Hi Everyone,
When the topic of blame comes up, lots of us in the mortgage lending industry always seem to want to point towards someone else instead of taking a look at our own role as loan originators, processors, underwriters, and so forth. One thing I constantly hear is how it was the fault of Fannie Mae and Freddie Mac for lending money to subprime borrowers. First of all, Fannie and Freddie don’t lend money and second, that myth has already been debunked here and here.
Michael Bloomberg publicly blames Congress for passing laws encouraging Fannie and Freddie to do the same. Read how ignorant that position is right here.
Others blame the Community Reinvestment Act saying the Act forced banks to make mortgage loans to subprime borrowers. Sorry folks, the CRA has been around since the 1970s and is not to blame for the real estate bubble and the meltdown. Read why here. Most of the subprime loans made were originated by people not subject to the CRA.
It’s beyond time to stop blaming others and to take accountability for what we can do as a collective group of individuals so we can move forward.
Hi Jillayne. I thought I’d check in and see what was up at your site. Hey, we agree on this topic. Here’s something from Jonathan Foxx of the Lender’s Compliance Group regarding a study the FRB published in August.
“A report issued by the Federal Reserve early in August should receive far more attention than it has received to date.
According to this FRB (Federal Reserve Board) study, neither the Community Reinvestment Act (CRA) nor the affordable housing goals of the federal government sponsored enterprises (GSEs) were significant causes of the recent problems in the subprime mortgage market.
Generally speaking, the CRA and the GSEs have been blamed for causing, or at least contributing to the subprime crisis. After all, both favor lending to borrowers in lower-income census tracts which accounted for a disproportionate share of the growth in lending during the subprime buildup, as well as a disproportionate share of higher-priced, piggyback, no-income, and high-PITI lending, and elevated mortgage delinquency rates.
But the report concludes that “superficial association may be misleading.” This view represents the empirical analysis caution, best stated in the probability dictum: correlation is not causation.”
Freddie and Fannie weren’t the cause, but their late entry into the business of buying subprime loans – at the moment they should have been running the other way – accelerated the craziness and created insolvent entities that we will be paying for in the years to come. If they wouldn’t have added so much liquidity to the sub prime market, maybe the peak wouldn’t have been so high and the fall would certainly have been a lot less.