Fannie Mae asserts that intense competition forces the housing GSEs to pass through all subsidies. As evidence, it cites its estimate that, as of December 31, 2000, Fannie Mae and Freddie Mac together held only 22.7 percent of the fixed-rate single-family mortgages outstanding in the United States. However, adjusting for other government mortgage guarantees, GSE-guaranteed mortgage-backed securities, and jumbo mortgages, CBO estimates that Fannie Mae and Freddie Mac have at least a 71 percent share of the market. That share is growing, which suggests that they have significant market power.[/quote]
What does that have to do with the housing bubble that began and burst years later?
Subsequent to 2002, the bubble began to grow in ernest, the absolute size of the GSE portfolios were basically stagnant, and their share of the entire mortgage market shrank, until after the bubble burst, prices began to fall, and the GSE’s entered the sub-prime market. The mortgage market changed so drastically between the time of that statement and 2004 that it renders it’s usefulness in identifying the cause of the bubble/bust nil. It was not the same market in 2001 as 2004, different again by 2007, and yet different again today.
The clearest evidence is seen in the first chart at this link:
The Fannie/Freddie share of the market spiked downward at the exact same time the private lender share spiked upwards, and then after the bubble began to burst, the trends reversed. Nothing that happened between 2000 and the end of 2003 is really relevant.[/quote]
Sk,
Wow you just proved Ron Paul’s whole point. The government forced the banks into the position of taking risk to compete with the government.
The article from the CBO which I posted clearly states that the GSE as early as 2001 had up to 71% of the mortgage market in conforming and jumbo fixed products.
Your article states (from WSJ Marketebeat) states that the GSEs, “began losing market share in the profitable business of buying up loans, packaging them up into securities and selling them off to investors.” to the private banks.
It your own article which shows the competition between the two. The only way left for the banks to compete was quality. THAT IS THE WHOLE POINT”.
First the FNMA and Freddie take over the mortgage market….while Barney Frank and crew put through the Coomunity Reinvestment Act and the banks, if they want to stay in business have to lower their own lending standards. We should never have to compete against the immensely deep pockets of the government. Because those deep pockets are created by the threat of violence.
If you want to figure out what I mean, tell the IRS you will not not pay your taxes. You will end up in jail.
Just to underscore, I will point out that a bank has (had) to compete for capital.
