What Will It Take for Us to Get Back to Being a Decent Society?
POSTED BY: Niki2
UPDATED: Saturday, April 25, 2026 00:05
VIEWED: 18057
PAGE 9 of 22
BYTE, OOC-- do you know which legislated standards are in place governing mortgage lending? Because I don't think there are many.
I know that in order to be insured by the FDIC, a bank has to have a certain amount of actual cash-on-hand... 5%, or something like that... in order to cover contingencies. Other than than, they're free to create as much $$ as they need in order to lend what they want. There has to be a certain amount of "truth-in-lending". There USED to be a barrier between savings and loans banks and investment banks, but that was done away with. Fannie and Freddie used to require a certain amount of down payment before buying a mortgage, and certain physical requirements on the buildings.
But despite the reichwing constantly repeating that the banks were "forced" to loan to non-qualified applicants, there's no law or regulation they can point to which shows this to be true. And as far as I know, there were no limits on the amount of interest a bank could charge, or how much down-payment was required, or whether an applicant had enough income to support that loan. So quite honestly, I have not a clue as to what you're talking about when you refer to legislated standards.
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Back to the OP.
NIKI, we have to get beyond the plaintive Why can't we all just get along? approach. The reason why society is as fucked up as it is, is because the wealthy and powerful have made it that way for their benefit. And as KIKI has pointed out, wealth begets assholeness... which begets wealth... which begets... And even the wealthy who are honest enough to recognize that they're parasites on society don't stop. Like Soros, they say- Hey, I just play by the rules, I didn't make them
"Asking" the rich and powerful to be nice is like expecting a lion to stop eating zebras. It's pointless. There are only two ways to make this a decent society: either get rid of the rich and powerful (a guillotine would be a nice touch), or build an alternate society and refuse to let the rich and powerful in. In order to build an alternate society, you need an alternate medium of exchange, because money and the current financial system pretty much has us all by the short-hairs. Yanno what I mean?
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But despite the reichwing constantly repeating that the banks were "forced" to loan to non-qualified applicants, there's no law or regulation they can point to which shows this to be true.
Which is, again, not what I meant.
To break it down all I said was:
1)
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Housing for people who couldn't afford it led to the sub-prime mortgage crisis.
In retrospect and probably the cause of this disagreement, this does sound like I was blaming the borrowers. I meant this in more of a general sense. If all of the borrowers had been able to afford their mortgage loans, the crisis wouldn't have happened. But enough people who couldn't afford the loans (many of which weren't fair to begin with) defaulted, which led to the collapse of the housing bubble.
2)
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The first side is that the lending practices for these sub-prime mortgages were actually a legislated standard at the time through affordable housing policies.
This is admittedly badly said. Affordable housing policies do establish certain rates and limits for certain loans, and there are standards for sub-prime mortgages, but I should not have combined those two ideas in the same sentence.
However, everyone seems to have focused on that, when shortly afterward I clarified
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But, as you say, deregulation allowed banks and loan sharks to pull all kinda of bullshit with low quality loans, then sell off or gamble on/invest with toxic assets. And in truth the sub-prime loans that were the big problem were actually NOT the loans that were mandated by government policy.
Ultimately, there was never any point where I said that banks were forced to give out the problematic loans because of affordable housing policies.
As for your request that I describe the legal basis of my comments, the basic explanation is that in order for some of these kinds of loans to be considered illegal and fraudulent, there must be laws about what constitutes a legal, non-fraudulent version of this kind of loan. Otherwise the cases all those state attorney generals compiled against fraudulent lenders could not exist.
More specifically, although these defining laws clearly must exist (I am unable to give you the exact bill identification numbers), the standards we're talking about are arguably created by legislated government sponsored entities. Before the lead-up to the sub-prime mortgage crisis, loans of this kind were regulated by the likes of Fannie Mae and Freddie Mac. These institutions had strict rules and limitations on loans (conforming loans). Conforming loans could be bought by these institutions to make money for the lender, keep the rates down for the borrower, and also to discourage "non-conforming" loans from flooding the market.
Unfortunately loans from private enterprises packaged into mortgage backed securities, which tended to be low-quality non-conforming loans which did not tend to met the established standards began to far outnumber loans backed by the government sponsored entities.
This is the limits of my understanding and ability to verbalize these concepts. Now, look, I'm sorry if I was unclear or my language was flawed or even if my knowledge in regards to economics or financial institutions is lacking. I have long informed everyone that this kind of stuff is NOT my forte. Economics discussions make my eyes go crossed. But being called "reichwing" and the suggestion that I say something ABHORRENT to my sensibilities gets my BACK up a bit.
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Damnit but the internet ate my answer, so this will be short!
There are several places where regulations might be applied in the loan process
1) The financial soundness of the institution. Applies to savings and loans, but not to Countrywide or Goldman Sachs.
2) How the mortgage is explained to the applicant. If there are hidden hoops, it's fraudulent.
3) How the mortgage is explained to a secondary purchaser. If it's been misrepresented, it can (and did) result in lawsuits.
4) Loan approval requirements- income, down payment, assessed value. Given all the shenanigans that were going on, it's hard to believe there were ANY regulations in force.
5) Loan features- interest rate and length of time, balloon payments, prepayment penalties, fees, etc. Again, given all the shenaigans that were going on, I find it hard to believe that there were ANY regulations in force.
But #4 and #5 need to be looked up.
Quote:Fannie and Freddie weren't regulatory agencies, they were privately-owned secondary purchasers. They had standards for the loans THEY purchased, but didn't have any say over all of the loans "out there". Which is why they wound up owning only about 15% of all of the problematic loans.
