Tuesday, July 5, 2011

Market Share of Mortgage Debt Outstanding

Mark Thoma is frustrated to see some commentators once again push the view that Fannie and Freddie caused the economic crisis. When this issue arose back in late 2008, Richard Green's figure on the share of mortgage debt outstanding held by type of institution settled the debate for me.  That figure showed the GSE's share declined during the housing boom while the asset-back security issuers' share increased.  Here is an updated and slightly modified version of that figure: (Click on figure to enlarge.)


The data is unambiguous here: Fannie and Freddie were not the immediate cause of the housing boom.   They may be guilty of a number of things, but directly causing the housing boom is not one of them.

7 comments:

  1. My understanding is that the data on this period was unreliable and new information has since come to light.

    Isn't it a mistake to be working out of date data?

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  2. Freddie and Fannie 90+ days delinquent plus foreclosure rates are around 4%.
    The figure for the entire market is around 8%.

    Figures from the following Calculated Risk charts:
    http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=FannieFreddieMay2011.jpg
    http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=MBANDSQ12011.jpg

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  3. Anonymous:

    Can you show why and how this data is unreliable? Any links?

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  4. I am a scientist (PhD in molecular biology) who knows little to nothing about the housing market.
    I do know about drawing conclusions from data.
    I find this graph far from convincing; possibly there are more detailed arguments that make the graph convincing.
    Other blogs have data that is far more compelling: the % of default or late loans was much higher for private companies then for the GSEs.
    In any event, we shouldn't fall into the trap that just because the right wing says something, it is wrong. I know this is hard in the era of bachman and santorum, two deeply crazy people, but truth is more important then partisinship.
    Given how sleazy the GSEs were, almost mafia concerns that bought pols wholesale, it is really hard to see how they don't get a lot of the blame; at the very least, these very large entitys - which by the graph owned a substantial fraction of the market - created the mindset of the boom.
    To put it another way: if the C suite execs of fannie and freddie had actually cared a whit about housing and america, instead of their own pockets, they could have stopped the whole thing very, very easily: all they had to do was have underwriters look at some of the loan pools from citi or JPM and say, sorry, we aren't taking them
    Think about it: if Fannie had whispered, at midnight on a summer weekend, that citi's loans had problems, things would have happened.
    But the c suite execs were part of the problem

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  5. Ezra,
    The question of the motives or actions of the GSE is not the issue here. The issue is the root cause of the financial collapse of 2008, which was precipitated by the reckless underwriting of mortgages, no-doc mortgages, etc.. Also known as Sub-prime. Which were then chopped into mortgage backed securities. This pumped real estate values until the bubble burst. Financial institutions were levering 30:1, using MBS as collateral, credit default swaps were out of control as well as other factors. Ultimately even prime loans were in trouble due to the staggering drop in real estate values.

    However, prime loan problems were caused by the crash not vis-versa. Fannie and Freddie only issue prime loans. Do some reading, learn the truth. Mark

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  6. I looked at the large version of the chart and too my surprise the large increase in % holding is "purple" GSE Fannie & Freddie while the flat line "black" (constant percentage holdings) is the Wall Street Banks. To me this data say quite the opposite, during the bubble period 2000-2005 Fannie and Freddie appear to be the prime culprits originating massive quantities of loans.

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  7. Sorry, I reversed the black and purple in the text. Also it may be different on the small and large charts ???

    I looked at the large version of the chart and too my surprise the large increase in % holding is "black" GSE Fannie & Freddie while the flat line "purple" (constant percentage holdings) is the Wall Street Banks. To me this data say quite the opposite, during the bubble period 2000-2005 Fannie and Freddie appear to be the prime culprits originating massive quantities of loans.

    ReplyDelete