Tuesday, December 1, 2015

On The Fact That (According To Mortgage Expert David Min) Willis Hart Is Full Of Shit When He Quotes Conservative Economist Edward Pinto Who Says 76% of the Subprime Loans At the Time of the Housing Crisis Were on the Books of Government Agencies

While we all know that subprime mortgage defaults caused the 2008 housing bubble financial crisis, some people are still trying to blame the government agencies that backup mortgage loans made by private sector banks. These government-is-always-the-problem types exclusively being Conservatives or Libertarians.

Willis Hart, a Libertarian blogger, is one such person.

Willis Hart: On the Fact that (According to Economist, Edward Pinto) 76% of the Subprime Loans in the U.S. at the Time of the Housing Crisis in 2008 Were on the Books of Government Agencies; Fannie Mae, Freddie Mac, FHA, HUD, etc... And yet we still have partisan idiots like Krugman going around saying that the crisis wasn't at all caused by government policies. Unbelievable, huh? (11/30/2015 AT 4:03pm).

76 percent of subprime loans were on the books of government agencies when the market crashed? That's a lot, huh? Given that huge number, how could anyone argue that the government was not a major driver of the 2008 crash?

As it turns out, however, AEI economist Edward Pinto is fudging the definition of "subprime" in order to make his case that the 2008 crisis was primarily caused by government policies (of maintaining liquidity in the housing market by buying mortgages made by private sector banks).

...according to David Min, a leading... critic [of this analysis] at the Center for American Progress, as of the second quarter of 2010, the delinquency rate on all Fannie and Freddie guaranteed loans was 5.9 percent. By contrast, the national average was 9.11 percent. The Fannie and Freddie... default rate is similarly much lower than the national default rate. The... explanation for this is that many of the loans being characterized by... Pinto as "subprime" are not, in fact, true subprime mortgages. (An Inconvenient Truth by Joe Nocera. NYT 12/19/2011).

So Pinto is lumping mortgages into the "subprime" category that don't belong there, and suggesting that, because so large a percentage of "subprime" mortgages were held by government agencies, government agencies are responsible for driving the 2008 crisis. Although the liar leaves out the fact that these mortgages he incorrectly lumped in were being defaulted on at a lower rate (and they were NOT the mortages driving the crisis).

This is why David Min (whose bio at the University of Irvine CA School of Law says he "is a nationally recognized expert on financial markets regulation" whose area of expertise includes mortgages) says that "federal affordable housing policies were the primary cause of the financial crisis" argument made by the Conservative American Enterprise Institute (of which Edward Pinto is a Resident Fellow) "has been rejected by many analysts".

...most of the "subprime" mortgages [AEI Fellows including Pinto] attributes to federal affordable housing policies could not have been motivated by these policies, either because the loans were ineligible (typically because they were made to higher-income borrowers) or because the lenders were not subject to these policies (such as in the case of the non-bank lenders, which did not have any applicable federal affordable housing requirements; non-bank lenders made up 24 of the top 25 subprime lenders in 2006).

[The fact is that] the housing bubble occurred during a period when Fannie and Freddie's market share dropped precipitously. ...central to [Pinto's] argument that affordable housing policies (including those advocated by Rep. Frank in 1992) caused the mortgage crisis is his claim that the federal government is responsible for 19.2 million "subprime" mortgages (with Fannie Mae and Freddie Mac being responsible for 12 million of those). But [this figure is arrived at] using [a] own made-up definition of "subprime", a definition that no one outside of [AEI] uses.

...the nonpartisan Government Accountability Office has estimated that there were only 4.58 million subprime and other high risk loans outstanding, with very few of these attributable to the federal government. (For the Last Time, Fannie and Freddie Didn't Cause the Housing Crisis by David Min. The Atlantic 12/16/2011).

The conclusion by Min (which he refers to at the "mainstream" explanation) is that "it was unregulated securitization on Wall Street that drove the financial crisis" and NOT government agencies as Willis Hart claims with his post. Frankly I find it unbelievable that the Hartster thinks he can present these fabrications as "fact" when they aren't. His solution to getting rid of any pushback to his BS is simply to ban from his echo chamber anyone who disagrees.

BTW, in the interest of being completely honest, David Min never said that either Edward Pinto or Willis Hart are full of shit. Although I think that what he did say proves that they both are. His criticism was actuallyh aimed specifically at AEI Fellow Peter Wallison (due to Min's article being a response to an article that Wallison authored). This is an article in which Wallison writes, "my dissent [to an Atlantic article in which Barney Frank is interviewed and says F&F and other government agencies were NOT responsible for the 2008 crash is] based on the research of my AEI colleague Edward Pinto".

OST #85


  1. Prime means 20% down payment, a job paying enough (about 3 times the mortgage amount), at least some assets, good credit score, etc.

    Anything else is subprime. Relying on a GAO declaration is nice, and Min, I suppose. But it is not hard to believe that 76% of the mortgages which did not meet that "prime" definition were on the books of our GSE's (adjudicated crooks) and other government agencies.

    What caused the subprime collapse was the housing price bubble, caused by millions of new, unqualified (subprime) buyers driving up prices. Those buyers were mass-underwritten, enabled, by federal policies, agencies and GSE's. The obvious destruction of prudential risk was ignored by fake federal regulators, all of them.

    Why was our government far into this mortgage insanity? Why are some people defending them? Why are we still doing mass guarantees of subprime mortgages? Would you put any blame on the federal government?

  2. The false Rightwing meme is that government caused the housing bubble, but the truth is "Private markets, rather than the GSEs, created the subprime mortgage boom... The subprime mortgage boom and the subsequent crash are very much concentrated in the private market, not the public market. Subprime is a creature of the private label securitization channel (PLS) market, instead of the Government-Sponsored Entities (GSEs, or Fannie and Freddie). The fly-by-night lending boom, slicing and dicing mortgage bonds, derivatives and CDOs, and all the other shadiness of the mortgage market in the 2000s were Wall Street creations, and they drove all those risky mortgages. (WP, 2/13/2013).

    These mortages here not "mass-underwritten" by GSEs, but primiarly by private sector entities. As for these "millions of new, unqualified (subprime) buyers" who were "enabled by federal policies", that is another false meme. Here the culprit the Rightwing likes to blame is the Community Reinvestment Act and the GSE's affordability mission, but these also didn't cause the crisis. (Again) according to the WP (article I previously quoted) "research shows [that] the very small share of all [subprime loans] that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the... crisis... Only six percent of... subprime loans... were extended by CRA-covered lenders to lower-income borrowers or CRA neighborhoods. [Also] subprime loans were only 5% of the GSEs' losses".


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