ameriquest or New Century, et al. No buying people out of foreclosure or bankruptcy or the like.

It was only later in the game that CFC got involved in subprime in a big way (about 04-05), but that was all handled by a division completely separate from the one doing what the business refers to as “conforming” loans. The standards for conforming loans remained pretty much the same, until recently.

In the last year or so, underwriting standards have fallen precipitously–conforming loans seem not much different than the Ameriquest loans of yesteryear. But that’s what happens when Uncle Ben and Emperor Hank pull out the checkbook. This is going to get more interesting still, it seems.

Here is the Theory Of The Dead Hobo:

The increased supply of money to trade with creates a demand for trading, and willing sellers will happily raise prices to accommodate