HUD, Rating Agencies, The Big Three, and The Ongoing Mortgage Mess

In an attempt to try and get a grip on what has happened in the mortgage mess I read a lot. Tonight there was a interesting article on MSNBC (see article here) about the part HUD, Housing and Urban Development, has played in the current situtation. That situtation being the expected 3 to 4 million people who now own homes and can not afford the high-interest rate sub-prime loans they received.

It seems like there is all manner of finger pointing going on over whose fault this is.

From the article

“Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing. ”

The problem is as well tho, who ok’d the borrowers for loans in the first place. The HUD policy now ends up hurting the people it was trying to help.

So going back further, who issued these loans?

Another article over at Bloodhound Blog, points to the big three ~ Countrywide, WaMu, and Wachovia. Countrywide and WaMu have been in the news a lot and in the last few days Wachovia’s CEO has been forced to resign. Wachovia’s reported losses were doubled what they had forecast.

Then there were the rating agencies, like Standard and Poors, who rated high risk loans low, or lower than they should have been, making them more affordable. Had that not been the case loans would have been more expensive having the effect of putting the breaks on.

Let’s not forget the borrower. The borrowers were given a gloss story, they bought it, hook, line and sinker. But in the end it is the borrower who needs to be educated, to some degree, before signing something that has the potential to ruin many years of their life. I hear loosing a home is no fun at all. On the flip side, the borrower must hold some of the responsibility for their own financial decisions.

From the MSNBC article:

“Judith Kennedy, president of the National Association of Affordable Housing Lenders, said that while Fannie and Freddie nurtured unregulated subprime lenders, an estimated 30 percent of subprime borrowers could have qualified for safe, lower-cost prime loans. ”

30%??

While not being a huge fan of regulation, it’s hard to understand how so many entities were playing the system, making a ton of money and no one stepped up to the plate. Some saw it coming, maybe many did, but it is some sort of a disaster when 30% of the people need not even be involved and yet are.