The Seeds of The Financial Crisis

If you are interested in knowing more about what policies might have contributed to the great financial crises, which began in mid-2006, you will be interested in watching the accompanying two videos.

This video is an excerpt from a longer YouTube video in which Godfrey Bloom discusses some of the problems which led to the financial crisis. This excerpt deals primarily with the Community Reinvestment Act and its role in weakening bank lending standards and credit 'due diligence'. If you are interested in watching the complete discussion key words search for "Godfrey Bloom The Big Sub-Prime Gamble" on YouTube.

Also, in the context of the Community Reinvestment Act's role in the financial crisis, you might want to watch, "Bill Clinton: Laying the Foundation for The House of Cards" - which is a video-clip from PBS NewsHour interview conducted shortly after Clinton was elected to his second presidential term (So, at the time of this interview Clinton had four more years to push The Community Reinvestment Act).

Other Resources:
(1) A Bibliography The Role of the Government Sponsored Enterprises and Federal Housing Policy in The Financial Crisis, at:
(2) Peter Wallison, Why I dissented from the Majority Report of The Financial Crisis Inquiry Commission, at:

Bulk Sales of Foreclosed Single Family Homes

November 5, 2012  

Congressman Brad Sherman

5000 Van Nuys Blvd. - Suite 420

Sherman Oaks, CA 91403

Dear Congressman Sherman:

I live in the 27th Congressional District. I know you sit on the House Financial Services Committee and its Subcommittee on Capital Markets and Government Sponsored Enterprises, and I know that you also sit on the Subcommittee on Insurance, Housing and Community Opportunity.

Therefore, it seems appropriate that I bring a concern of mine to your attention.

My concern: While reading an article published in the Wall Street Journal on October 2, 2012 titled, New York Firm to Buy Fannie Foreclosures By Alan Zibel, I noticed the author mentioned the terms were the same for both of Fannie Mae’s first two ‘bulk sales’ (of foreclosed single family homes).  An outline of the terms of the deals was provided in the article (the last four paragraphs of the article).

It seems the terms of these first two bulk sales may lead to an uncertain, and very long payback period to for the GSE’s - and an even riskier and even longer payback period for any investor(s) that might be the source of funds for the managers of these deals. As long as the deal terms are fully-disclosed to the fund's (voluntary) investors their investments are their business.  

However, because of the history of Federal Housing Policy, and because of the history of the GSE’s, I believe deals such as these should be designed in a way which can actually be expected to produce rapid and less risky payment of the purchase price, than it appears the terms of the first two deals will produce.

I hope the committees you sit on will very closely review and monitor these two existing deals, and that you will have independent evaluators advise on, and audit, the structure and payment of future bulk sales of foreclosed single family homes. 

The bulk sale of foreclosed single family homes is a serious concern for homeowners, neighborhoods, and for local legislators. I believe the future financial success of these bulk sales is a critical element of the bulk sales strategy.

In the context of the GSA’s, it appears the terms of these first two deals were designed to move foreclosed homes off the GSE’s balance sheet, and to claim the 'sales agreement' as an asset.

Thank you very much for this opportunity to express my concern.

Sincerely,

Bill George

Cc. Congressman Gary Miller

2349 Rayburn House Office Building

Washington, DC  20515

 

Background Information:  

(1) Private Equity’s Foreclosure Binge (& Purge) By Michael L Boyer pub. at Seeking Alpha, October 23, 2012 - at: http://seekingalpha.com/article/941291-private-equity-s-foreclosure-binge-purge#comments_header 

(2) The Institutional Home Buying Bubble By Bill George - Posterous - at:
http://billsplace.posterous.com/the-institutional-home-buying-bubble