<Some new data was released this week on U.S. manufacturing, and the news was encouraging: the U.S. auto industry has “ hit the gas pedal.” The White House, as it’s done before, is taking a victory lap.<
Auto Loan Delinquencies Edge Up With Subprime Lending
Southern states dominate the parts of the U.S. with the highest delinquency rates, with Mississippi,
Louisiana and Alabama being at or near the top on the list. The District of Columbia falls into that category as well.
States with the lowest car loan delinquency rates include Alaska, Oregon, Utah and Iowa.
All lender types experienced growth in loan volume compared with a year earlier, Experian said. Banks saw auto loans grow $31 billion, credit unions by $25 billion, finance companies by $24 billion and captive finance companies by $9 billion.Some of the major players who have emerged in the auto loan market in recent years include banks such as Wells Fargo (NYSE:WFC), Capital One (NYSE:COF), US Bancorp (NYSE:USB) and Bank of America (NYSE:BAC) as well as the financing wings of Ford Motor Co. (NYSE:F), Toyota Motor Corp. (NYSE:TM) and Ally Financial (NYSE:ALLY), formerly owned by General Motors (NYSE:GM)
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So the 99% take out sub-prime car loans, (higher interest rates), and struggle to make their payments, enriching the 1% with more of the 99%'ers "where did the middle class go" dollars using some of that Federal Reserve... ZIRP money.
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Sound Familiar?
Frank's fingerprints are all over the financial fiasco
The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.
The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.
All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.
As long as housing prices kept rising, the illusion that all this was good public policy could be sustained. But it didn't take a financial whiz to recognize that a day of reckoning would come. "What does it mean when Boston banks start making many more loans to minorities?" I asked in this space in 1995. "Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians, and regulators plans to take the credit?"
Frank doesn't. But his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.
Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess." Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.
boston.com
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Marketwatch Nov. 6th, 2003...White House warns of GSE risks
Published: Nov 6, 2003 4:50 p.m. ET
WASHINGTON (CBS.MW) - The notion that the U.S. government would bail out Fannie Mae and Freddie Mac if they ran into financial trouble "creates a source of systemic risk for our financial system," a top White House economic adviser warned Thursday.
Fannie Mae FNM, -0.10% and Freddie Mac FRE, -0.24% government-sponsored enterprises created by Congress to help fund home mortgages, enjoy special privileges, such as lines of credit with the Treasury Department.
Those special privileges "feed market perceptions that GSE debt has the backing of the U.S. government," said Gregory Mankiw, chairman of the administration's Council of Economic Advisers. "This notion is inaccurate."
snip>>>>
Fannie Mae and Freddie Mac are dominant players in the secondary mortgage securities market.
The sister companies buy mortgages from lenders, package them up, and sell to them to investors as mortgage-backed securities with guaranteed yield payments.
Due to the enormous size of the mortgage-backed securities market, any problems at Fannie Mae and Freddie Mac would have a ripple effect, Mankiw said.
"This risk is a systemic issue also because the debt obligations of the housing GSEs are widely held by other financial institutions," he said |
