Biden’s new dilemma: How to slash housing costs for low-income borrowers

[1rreducibly Complex]

WASHINGTON — President Joe Biden’s move to fire the top U.S. mortgage regulator is triggering calls from fellow Democrats to use the agency to expand access to loans for lower-income people, who have struggled to buy homes since the financial crisis.

Progressives are concerned that Biden will be too timid in changing course at the powerful agency overseeing Fannie Mae and Freddie Mac, the two companies that stand behind half of the $11 trillion U.S. mortgage market. Top Democrats are calling on Biden to quickly name a permanent leader — a position that Senate Banking Chair Sherrod Brown's spokesperson said is “vital to the administration’s goals of building an equitable economy and must be filled quickly.”

The Trump administration had worked to shrink Fannie and Freddie’s footprint and build their capital buffers so they could be released as private entities and withstand another housing downturn. Democrats opposed those efforts, saying they would raise mortgage costs for consumers. Biden could draw opposition from Republicans if he picked a regulator who reversed course in an attempt to double down on housing affordability.

Advocates want FHFA to immediately do away with Trump-era limits on Fannie and Freddie's purchases of “high-risk” loans — characterized as having some combination of low credit scores and high debt-to-income or loan-to-value ratios.



Biden’s new dilemma: How to slash housing costs for low-income borrowers

 

[d taylor]

-​

It will eventually lead to housing is a right and people will be given a house.

 

[miamited]

-​

It will eventually lead to housing is a right and people will be given a house.

I seriously doubt that. Are you going to build free housing? Housing is already a right, but it doesn't mean someone gets a house. They just get assistance for rent and there are some programs that give some small financial help for buyers. If I had the president's ear, I would tell him to tread carefully into this. The last administration that tried to make it easier for people to buy homes opened up the 'no income verification' loans and lowered the point score for approvals and it ultimately helped lead to the financial collapse of '08.

Mortgages were given to people who really shouldn't have been able to qualify and then thousands of those mortgages were packaged for the down stream mortgage market and eventually someone was left holding a bag full of mortgages that were worthless. As it grew to several million mortgages, it became a crisis and the government had to then go and bail the banks out for a while until they returned to liquidity. Of course, President Obama, who was in charge to fix the problem that he did not create, was smart enough to make those loans and have the companies back them with warrants. Those warrants, after all was said and done, actually made more money for the treasury than the initial loan amounts.

So, surely President Joe needs to tread carefully in this desire to try to provide housing for everyone. The best way has long been Sec. 8. While it doesn't give one homeownership, and let's face it, not everyone is cut out to be a homeowner. It's not cheap, although the rewards have generally been better than renting because when you move, as a homeowner, you get to sell and take your equity with you. As a renter, when you move, all you get is your furniture. The landlord gets all the equity that you paid for in the home.

God bless,
Ted

 

[hislegacy]

Housing is already a right

Where exactly in the Constitution does it establish housing as a right?

 

[miamited]

Where exactly in the Constitution does it establish housing as a right?

@hislegacy

Where does it say in the Constitution that the only rights anyone has are those afforded through the constitution. There are literally dozens of 'rights' that American citizens have, that are not found in the constitution.

The Ninth Amendment was part of the Bill of Rights that was added to the Constitution on December 15, 1791. It says that all the rights not listed in the Constitution belong to the people, not the government.

People have rights that are not enumerated in the constitution. The government cannot assert any right for itself, that is not enumerated in the constitution.

Basic law, my friend.

God bless,
Ted

 

[hislegacy]

@hislegacy

Where does it say in the Constitution that the only rights anyone has are those afforded through the constitution. There are literally dozens of 'rights' that American citizens have, that are not found in the constitution.

The Ninth Amendment was part of the Bill of Rights that was added to the Constitution on December 15, 1791. It says that all the rights not listed in the Constitution belong to the people, not the government.

People have rights that are not enumerated in the constitution. The government cannot assert any right for itself, that is not enumerated in the constitution.

Basic law, my friend.

God bless,
Ted

When James Madison introduced the Ninth Amendment to the House of Representatives, he said that this draft was to prevent increasing the power of the government and is put in as a cautionary measure. He felt that the first Eight Amendments talked about how the federal government could exercise its powers, and the Ninth Amendment referred to many rights that still could not be taken away by the government.

