McCain Debate Questioner: "I Actually Did" Know Fannie

MSNBC:

I tried to get in touch via Facebook with Oliver Clark, the man who McCain said probably didn't know what Fannie Mae was before the financial crisis (at Tuesday's debate). Apparently others have done the same. He just posted the following on his Facebook page:

How did I feel about Sen. McCain stating "You probably never heard of Fannie Mae or Freddie Mac before this."
Well Senator, I actually did. I like to think of myself as a fairly intelligent person. I have a bachelor degree in Political Science from Tennessee State, so I try to keep myself up to date with current affairs. I have a Master degree in Legal Studies from Southern Illinois University, a few years in law school, and I am currently pursuing a Master in Public Administration from the University of Memphis. In defense of the Senator from Arizona I would say he is an older guy, and may have made an underestimation of my age. Honest mistake. However, it could be because I am a young African-American male. Whatever the case may be it was somewhat condescending regardless of my age to make an assumption regarding whether I was knowledgeable about Fannie Mae and Freddie Mac.

Read the whole story: MSNBC

Comments

[VJSleight]

part 8
For example. If Wall Street company--ABC has $1 million of mortgages that consist of 10--$100,000 loans. They sell this to XYZ for 20 cents on the dollar or $200,000. If the foreclosure rate is 30% (which it is NOT), the original $1 million of mortages is now worth $700,000 which is still more than XYZ paid for it. If the interest rate yield on these mortgages is 5%, that is $35,000 income a year but XYZ only paid $200,000, so their effective yield is 17.5%, not a bad rate in today's world. And we have already taken into account the foreclosures. If the government can do this, we stand to make a good profit and the bail out will benefit many but if the government pays XYZ anthing more than what XYZ paid for the mortgage, we get screwed and XYZ will still make money. The arguement is that the original amount was $1 million. The big question is what is the value now and what will the government pay for it?

[VJSleight]

part 7
While you could buy a house with zero down, when you went to refinance, the rules changed and you needed some equity in the house but if you start with zero equity, and the housing prices don't' go up, you are stuck with that mortgage. As the rates adjusted upwards, many couldn't afford the new payments and they couldn't refinance into a better mortgage because the borrower still didn't fit into a fannie/freddie mortgage with the stricter guidelines that still required mortgage insurance.

When you hear of Wall Street companies lossing billions of dollars, often it is because they sold large blocks of mortgages for pennies on the dollar. Wall Street panicked and they had no idea of the real value of their holdings. The companies that have bought up these mortgages stand to make a large profit even with many foreclosures since they were able to buy the blocks of mortgages so cheap and the interest paid on these mortgages is a higher value than what it was sold for.
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[VJSleight]

part 6
I don't think many consumers knew what they were getting in for when they signed the loan documents. They relied on what their loan officer "told" them, which often was far from the truth. The defense of the mortgage brokers was that the terms of the loan were "disclosed" and the borrowers signed these confusing disclosures. Often borrowers had no idea that their 1% rate was what the payment was based on but that what they actually owed was much higher.

But consumers share part of the blame. As the real estate market rebounded and values climbed, more and more homeowners refinanced and used the equity in their homes as a credit card. Everyone was pulling cash out of their home and buying stuff. After all that is what our economy has been based on for many years--an economy of consumerism--or as Bush said after 9-11, the best thing you can do it go out and buy something. The money had to come from someplace and for many individuals the cash cow was their home.

So greed trickled down from Wall Street to the mortgage bankers to mortgage brokers to the consumer. When real estate values started to level off or even drop a bit, many of these exotic loans could not be refinanced.
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[fallsgonnakillya]

LOL You tell him Oliver.

[VJSleight]

part 5
At the end of this cycle, it was possible to put nothing down and get a mortgage at 1% but owe 7%, the difference in the payment was tacked onto the principle amount of the mortgage.as long as values increased, you could refinance out of these loans after your pre-payment penalty period was up.


The guidelines for sub-prime mortgages got looser and looser. At one time, Oceans West offered a mortgage called "Fog the Mirror", in other words, if you were breathing, you got a mortgage. Wall street was throwing money at mortgage bankers but didn't have a clue as to what they were actually buying. Mortgage bankers were making a ton of money with no risk. In California, you didn't need any special knowledge to be a loan officer except a real estate license. In other states, you didn't even need that. In the training classes I provided, the level of knowledge of these complex new mortgages was non-existent. I remember one broker arguing with me that a 1% mortgage would pay off faster than a regular 30 year fixed. She didn't have a clue as to what she was selling and she was supposed to be the professional.

