From the Village Voice HT: Richard Boltuck). Starting in 1997, Clinton’s head of HUD aggressively pushed the GSEs to subsidize the subprime market. He also made it easier for mortgage brokers to collect kickbacks, called YSPs (yield spread premiums). I have to learn more about the latter but the discussion in this article is on pages 5 and 6.
And don't forget Andrew Cuomo
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Cuomo is a scoundrel, here in the People's Republic of NY he wants to be the next Spitzer.
That explains his ferocious desire to fry anyone who ever shorted a financial stock. May his story end as Spitzers.
A nice article. This does seem to be a defining moment in this whole mess, and probably the most direct cause that I've seen discussed. I won't pile on Mr. Cuomo… there are undoubtedly dozens of people that helped motivate Fannie and Freddie to enter the sub-prime market. But all of the other potential causes that I've seen discussed seem to rely on a lot of guesses about people's motivations, etc. Here, things are laid out pretty clearly, and you can draw a pretty straight line from these decisions to the problems we're seeing today.
Yield Spread Premium Primer:
The YSP a lender pays a broker is based on the interest rate that the broker quotes a borrower and the servicing value of the mortgage loan.
Media and political discussion of YSP always focus on the former. It's easy to understand. If 6.5% is par, charge a rate of 7% and the lender will pay the broker 101.
Servicing value is hard. There is not just one variable to consider. Some of the variables and their affect on YSP are:
Product type-Subprime, Alt-A, Jumbo, Fannie/Freddie or Governement Insured FHA/VA/GRH. Those were listed in order of lowest to highest servicing value: from most costly to service to least costly to service.
Loan amount- within a single product type, let's use Fannie/Freddie, it costs a lender the same amount to service a $50,000 as it does a $250,000. However, the lender earn's more revenue on teh $250,000 loan, to the margin is higher.
ARM or Fixed – ARM's have lower servicing values for two reasons: first they are just slightly more expensive to service. Second, borrower's prepay ARM's at a faster rate than fixed rate mortgages.
State- servicing values differ by state. The contributory variables, from least to highest significance are: default rate, foreclosure laws, prepayment rate, cost of homeowners insurance and property tax rate and number of times per year property taxes have to be paid. For comparision, VT and MI are terrible states from a servicing value perspective. Texas is the unrivaled best state.
Finally, even the interest rate charged shows up again in the servicing value. Curiously though, higher rates increase servicing hedge costs, which then lowers servicing value.
I heard that John McCain said this past weekend that he would appoint Andrew Cuomo as his SEC head if he was elected. I had to do a double take.
Cuomo is a corrupt misogynist and should be investigated. He's bullied my girlfriend Denise ever since he's been elected because she met him personally and she refused to compete for his personal attention when she found out he was lying to her. (She's an attractive blond who teaches NYC yoga)He in turn reponded by operating outside the law. First he squashed her credit card identity theft case being investigated by Detective Paul Arroyo at Precinct 24; then he blocked Attorney Alfonso DeCicco from advising her about her apt rental and dealing with an unscrupulous broker. She consequently lost her home and had to spend a fortune to move. He pressured her HMO doctor so much, she closed her office and ditched Denise. Breaking the law and the public's trust this was done secretly and all for Cuomo's personal pleasure. He's a crook. I and her other friends want her to bring forward the paper work and voice mails and bust him in the public's full view. Shine the light on this deceptive officical. Keep him away from the SEC.
Cuomo is a pig who cares nothing about the little guy.
Shine the light on Andrew Cuomo and make him show full disclosure for his secretive dealings behind closed does. Yes, he is a misogynist who bullies women for his own personal benefit. This is not part of his official capacity, and like others, I believe it is outside the law.