Modern Use of the Ninth Amendment
Today, the Ninth Amendment is used mainly to stop the government from expanding its power rather than just limiting their power.

want to try again?

There is no right to housing. If there was, there would be no homeless, there would be lawyers suing for their rights to be upheld. That is also why you cannot show where the right to housing is mentioned anywhere in the gov

common sense my friend.

 

[miamited]

@hislegacy

When James Madison introduced the Ninth Amendment to the House of Representatives, he said that this draft was to prevent increasing the power of the government and is put in as a cautionary measure.

I think that's the point I made about the 9th amendment not allowing any further government rights. He may well have said that it was 'put in as a cautionary measure'. That seems to be exactly what it is intended for and whether one wants to term it as 'cautionary' or not, it does make the case that 'there were others that are protected'.

I suppose you and I could discuss ad infinitum 'what' rights he may have been referring to, but as far as I can tell, there is no way someone would say that it specifically denies the right of a roof over someone's head as a right of being an American. If you want to believe that Americans don't have any right to a roof over their head, a home, whether a house or apartment, you are free to make that argument.

But just know that the constitution of the United States does allow for the people to have rights that are not specifically spelled out in said document.

God bless,
Ted

 

[hislegacy]

Unless you can cite a source showing housing is a right in the US all-your words are pointless regarding the subject.

 

[JimR-OCDS]

Isn't the same approach that caused the economic collapse in 2007 ?

Banks writing mortgages for those who can't afford to pay the premiums, with the government
ensuring the loans ?

 

[iluvatar5150]

Isn't the same approach that caused the economic collapse in 2007 ?

Banks writing mortgages for those who can't afford to pay the premiums, with the government
ensuring the loans ?

No, the economic collapse was caused by improper risk assessments of securities that aggregated mountains of bad loans, leading to investment banks taking on inappropriate amounts of debt to invest in those loans. If the risks had been properly evaluated, there would have been fewer bad loans made; those bad loans would have been harder to resell; the hedges against their securities would have been more expensive; and there would have been less money borrowed to invest in them.

Bad loans on their own would have not spread risk beyond borrowers and the institutions who lent them money. The threat of systemic collapse came when bigger investors bought and sold these loan en masse and borrowed tons of money from each other to do it.

 

[JimR-OCDS]

No, the economic collapse was caused by improper risk assessments of securities that aggregated mountains of bad loans, leading to investment banks taking on inappropriate amounts of debt to invest in those loans. If the risks had been properly evaluated, there would have been fewer bad loans made; those bad loans would have been harder to resell; the hedges against their securities would have been more expensive; and there would have been less money borrowed to invest in them.

Bad loans on their own would have not spread risk beyond borrowers and the institutions who lent them money. The threat of systemic collapse came when bigger investors bought and sold these loan en masse and borrowed tons of money from each other to do it.

Isn't that the same thing as what I asked about ?

 

[iluvatar5150]

From the OP:

Industry analysts also say cheaper mortgages would do little to solve the fundamental problem in the housing market, which has seen skyrocketing prices because the supply of homes is too small to meet demand.

“There are real questions about what FHFA can do on affordability given that we’re in a supply crisis,” said Isaac Boltansky, policy research director at the investment firm Compass Point. “How much does moving the dial a little bit do when we just don’t have enough homes?”

THAT is the real problem. I’m fine with Fanny/Freddie injecting liquidity into the markets and helping people get loans that would otherwise not be made, but I question just how much more “affordable” these houses will be. On a $200k loan, each 0.5% in interest costs $1000/yr, which isn’t nothing, but isn’t a ton, either. If $1-200/mo is the difference between you affording a house and not affording it, then you probably can’t afford it.

Isn't that the same thing as what I asked about ?

No. The systemic problems that posed the risk of collapse were downstream of the bad loans (though they fed back into the generation of bad loans).

An analogy would be casinos: Casinos make money because they know the odds of their games and they know that if they have enough capital to ride out the individual losses, they’ll ultimately come out ahead. Insurance works they same way, as do collateralized debt obligations.

If a casino looks at a table game like roulette and calculates the player’s odds of winning at 49%, then they know that if they install a whole bunch of roulette tables, they can make a ton of money - enough that it’s worth borrowing money to buy more. Likewise, if an insurance company calculates the risk of a catastrophic flood at once in 100 years, then as long as individual flood premiums pay for a property inside of 90 years, they’ll make money. Ditto for CDO’s.

