SO WHAT ARE THE FACTS?
Fannie and Freddie Mae were responsible for the real estate bubble. Right?
When that bubble burst the vast majority of foreclosures over the next four years had been financed by subprime mortgages. Right?
Those are the commonly held "truths" that inflated and popped the Housing Bubble, but how true are these truths. I have been trying to track this down for quite a while.
FANNIE AND FREDDIE SUBPRIME FORECLOSURE PROPERTIES VS. PRIME PROPERTIES: Here are some of my findings....
1) The number of individual mortgages in the middle quartiles were the targets of the largest number of foreclosures.
2) Only about one third of these were Fannie or Freddie loans with 2/3 prime.
3) The next largest group was in the bottom quartile and more than two thirds were Fannie/Freddie.
4) The smallest group was in the top quartile where nearly all were prime.
But....
1) In terms of the value of the losses- The top half of the middle quartile and the top quartile (where there were virtually no subprime loans) makes up nearly sixty percent of all the capital losses. When coupled with commercial real estate, prime losses rise to more than 75 percent.
2) Initial losses were overwhelmingly subprime but as the patterns in the references below show, the subprime losses were the trigger to a far larger set of home and commercial losses that spread upward from the lower value level real estate offerings to high end properties.
In fact...
1) Overall, home loans originated for private-label securitization at prime rates defaulted at about six times the rate of Fannie and Freddie loans. Commercial properties defaulted at seven times the rate of Fannie and Freddie loans.
2) Commercial real estate values where prime rates only (no subprime) apply experienced a peak-to-trough price decline of 45 percent, which was considerably worse than the 33 percent peak-to-trough price decline in residential real estate.
3) Prime rate residential real estate experienced a peak to trough decline of 47 percent vs. the 28 percent decline in the subprime losses.
The underlying causes for the huge number of subprime foreclosures in the low end real estate market are pretty clear: People, lured by rates that were too good to be true and assured that the only direction in which housing prices were going was up, took mortgages for homes they could not afford.
So what happened to to the mid and high end holdings? Some in the low middle were subprime mortgages and the same cycle of deteriorating value coupled with being over-committed to an unaffordable mortgage,
But speculation in the mid and high end markets, coupled with very favorable prime rates for new step-up homes, second homes, vacation homes, refinancing of primary homes, and land-only purchase were the principal features in the second and third wave of the recession in 2010 and 2011.
These are some of the sources I have consulted and used in creating this summary.
http://www.mbaa.org/...
https://research.stlouisfed.org/...
http://usatoday30.usatoday.com/...
https://www.stlouisfed.org/...
http://www.newsweek.com/...
http://www.reuters.com/...
So....
What do you think?
What have I missed?
What have I gotten wrong?
What have I gotten right?
What can you add?