Freddie Mac Rejects New York Subprime

Posted by Anal_yst, Aug 12, 2008 5:04PM

in politics, the law of unintended consequences is the only law that holds up over time, this shouldn't be a surprise to anyone

Posted by guest, Aug 12, 2008 5:34PM

I would hardly label that as 'unintended consequences' - unless you are talking to a liberal of course (not you, I know you are not).

Look at the WSJ editorial on the cigarette tax in Maryland - they hiked it and cigarette sales fell reducing revenu instead of increasing it. Once again, liberals at play.

Now the messiah is going to increase taxes on everything, and his supporters are going to hyperventilate if you try to ask him 'what if it reduces overall revenue.' Because of course - when you raise taxes you get more, you can never get less.

Posted by guest, Aug 12, 2008 6:35PM

I think the fall of the financials today and this recent tack of Freddie Mac (which I support, because the GSE has been run so irresponsibly in the past)all indicate that we haven't reached the bottom of anything yet.

Freddie Mac is ostensibly being bailed out by the U.S. Treasury to keep the financial structure standing and the mortgage market liquid, but even at politically-infested Freddie Mac, they won't buy over protected mortgages.

Who's going to buy these mortgages? I think we need to stop trying to fiddle with mortgages, because the corrective measures just seem to make matters worse. A mortgage should remain a simple secured debt; you don't pay the debt, you lose the security. That's the basis of the mortgage agreement, and it's on that basis that lenders assess the credit risk they're taking.

I know it's an argument that has been rejected in the past and moved away from over time, but why don't we reform the bankruptcy laws to be as they were, allowing a bankruptcy to freeze a foreclosure during its pendency, but allowing a homeowner to discharge completely his or her burden of heavy consumer debt that may be interfering with the ability to pay the mortgage.

Once a plan is in place in the bankruptcy court, people can start paying the mortgage again. That way people are able to stay in their homes but get rid of the debts that charge 18% interest (and escalate well beyond that to as much as 30+% interest).

I guess it's a question of which way the credit institutions want to take their losses, through the escalation of the collapse of the mortgage market or through consumer's ability to discharge debt in bankruptcy.

Posted by guest, Aug 12, 2008 6:42PM

they aren't buying them because investors don't want to be exposed to this kind of risk.

our legislatures should be worried about enticing investors back to the markets, both private and agency, not scaring them away. sadly, they seem to enjoy scaring them away a lot more.

you should also note that the definition of "subprime" in the ny law will likely capture a lot of prime loans since it is based off of a rudimentary comparison to treasury rates. There have been points this year where the average jumbo and 5/1 arm would have been considered subprime.

bye bye liqudity for ny borrowers who really need it. especially if fnma reacts similarly.

Posted by guest, Aug 12, 2008 7:08PM

Its a full circle. Clearly, lenders will now only be willing to make to better-off borrowers (which I think would be a good thing). If even the government won't lend money to these folks then who else - at the risk of severe liabilities - will?

Soon you will see vast tracts of brooklyn, the brownx, harlem wtc go without too many mortgages. Then some liberal will superimpose that mortgage map with some race-concentration map. Then someone will claim institutionalized racism and redlining.

And then the whole cycle will start again.

Posted by Joseph di Jersey City, Aug 12, 2008 8:33PM

Anal_yst: Well put and the more experience and knowledge that I get, the more I appreciate this.

I think that this barely rises to the level of "unintended consequences" (as in Russia's attempt to use petroleum as a weapon), as opposed to obvious. Only an idiot would think that restricting the ability of lenders to recoup on nonperforming loans would not result in much less lending.

Ah hell, after writing this I realize we're talking about NY government so I'm wrong about both the "idiot" factor and, consequently, unintended consequences.

Posted by guest, Aug 13, 2008 12:14AM

The "idiot" government in question is the New York legislature. Although the NYC Council has its fair share of loose canons, Bloomberg has done a pretty good job of Mayor.

Which raises another question: where were the credit institutions when this issue came up in the legislature? Usually they do an exceptional job of lobbying and informing legs about consequences. What happened?

Posted by guest, Aug 13, 2008 9:30AM

"were the credit institutions when this issue came up in the legislature"

Currently they are busy trying to placate Cuomo who is giving them a major ass reaming. Fairly certain that there was a fair bit of arm-twisting from the legislators who wanted to show to their constituents that they were doing something.

End of the day, people get what they deserve. If people in Herlem believe that their political leaders (look at Rangel) are actually doing good for them rather than just enrich themselves - who can stop them!

Posted by lemmerdeur, Aug 13, 2008 12:23PM

The GSEs' mission creep from the "affordable housing mandate" to "the whole freaking mortgage market" has to be reversed, if not outright eliminated.

I'm sick of all this ownership society bullshit. If you need to borrow at double-digit rates to own a house, you should be a FUCKING RENTER, not a GSE-subsidized mortgage welfare recipient sucking on my tax dollars.

Anything that reverses all the anti-free-market propping up of markets, banks and credit bubbles is welcome, even if it is inadvertently enabled by retarded legislators pandering to their constituents.