But when Casino A borrows $1m for new roulette tables, and Casino Conglomerate X borrows $1B to buy shares of Casinos A, B, and C, and Hedge Fund Y borrows $10B to invest in Conglomerates X, Y, and Z, then you wind up with a bunch of dependencies that didn’t exist when it was just one guy playing one table game at one casino. And when the valuation of the risk is wrong, e.g. the roulette tables are defective and give the players a 51% chance of winning, then all of a sudden, all of the value backing those loans disappears, everybody defaults, and the whole industry collapses.

Same thing happens if your once-a-century floods happen twice a century. Your profitable insurance business collapses and takes down all of your underwriters with it.

You can make sketchy loans all day long - as long as you correctly evaluate the risk and price the loans accordingly, your wins will outpace your losses. It’s when you mess up the risk and then borrow money to bet on your miscalculation that things go very bad.

 

[JimR-OCDS]

From the OP:



THAT is the real problem. I’m fine with Fanny/Freddie injecting liquidity into the markets and helping people get loans that would otherwise not be made, but I question just how much more “affordable” these houses will be. On a $200k loan, each 0.5% in interest costs $1000/yr, which isn’t nothing, but isn’t a ton, either. If $1-200/mo is the difference between you affording a house and not affording it, then you probably can’t afford it.




No. The systemic problems that posed the risk of collapse were downstream of the bad loans (though they fed back into the generation of bad loans).

An analogy would be casinos: Casinos make money because they know the odds of their games and they know that if they have enough capital to ride out the individual losses, they’ll ultimately come out ahead. Insurance works they same way, as do collateralized debt obligations.

If a casino looks at a table game like roulette and calculates the player’s odds of winning at 49%, then they know that if they install a whole bunch of roulette tables, they can make a ton of money - enough that it’s worth borrowing money to buy more. Likewise, if an insurance company calculates the risk of a catastrophic flood at once in 100 years, then as long as individual flood premiums pay for a property inside of 90 years, they’ll make money. Ditto for CDO’s.

But when Casino A borrows $1m for new roulette tables, and Casino Conglomerate X borrows $1B to buy shares of Casinos A, B, and C, and Hedge Fund Y borrows $10B to invest in Conglomerates X, Y, and Z, then you wind up with a bunch of dependencies that didn’t exist when it was just one guy playing one table game at one casino. And when the valuation of the risk is wrong, e.g. the roulette tables are defective and give the players a 51% chance of winning, then all of a sudden, all of the value backing those loans disappears, everybody defaults, and the whole industry collapses.

Same thing happens if your once-a-century floods happen twice a century. Your profitable insurance business collapses and takes down all of your underwriters with it.

You can make sketchy loans all day long - as long as you correctly evaluate the risk and price the loans accordingly, your wins will outpace your losses. It’s when you mess up the risk and then borrow money to bet on your miscalculation that things go very bad.

But the problem is, AIG had insured the loans that were defaulting and they couldn't do it, so the Government had to bail AIG and the banks out.

Remember the slogan "Too Big to Fail ?"

 

[miamited]

But the problem is, AIG had insured the loans that were defaulting and they couldn't do it, so the Government had to bail AIG and the banks out.

Remember the slogan "Too Big to Fail ?"

@JimR-OCDS
It certainly wasn't just AIG that lost a bundle from mortgage backed securities. I'm not sure how AIG got singled out in this conversation. I don't see it mentioned in the quoted post. There were a lot, let me repeat in all caps, A LOT, of financial businesses that suffered sizeable losses from the mortgage backed securities fallout. However, AIG was likely the single company that received the most bailout. This, of course, trickled on down to smaller businesses.

There's a commercial on TV today about how a small business near an Amazon facility finds that Amazon paying their employees a fair wage, allows this small business to do better because the Amazon employees have disposable income. Well, the mortgage backed securities crisis worked that same algorithm backwards. The pool of disposable income that was the large companies in the community dried up and the small businesses suffered from the retraction of that money.

