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PaperclipPerfector  1yr ago (text post)   3768 thread views

Small-Scale Question Sunday for July 2, 2023

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So essentially, deep down everybody knows it's going to collapse somehow eventually, and they're all trying to arrange things such that they're not the ones holding the bag when it does, which involves never acknowledging that to anyone else.

Peter Wallison says that (1) Fannie Mae and Freddie Mac misleadingly categorized mortgages as subprime only if they were issued by a small category of "subprime lenders" (rather than the more typical definition of any mortgage made to a person with FICO score worse than 660), so (2) the banks never even knew that the situation was in the toilet.

Without understanding Fannie and Freddie’s peculiar and self-serving loan classification methods, the recipients of information about the GSEs’ mortgage positions simply seemed to assume that all these mortgages were prime loans, as they had always been in the past, and added them to the number of prime loans outstanding. Accordingly, by 2008 there were approximately 12 million more NTMs in the financial system—and 12 million fewer prime loans—than most market participants realized.

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