Borrowers would come to me and I would qualify them for a mortgage of $150,000 but they wanted a $300,000 house so they would find a mortgage broker and take out one of the exotic loans being offered.

continued

[VJSleight]

part 4
It is my belief that since the government was the one to bail out the lenders for this wave of foreclosures, that pressure was placed on Fannie/Freddie to loosen up some of their guidelines to share in the risks of foreclosures. The wording used at the time was that Fannie Freddie started the "sub-prime" mortgage business but that isn't quite true. The term "sub-prime" was hijacked later by companies that bypassed Fannie/Freddie guidelines and sought money directly from Wall Street investors. The loans that Fannie/Freddie did with loosened guidelines were eventually called "Alt-A". They still required mortgage insurance to absorb any losses from foreclosure and since the risk was greater, so was the cost to the borrower.
Sub-Prime mortgage bankers did not require any mortgage insurance for the loans that they made, the risk was passed onto the investor--which was Wall Street. Sub -prime lenders made up their own guidelines. They made loans to individuals that did not fall into FHA or Fannie/Freddie guidelines. The terms of these loans were often adjustable so that the yield to the Wall Street investors was attractive. Many of these loans did not require any equity. Buyers could buy a house with nothing down and get 100% financing with no mortgage insurance to guard against foreclosure.
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[VJSleight]

part 3
Many people, especially self-employed individuals and investors didn't fit into FHA or Fannie/Freddie guidelines. If you didn't fit into either an FHA loan or a conforming loan, your options of getting a mortgage were limited. What you needed was a "jumbo", "non-conforming" or "portfolio" loan and the costs of obtaining a mortgage were higher because there was a limited market for these loan.

I remember the day that World Savings came out with a "stated income" product. All a borrower had to do was put 25% down when purchasing a home. This changed the mortgage industry forever. This was the ideal loan for self employed borrowers, who couldn't always document their income with tax returns. World Savings was a "portfolio" lender meaning that they did not have to sell these loans. Mortgage insurance wasn't required and if the loans went bad, World Savings absorbed the cost but figured the risk was low when a borrower put down 25% hard cash to buy the house.
In the early 1990's the was a wave of HUD foreclosures in California. These are FHA loans that the government insured that went into foreclosure. The FHA insurance paid the lenders who made these loans so the lenders didn't lose any money. There were so many HUD houses that auctions were held to get rid of the inventory. Investors bought a lot of these houses. I did 7 loans for one couple that eventually owned about 45 houses.

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[VJSleight]

When I first entered the business, there weren't a lot of options. FHA loans were government insured loans where mortgage insurance was required. This insurance by the government was paid for by an upfront premium that was rolled into the loan amount, as well as a monthly fee added to the payment. Guidelines for FHA loans were loosey goosey, while Fannie and Freddie were the "gold" standard. Instead of buying individual loans, Fannie and Freddie provided money to mortgage bankers who made individual loans, then packaged them all together and sold them to Fannie Freddie. These loans that were called "agency" loans, or "conforming" loans, meaning that these loans "conformed" to guidelines that the "agencies", ie-Fannie and Freddie set up. Guidelines for income documentation and credit were strict unlike FHA guidelines. If you wanted a conforming loan and you had less than 20% equity in the property, Fannie/Freddie also required mortgage insurance but not through the government but through private insurance companies. The cost again, was passed onto the borrower. The difference was that when you had 20% equity in a fannie/freddie loan, the mortgage insurance could be dropped but with FHA, the mortgage insurance lasted the life of the loan.


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[VJSleight]

I've worked in the mortgage industry since 1984, before California required loan officers to have a real estate license. I have worked for large mortgage companies, as well as working for self as an independent mortgage broker handling all aspects of a transaction myself. For several years, I also was a professional mortgage coach and did two day workshops for new loan officers.

Anyone who has been in the real estate or mortgage industry has seen the ups and downs. Many of us oldtimers had been expecting a change in the market for quite a while because we've been there before. I don't think that anyone expected it to be as bad as it has become but to place all the blame on Fannie Mae and Freddie Mac is just ignorant of the mortgage business.

The people who should be blamed are multiple companies that you probably have never heard of and who went bankrupt two years ago--some of them being-First Franklin, BNC, Century, Oceans West or were bought out with their portfolio of mortgages -Long Beach was bought by Washington Mutual, World Savings was bought by Wachovia.
As a loan officer it was my job to solicit real estate loans, prequalify borrowers and place them in appropriate loan programs.

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[radiojunkie]

Thanks for the info, one of the best blogs I've ever read on Huff.

[MsYellowDog]

Good for him---he's being a lot more polite than anyone in McThug's campaign has been.

[DieHardObamaSupporter]

Oh snaps Mac just got served.

[YouDisgustMe]

mccain just can't seem to ever get it right lol

[FaceYourFears]

Well he could have called him "That One"....lo­l...how weird!

[GolfingDevil05]

The word "OOPS" comes to mind. I thought this was a pretty sour note, and I think this man is being more fair to McCain than I might have been had that statement been directed at me.

Rule #1 in a town hall debate has to be that you never assume that the questioner doesn't understand the background of their own question, unless they specifically tell you they don't.

[ZimboChick]

its called diplomacy. He is an intellect. His future employers will Google his name. He is not flushing his whole life away just because of some b i g o t dude. That is what you call seeing ahead.

[GolfingDevil05]

Yeah, and frankly that would make the man who asked the question a lot smarter than me.

[kellygrrrl]

Oliver Clark has more education than McCain and Palin combined!

[chitown8]

Whomp there it is!

[mjt218]

Education is a bad thin in the McCain/Palin camp. Didn't you see McCain try to crucify Obama over funding for a projector for science education at a planetarium?

[robllawrence]

Yeah, I loved that he called it an "overhead projector.­" But no, kids learning about science and techonology, getting excited about school, thinking of concepts like space exploration and engineerin­g...those things don't matter at all apparently.