I do agree that @iluvatar5150 isn't correct about the cause of the mortgage backed securities not being the main impetus that began the financial collapse of 2007. I think that pretty much every financial wizard who has looked into the causes of that tough time do agree that it was the packaging of these millions upon millions of bad loans that began the domino effect of the crisis. Some of the blame for this can be laid at the feet of the Clinton administration who also tried to get banks to lower their mortgage qualification requirements. There were also a lot of people, because housing prices were going up so rapidly, who would take out new loans every couple of years to capture some the buying power of their increased equity. Many of them took adjustable loans that advertised great starter rates, but within a few years would balloon to astronomical interest rates on very large loans. When these adjustable rates ballooned, the poor people who could afford the payment on the lower rate found themselves in a pretty deep hole in trying to cover the higher rate payments. All of this kind of met in a perfect storm of mortgage defaults.

Yes, the federal government did step in to address the problem by making loans to the failing businesses. However, that's what the federal government has always done when the nation has been faced with such dire circumstances. I do believe that President Obama and his counselors were wise in working it out as they did. They took out warrants against the companies that took the loans. When those companies, 3-5 years later were back on reasonably strong financial footing, the government cashed in those warrants and actually made more money than they loaned out in most cases. Yes there were some companies that never recovered and any loan money was lost. Overall, however, the OMB numbers show that:

The State of the Bailout
Outflows: $634.1 billion – This includes money that has actually been spent, invested, or loaned.
(38.7%) of total to Banks and other Financial Institutions = $245.2B -- (30.2%) Fannie and Freddie =
$191.5B -- (12.6%) to Auto Companies = $79.7B -- (10.7%) AIG = $67.8B -- (4.9%) other = $31.3B (2.9%) -- Toxic Asset Purchases = $18.6B

Inflows: $743.8 billion – Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants. (52.5%) of total from refunds = $390.3B -- (47.5%) from revenue =
$353.5B.

$109.7B Profit (Source: Bailout Tracker)

Likely one of the best bailouts the government has ever executed. The problem for our spending deficit is that when the money came back in, as Congress is always excited to do, it was just absorbed into the treasury and not used to pay back the money that the TARP program initially added to the deficit.

God bless,
Ted

 

[JimR-OCDS]

@JimR-OCDS
It certainly wasn't just AIG that lost a bundle from mortgage backed securities. I'm not sure how AIG got singled out in this conversation. I don't see it mentioned in the quoted post. There were a lot, let me repeat in all caps, A LOT, of financial businesses that suffered sizeable losses from the mortgage backed securities fallout. However, AIG was likely the single company that received the most bailout. This, of course, trickled on down to smaller businesses.

There's a commercial on TV today about how a small business near an Amazon facility finds that Amazon paying their employees a fair wage, allows this small business to do better because the Amazon employees have disposable income. Well, the mortgage backed securities crisis worked that same algorithm backwards. The pool of disposable income that was the large companies in the community dried up and the small businesses suffered from the retraction of that money.

I do agree that @iluvatar5150 isn't correct about the cause of the mortgage backed securities not being the main impetus that began the financial collapse of 2007. I think that pretty much every financial wizard who has looked into the causes of that tough time do agree that it was the packaging of these millions upon millions of bad loans that began the domino effect of the crisis. Some of the blame for this can be laid at the feet of the Clinton administration who also tried to get banks to lower their mortgage qualification requirements. There were also a lot of people, because housing prices were going up so rapidly, who would take out new loans every couple of years to capture some the buying power of their increased equity. Many of them took adjustable loans that advertised great starter rates, but within a few years would balloon to astronomical interest rates on very large loans. When these adjustable rates ballooned, the poor people who could afford the payment on the lower rate found themselves in a pretty deep hole in trying to cover the higher rate payments. All of this kind of met in a perfect storm of mortgage defaults.

Yes, the federal government did step in to address the problem by making loans to the failing businesses. However, that's what the federal government has always done when the nation has been faced with such dire circumstances. I do believe that President Obama and his counselors were wise in working it out as they did. They took out warrants against the companies that took the loans. When those companies, 3-5 years later were back on reasonably strong financial footing, the government cashed in those warrants and actually made more money than they loaned out in most cases. Yes there were some companies that never recovered and any loan money was lost. Overall, however, the OMB numbers show that:

The State of the Bailout
Outflows: $634.1 billion – This includes money that has actually been spent, invested, or loaned.
(38.7%) of total to Banks and other Financial Institutions = $245.2B -- (30.2%) Fannie and Freddie =
$191.5B -- (12.6%) to Auto Companies = $79.7B -- (10.7%) AIG = $67.8B -- (4.9%) other = $31.3B (2.9%) -- Toxic Asset Purchases = $18.6B

Inflows: $743.8 billion – Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants. (52.5%) of total from refunds = $390.3B -- (47.5%) from revenue =
$353.5B.