Before the lead-up to the sub-prime mortgage crisis, loans of this kind were regulated by the likes of Fannie Mae and Freddie Mac. These institutions had strict rules and limitations on loans (conforming loans). Conforming loans could be bought by these institutions to make money for the lender, keep the rates down for the borrower, and also to discourage "non-conforming" loans from flooding the market.
I think my point is that I'm not sure there WAS any kind of government-mandated loan. The government regulated some aspects of mortgage lending, especially the parts having to do with enforcing contract transparency. I'm not sure the government had ANY kind of interest in whatever kind of contract was signed, as long as it was accurately represented on paper. But someone could look up that point and find out for sure.
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Back to the OP.
NIKI, we have to get beyond the plaintive Why can't we all just get along? approach. The reason why society is as fucked up as it is, is because the wealthy and powerful have made it that way for their benefit. And as KIKI has pointed out, wealth begets assholeness... which begets wealth... which begets... And even the wealthy who are honest enough to recognize that they're parasites on society don't stop. Like Soros, they say- Hey, I just play by the rules, I didn't make them
"Asking" the rich and powerful to be nice is like expecting a lion to stop eating zebras. It's pointless. There are only two ways to make this a decent society: either get rid of the rich and powerful (a guillotine would be a nice touch), or build an alternate society and refuse to let the rich and powerful in. In order to build an alternate society, you need an alternate medium of exchange, because money and the current financial system pretty much has us all by the short-hairs. Yanno what I mean?
Hoping for input from NIKI.
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Fannie and Freddie weren't regulatory agencies, they were privately-owned secondary purchasers.
They were created as regulatory agencies. They became privately owned secondary purchasers later, but remain a significant force in the industry in terms of standards, and you can't tell me that they don't do so in cooperation with the government.
You know what else is actually technically an independent entity that was created by legislation that is run basically by a private board of bank directors? The Federal Reserve.
Ultimately they are a regulatory influence on the market, and do so in conjunction with and with the consent of the government. They do not operate in a vacuum of government oversight. Arguably, both the government and private entities had a lion's share of the blame in the lead up to the crisis. In order for it all to happen, there had to be a lot of corruption and fraud and a lot of people who looked the other way.
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I think my point is that I'm not sure there WAS any kind of government-mandated loan.
Which was not what I was saying or meant to say. There was a point where I mentioned the term mandatory loans, but I was thinking of subsidies and subsidized loans that specifically don't discriminate against low income groups or bad credit scores. I was not meaning to imply that the government forced the poor sad banks to issue loans - the government and the banks are in cahoots and make lots of money together.
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The government regulated some aspects of mortgage lending, especially the parts having to do with enforcing contract transparency. I'm not sure the government had ANY kind of interest in whatever kind of contract was signed, as long as it was accurately represented on paper. But someone could look up that point and find out for sure.
Which was what I was saying.
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They were created as regulatory agencies. They became privately owned secondary purchasers later, but remain a significant force in the industry in terms of standards, and you can't tell me that they don't do so in cooperation with the government.
RE FANNIE AND FREDDIE
Quote:http://en.wikipedia.org/wiki/Fannie_Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968.[2] The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally-based savings and loan associations (aka "thrifts").... In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992 [which] amended the charter of Fannie Mae and Freddie Mac to reflect the Democratic Congress' view that the GSEs "... have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return;" For the first time, the GSEs were required to meet "affordable housing goals" set annually by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases and increased to 55% by 2007.
Freddie Mac is very much the same
http://en.wikipedia.org/wiki/Freddie_Mac
Both Fannie Mae and Freddie Mac stepped into the subprime market, which is why they owned any troubled loans at all (instead of the minority of loans in their portfolio). I have to add that in addition to being a Democratic fair housing goal, in 2007 this was mainly at the behest of the stock owners, who were looking at the rate of return of other mortgage-bundlers, and who were unhappy with stodgy-old Fannie and Freddie getting their ass handed to them by the "free market" investment banks.
Fannie and Freddie were never regulators. The effect that they had on the market was simply as large mortgage purchasers. Since they had no regulatory authority; didn't originate troubled loans like Countrywide and WAMU; didn't buy nearly as many troubled mortgages as Bear Sterns, Lehman Bros, Goldman etc; didn't insure them thru AIG and other insurers; and didn't play in the credit default swap market they weren't "market makers" but more like "market followers".
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OH BTW- NIKI, I am specifically waiting for an answer from you. What I posted goes directly against your Buddhist grain (I think) and yet it is a real-world observation. I'd appreciate seeing how you resolve the problem.
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Fannie and Freddie were never regulators.
I read the exact same paragraph you quoted, and that indicates to me that yes, they were.
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Fannie and Freddie were never regulators. -signy
I read the exact same paragraph you quoted, and that indicates to me that yes, they were.-byte
Being a "regulator" means that you have rules that you can enforce on others through civil or criminal charges, and the authority to levy fines or put people in jail.
Fannie and Freddie, AFAIK were regulated on the quality of mortgages they could purchase, but if a bank or other lender wrote mortgages that didn't meet their specs, they had no authority to bring that bank or lender before their agency, levy a fine, or bring charges against bank officers. (ETA Unless fraud was involved, but I think it might have been the States Attorney General or the SEC who would enforce that.) All they could do, as far as I can tell, is refuse to buy those mortgages. But that's not being a regulator, that's being regulated. If there is information that says otherwise, please let me know.
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