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Tuesday, July 15, 2008

Mortgage crisis: Fannie, Freddie, and the rest

If you're familiar with "when banks compete, you win," then you probably listen to a news source that discusses the mortgage crisis.  Paul Krugman's been keeping me informed, and he does a nice job of explaining what's going on:
  • Fannie and Freddie are more closely regulated than private companies, so they're shenanigans were limited.  They couldn't do subprime loans - loans given with no income verification - by rule.
  • However, they weren't completely innocent, as they tried to stretch their ability to participate within the rules as much as possible.
  • The housing market is so bad, that even these more regulated companies are sinking as people with conventional mortgages end up with negative equity.

1 comment:

rick said...

strictly speaking, the absence of income verification was a common characteristic of subprime mortgages in recent times, but does not define such mortgages.

responsible subprime lending has long been part of the mortgage business, and i believe i heard the other day that there are still billions of dollars in subprime mortgages originated annually (and appropriately so), despite the crackdown on irresponsible lending.