$109.7B Profit (Source: Bailout Tracker)

Likely one of the best bailouts the government has ever executed. The problem for our spending deficit is that when the money came back in, as Congress is always excited to do, it was just absorbed into the treasury and not used to pay back the money that the TARP program initially added to the deficit.

God bless,
Ted

The cause ? Bad loans. The cure ? The government bailed out the investors and insurer AIG as
they were too big to fail. The reality is, they were too big to fail. Their failure would've bankrupted the US Government. Some say this would've been the best thing to happen. I'm not sure.

That was the simple answer, but the fact is, banks under Clinton's administration were forced into
writing loans in red zones, which they would not have written before, just as you stated.

There was also the .com explosion where new businesses were started that would quickly failed once the .com bubble burst. This led to the housing bubble to burst as well. All it took for that to happen was the loss of jobs as US manufacturing and then high-tech engineering, moved to China and India. By then we were well into the Bush administration who had 9/11 to help the GOP controlled congress get us into two unfunded wars, which this and other spending issues, cause the surplus Bush and the GOP to inherit, to drive us back into debt and deficit level spending. Even Reagan advisors wrote about the imposters in Bush and the GOP members in Congress.

In all, by the time 2007 came around, the collapse in mortgages and job loss was well under way.
People's 401k's were cut in half. The poor people who had retired at that time, saw their life savings go out the window.

Anyway, thank God Obama saved us from a 1929 Great Depression, which certainly would've happened. But Congressional spending never reversed and during Obama's first two years, when the Democrats and Nancy Pelosi had control of Congress, Obama himself went to Pelosi and told her to turn back spending on social issues which had nothing to do with fixing the economy. She of course ignored him, as he didn't have much clout with the Democrats anyway. He was too new in Washington Politics.

Biden's plan to get the government involved in building new housing projects in the poor districts across the US, is exactly what took place back in the Carter years. I watched housing projects built and turn into slums within six years. The housing project in the town I lived in, turned over four times before I got the heck out of there. We're heading down that road again.

Oh and BTW, Biden was in Congress when it all happened before. He knows how to mess things up as most government projects in his day turned out.

 

[iluvatar5150]

That was the simple answer, but the fact is, banks under Clinton's administration were forced into
writing loans in red zones, which they would not have written before, just as you stated.

No, they weren't. This is a myth. Only about a quarter of the subprime loans were issued by institutions fully covered by the CRA. Any contribution the CRA made to the crisis was relatively minor.
Community Reinvestment Act - Wikipedia

 

[JimR-OCDS]

No, they weren't. This is a myth. Only about a quarter of the subprime loans were issued by institutions fully covered by the CRA. Any contribution the CRA made to the crisis was relatively minor.
Community Reinvestment Act - Wikipedia

It's not a myth and bankers and loan officers will tell you how they had to write a certain percentage of loans in red zone districts and to people they would never have given loans before.

It's according to me, but according to them who were in the business.

Giving balloon mortgages was part of deregulation that the government gave the banks and people got burned by them, especially when they lost their jobs and couldn't get new mortgages as they had no income to qualify with.

Heck when I renewed my mortgage in the 90's to buy the land next to me, the loan officer asked if I wanted a balloon mortgage as the payments would be lower. I refused and said I wanted a fixed rate mortgage.

In the end, the government had to bail out the big financial institutions as AIG couldn't cover the liability they were carrying.

 

[Paradox.79]

-​

It will eventually lead to housing is a right and people will be given a house.

Well I think a roof over your head should be a right. I sincerely doubt Jesus would object.

 

[Paradox.79]

Where exactly in the Constitution does it establish housing as a right?

How about a moral right...I always notice conservatives get there get there backs up when it comes to helping those in need. What is truly hilarious every aspect of Christs teachings say help the poor and those in need. Christ is also very clear were those who do not want to help there fellow man go and it is not heaven. I think alot of conservatives Christians who make it very clear they do not want help anyone but themselves and maybe there own family are gonna have serious problem when they stand before god.

 

[d taylor]

Well I think a roof over your head should be a right. I sincerely doubt Jesus would object.

What all should be a right for a person living in this american country.