Today’s WSJ editorialized that raising the FNMA/FHLMC mortgage limit in high-cost markets to near $1million will cause another subprime crisis.
What? I read every book on that crisis and saw the movie and speeches and panel discussions including the people involved. . Raising FNMA/FHLMC limits played NO role in the subprime crisis. Here is the history of the limits.
The subprime crash was in 2009. In the years leading up to that the limit was raised to $417,000 in 2006 and stayed at that amount through 2016.
As its name explains, the subprime crisis was caused by making loans to no-account deadbeat losers who had no chance of making the payments. Subprime was a euphemism for bad credit—like saying an accident victim with arterial bleeding is in suboptimal health.
Also, in the subprime crisis, the appraisals were BS as were the bond ratings. They now assign appraisals randomly rather than let the lenders choose the biggest liars. I am not aware that any meaningful change was made regarding bond-rating agencies.
Also, loan-to-value ratios got ridiculous including over 100% at times.
In general, the subprime crisis was lousy buyer/borrowers borrowing extremely high loan-to-value ratio mortgages based on deliberately exaggerated false appraisals then bundled into bundles rated by liars and sold on Wall Street.
An increase in the FNMA/FHLMC high-cost-area mortgage limit does not a subprime crisis make.
Generally, WSJ editorials are squared away. Their news reporters too often sound like young naifs who fail to get input from people who know the industry or who know the history. In this editorial, the editorial guys made that mistake.
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