Thursday, April 10, 2008

Subprime, Subpar, Sunk

Roger Schlesinger has a subpar opinion piece up at Townhall.com titled Fannie Mae and Freddie Mac Are Here to Help? which needs torpedoing, right out of the gate.  Roger begins his piece this way,

Out of nowhere, or so it seemed, the United States of America developed a mortgage and credit crisis. It is now and will be forever known as the “Subprime Mortgage” crisis. The fact that very little of it had to do with the Subprime Mortgage Business is irrelevant and will not be delved into in this column.

Roger, from his “front row seat,” seems to think the subprime mortgage industry had “very little” to do with the current very tight and limited availability of credit.  That statement is just wrong.  The foolish lending standards which had been utilized in the subprime lending industry was the catalyst for the collapse of the industry, which then bled over into the prime lending industry.

Roger then throws out this digressive statement, because he couldn’t resist.

One small note: (I can’t resist) the option arm is not a subprime loan. The two biggest lenders featuring the option arm were Countrywide and Washington Mutual. Although both had subprime division I do not believe that the option arm was offered by either of these divisions. But I digress.

While the option ARM was technically not a subprime loan, I can state, unequivocally, that Countrywide’s subprime lending division, Full Spectrum Lending, did indeed offer the option ARM to borrowers.  I cannot state this unequivocally about Washington Mutual, but, my money would wager that their subprime division offered the option ARM also.

Further into Roger’s piece he notes Congress’ push for FannieMae and FreddieMac to get in there and assist in stablizing the mortgage market and writes the following.

They were given the area between $417,000, the current conforming loan limit, and $729,750 to work their magic with the new loans that now and forever more will be known as jumbo/conforming loans. Everything was in place to bring us out of the “Subprime Mortgage” crisis.

This supposed assist from Congress was also just foolishness.  Look at those loan limits noted above.  Less than five percent (5%), and most likely less than that, of individuals living in this country could/can afford mortgages of those amounts.

Towards the end of his piece, Roger states this.

We have a serious problem stemming from the crisis caused by a multitude of bad loans and now being fueled by ever growing pessimism in the lending industry.

We do have a “serious problem stemming from the crisis caused by a multitude of bad loans,” and the vast majority of those loans originated in the subprime lending industry.  Sure, government meddling in the lending industry as a whole, has exacerbated the problem, but, the root of the problem, the kernel from which it grew, was the subprime lending industry.

Posted by John Venlet on 04/10 at 07:36 AM
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