I attended a seminar given by Gary Watts, a real estate economist and Realtor. Here is an excerpt of the past financial market events leading to where we are now. This will give us an idea of where we are headed based upon where we have been: - Brian Richard, Realtor. Richard Realty Groups. 760-533.4244
Chronology of the Market: Chronology to a Financial Disaster “The Perfect Storm"
1933 – Glass Steagall Act is passed to prevent banks and investment houses from acting as one entity.
1970 – HUD creates the first transaction using a mortgage-backed security sold by Ginnie Mae.
1977 – Community Reinvestment Act is passed to help make loans to less-qualified borrowers.
1985 – Asset securitization is applied to auto loans.
1986 – The first securitization of credit cards is sold.
1987 – Wall Street and insurance companies employ PhDs in mathematics to design new tools.
1988 – Citigroup invents the Structured Investment Vehicle (SIV).
1994 – Congress further empowers the CRA to increase homeownership.
1997 – Congress allows both Fannie Mae and Freddie Mac to lower reserves from 12% to 2.5%.
1998 – AIG does its first credit default swap.
1999 – Gram-Leach-Bliley Act re-merges banks and investment houses back into a single entity.
2002 – Federal Reserve lowers interest rates as the economy continues to feel the effects of 9/11.
2002 – Credit rating companies begin their initial rating of SIVs, many with AAA ratings.
2002 – Audits of both Fannie Mae and Freddie Mac show mismanagement and accounting irregularities.
2003 – Two independent reports show that both Fannie and Freddie have no positive impact on housing.
2003 – Congress reduces future funding of both Fannie and Freddie.
2003 – Wall Street increases its participation in mortgage-backed securities.
2004 – The Fed, mistakenly thinking economy is weak, pumps in excess liquidity and keeps rates low.
2004 – Analysis of Collateralized Debt Obligations (CDOs) shows sub-primes are the dominating debt.
2004 – Fannie and Freddie, trying to be viable again, begin purchasing these CDOs from Wall Street.
2005 – Fannie and Freddie are considered the “less affordable lenders,” and buy $1 trillion of CDOs.
2005 – Charge-off rates are below long term averages and lenders loosen credit standards.
2005 – Option-ARMs began making up 19.5% of the total loan volume.
2006 – Option-ARMs grow to 28.7% of the total loan volume, and sub-prime begins to show late-pays.
2006 – CDOs grow to $557 billion, but delinquencies on sub-prime loans begin to rise rapidly.
2006 – Credit rating agencies begin to make major downgrades on SIVs, affecting all credit markets.
2006 – The SEC keeps market to market rule in place, beginning the destruction of equities.
2007 – By May, sub-prime loans are dead and lending tightens.
2007 – In early August, there is a major call on credit default swaps against CDOs.
2007 – By the end of August, the securitization market is dead and the funding market is frozen.
2007 – SEC abolishes the uptick rule and drives the stake of death through financially sound institutions.
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