Guero

Fannie and Freddie: Supply Curves Slope Up, Demand Curves Slope Down

As a mortgage originator in the middle of the decade, I couldn't get a Fannie or Freddie deal done unless the borrower had verifiable income & verifiable assets & a minimum credit score in the upper 600's. With a maximum debt ratio of 36% and 5% down. In other words, a solid loan risk.

On the other hand, if a borrower had no verifiable income or assets and a marginal credit score, there were "investors" all over the place that would take that action. New Century, Lehman Bros to name a couple. And with secondary financing and rolling in closing costs most times the borrower didn't need to pay a dime out of pocket. Countrywide would lend with basically just your signature, an appraisal and 5% down if your credit score was 720.

My point? Fannie & Freddie, despite their status as fave right-wing punching bags, were far from the worst of the lot. The Wall Street investment hotshots that were at the forefront of financial alchemy were by far the biggest perps in this meltdown.

Making Money With Fannie and Freddie: Bank of Ozarks' Conference Call

Risk arbitrage in the Ozarks?

Are Home Prices Still Too High?

"Cram-downs", while distasteful, are probably going to be necessary in many cases to reflect the new reality. These loans are already effectively "crammed-down".....man... of these mortgage loans are not properly collateralized at present values, and that is a problem for the lender as well as the consumer.