"Had normal market practices been in place, money would not have foolishly flowed into the real estate market. "

- that is a reasonable theory, but normal market practices existed outside of the GSE's where over 80% of the bad subprime loans originated...the regulations on the GSE's restricted their ability to issue risky subprime loans BUT the bush administration pressured fannie and freddie to buy the mortgage-backed securities containing subprime loans from the private banks so they could raise some cash to issue more mortgages...if fannie and freddie did not do that, there would probably be less money floating around for mortgage loans...however, other private institutions could have stepped in to buy up those mortgage backed securities...i would like to believe that normal market practices would have prevented this, but i have no confidence in the invisible hand's ability to regulate the markets




"Moody's along with S&P would have faced much smaller growth potential in a slowing housing market, so they did what government does, although it was technically illegal for them; they pump primed the housing sector by giving bad paper good ratings."

- why would they do that? was that because of the falsely perceived government guarantee? didn't they continue to rate the paper highly even after widespread warnings about subprime loans? i hope they are held accountable for that



"The bubble would not have happened if the marginal propensity for real estate investment was not that high. Granting special privileges, and distorting the market allowed it to surface."

- i read a little about those special priviledges....the government actively enhanced the marginal propensity for real estate investment by creating policies to expand home ownership to 5.5 million low income families, despite existing record high levels of home ownership...george bush hosted conferences where mortgage giants, developers, and realtors accepted his challenge (and special privileges) to expand the already hot real estate market to include people that couldn't afford homes...the advertising networks were soon overflowing with enticements for easy approved-on-the-spot mortgages and other loans to people with poor credit histories...here's the president kicking off the bubble party:

LADIES AND GENTLEMEN _ THE PRESIDENT OF THE UNITED STATES:
"Homeownership is also an important part of our economic vitality. If--when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new homeowners in America, The activity--the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that's important because it will help people find work.

Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country; it's good for the pocketbook of the country as well.

To open up the doors of homeownership there are some bafflers, and I want to talk about four that need to be overcome.

First, downpayments--a lot of folks can't make a downpayment. They may be qualified. They may desire to buy a home, but they don't have the money to make a downpayment. I think if you were to talk to a lot of families that are-desire to have a home, they would tell you that the downpayment is the hurdle that they can't cross. And one way to address that is to have the Federal Government participate.

And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time homebuyers who qualify to make the downpayment on their home. If a downpayment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next 5 years become first-time homebuyers.

Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. You may--we may have qualified homebuyers, but if there's no home to buy, this initiative isn't going anywhere. And so one of the things that we're going to--that I'm doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce.

Over the next 5 years the initiative will provide homebuilders and therefore homebuyers with--homebuilders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for homebuyers. It's really important for us to understand that we can provide incentive for people to build homes where there's a lack of affordable housing. And we've got to set priorities, and one of the key priorities is going to be inner-city America. Good schools and affordable housing will help revitalize our inner cities.

Another obstacle to minority homeownership is the lack of information. You know, getting into your own home can be complicated. It can be a difficult process. I had that very same problem. [Laughter]

Every homebuyer has responsibilities and rights that need to be understood clearly. And yet when you look at some of the contracts, there's a lot of small print. And you can imagine somebody newly arrived from Peru looking at all that print and saying, "I'm not sure I can possibly understand that. Why do I want to buy a home?" There's an educational process that needs to go on, not only to explain the contract, explain obligation, but also to explain financing options, to help people understand the complexities of a homeownership market, and also at the same time to protect people from unscrupulous lenders, people who would take advantage of a good-hearted soul who is trying to realize their dream.

Homeownership education is critical. And so today I'm pleased to announce that through Mel's office, we're going to distribute $35 million in 2003 to more than 100 national, State, and local organizations that promote homeownership through buyer education.

And of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now we have a program that all of you all are familiar with--maybe our fellow Americans aren't--and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that Federal money, to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with downpayment but to help with continuing monthly mortgage payments after they're into their new home. It is a way to help us meet this dream of 5 1/2 million additional families owning their home.

I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own.

These are some of the barriers that homeowners face--potential homeowners face, and this is what we intend to do about it. But like in a lot of our life, Government can't do everything. It's impossible to provide every aspect of a national strategy, particularly in this case. And that's why we need the help of private and nonprofit sectors in our country to help play a vital role in helping to meet the goal. Many of you here represent the nonprofit as well as the private sectors of our economy and our country, and I want to thank you for your commitment.

Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be homeowners. And what I'm talking about, I'm talking about your bankers and your brokers and developers as well as members of faith-based community and community programs. And the response to the homeowners challenge has been very strong and very gratifying.

Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics, and other minorities. Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set."
- President George W Bush, October 2002