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The root cause of the housing bubble

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rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: Vic

My state (Oregon) has rather strict mortgage licensing requirements, including background checks, education, and testing. California even more so and for the past 15+ years IIRC. Illinois uses a system comparable to Oregon's (including the same testing contractor IIRC). The federal government just implemented a nationwide system.
Ironically, except for a very few "wild west" states, mortgage brokers are under considerably more scructiny than any other lending institution. It might be less that CPA, I suppose, but you're complaining about brokers while loan officers at FDIC banks are exempt from any and all state-mandated licensing requirements.

And about Fannie Mae, you're skipping around. You said, "Investors thought those loans were made after careful consideration of borrower's credit," and I said, "if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents." What part about that is unclear? Mortgage brokers don't underwrite loans and never did. If a broker wanted to do a Fannie Mae loan, he would need to have access to submit it to Fannie Mae's nationwide automated underwriting system (called Desktop Originator). That system pulls and reviews the borrower's credit on its own, and whether or not the loan could be salable to Fannie would first and foremost be considered there, with manual (real person) underwriting to follow. The point is that the credit was carefully considered.

What's next? That lenders were throwing out 100% no-income-no-asset loans to sub-500 score borrowers without an appraisal?
My point is having a system doesn't equate to careful consideration of borrower's credit. If having a system is sufficient, Fannie Mae won't be exposed to $7billion loss of their own. I never worked with the system, but I doubt it can gather info like current salary, number of years on the job, lots of those info are entered by the applicants and verified by the broker. If those info are not verified, the system is useless.

An unethical broker can do lots of damage by helping/encouraging borrower to falsify info or simply not doing enough homework to reviewing the info in the interest of getting the loans out the door.
 

blackangst1

Lifer
Feb 23, 2005
20,775
782
126
Originally posted by: BoberFett

Oh good, the cute little financial guru found an interest calculator online. :roll:

Do you understand how borrowing from an IRA works? You pay it back, it's not gone for 35 years.

And if you really understand interest (you obviously don't) then borrowing money from a bank at a higher rate than your investments are making doesn't make sense.
uh no. I worked in the industry for 10 years before I moved to networking, and in fact still have an active series 6 and 63 license.

When did I ever imply borrowing at a higher rate than an investment earns was smart?
 

blackangst1

Lifer
Feb 23, 2005
20,775
782
126
Originally posted by: rchiu
Originally posted by: Vic

My state (Oregon) has rather strict mortgage licensing requirements, including background checks, education, and testing. California even more so and for the past 15+ years IIRC. Illinois uses a system comparable to Oregon's (including the same testing contractor IIRC). The federal government just implemented a nationwide system.
Ironically, except for a very few "wild west" states, mortgage brokers are under considerably more scructiny than any other lending institution. It might be less that CPA, I suppose, but you're complaining about brokers while loan officers at FDIC banks are exempt from any and all state-mandated licensing requirements.

And about Fannie Mae, you're skipping around. You said, "Investors thought those loans were made after careful consideration of borrower's credit," and I said, "if I wanted to do a Fannie Mae-conforming loan, then I would need to have Fannie Mae's own system carefully consider the borrower's credit before the borrower could sign loan documents." What part about that is unclear? Mortgage brokers don't underwrite loans and never did. If a broker wanted to do a Fannie Mae loan, he would need to have access to submit it to Fannie Mae's nationwide automated underwriting system (called Desktop Originator). That system pulls and reviews the borrower's credit on its own, and whether or not the loan could be salable to Fannie would first and foremost be considered there, with manual (real person) underwriting to follow. The point is that the credit was carefully considered.

What's next? That lenders were throwing out 100% no-income-no-asset loans to sub-500 score borrowers without an appraisal?
My point is having a system doesn't equate to careful consideration of borrower's credit. If having a system is sufficient, Fannie Mae won't be exposed to $7billion loss of their own. I never worked with the system, but I doubt it can gather info like current salary, number of years on the job, lots of those info are entered by the applicants and verified by the broker. If those info are not verified, the system is useless.

An unethical broker can do lots of damage by helping/encouraging borrower to falsify info or simply not doing enough homework to reviewing the info in the interest of getting the loans out the door.
Why would it not be the applicant's responsiblility if they provide false info? Sure. If the broker did so without informing the client that's a problem. But I highly doubt that is the norm. Again. It's the applicant's responsibility, not the lenders.
 

Vic

Elite Member
Jun 12, 2001
48,175
8,699
126
Originally posted by: rchiu
My point is having a system doesn't equate to careful consideration of borrower's credit. If having a system is sufficient, Fannie Mae won't be exposed to $7billion loss of their own. I never worked with the system, but I doubt it can gather info like current salary, number of years on the job, lots of those info are entered by the applicants and verified by the broker. If those info are not verified, the system is useless.

An unethical broker can do lots of damage by helping/encouraging borrower to falsify info or simply not doing enough homework to reviewing the info in the interest of getting the loans out the door.
Obviously, everything was verified. You've never heard of a Verification of Employment? Here's a link to standard form, Fannie Mae form 1005, right off their website.
Not to say that there weren't abuses, but the systems and procedures were in place to prevent them. Fannie is losing money right now, like most other investors at this time, because they based their risk criteria on an unsustainable market environment, just like the borrowers who are losing their homes.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: Vic
Originally posted by: rchiu
My point is having a system doesn't equate to careful consideration of borrower's credit. If having a system is sufficient, Fannie Mae won't be exposed to $7billion loss of their own. I never worked with the system, but I doubt it can gather info like current salary, number of years on the job, lots of those info are entered by the applicants and verified by the broker. If those info are not verified, the system is useless.

An unethical broker can do lots of damage by helping/encouraging borrower to falsify info or simply not doing enough homework to reviewing the info in the interest of getting the loans out the door.
Obviously, everything was verified. You've never heard of a Verification of Employment? Here's a link to standard form, Fannie Mae form 1005, right off their website.
Not to say that there weren't abuses, but the systems and procedures were in place to prevent them. Fannie is losing money right now, like most other investors at this time, because they based their risk criteria on an unsustainable market environment, just like the borrowers who are losing their homes.
Heh, who do you think is filling up the forms and making sure real employers enter those data? Fannie Mae or the broker?

I maybe a little over critical on the system and the regulations. But because brokers and lender (to a lesser extend) have such strong interest in selling as many loans as possible with the ability to pass the risk to MBS investors, we really need a strong regulation to make sure they are being ethical and follow the regulations.
 

blackangst1

Lifer
Feb 23, 2005
20,775
782
126
Originally posted by: rchiu
Originally posted by: Vic
Originally posted by: rchiu
My point is having a system doesn't equate to careful consideration of borrower's credit. If having a system is sufficient, Fannie Mae won't be exposed to $7billion loss of their own. I never worked with the system, but I doubt it can gather info like current salary, number of years on the job, lots of those info are entered by the applicants and verified by the broker. If those info are not verified, the system is useless.

An unethical broker can do lots of damage by helping/encouraging borrower to falsify info or simply not doing enough homework to reviewing the info in the interest of getting the loans out the door.
Obviously, everything was verified. You've never heard of a Verification of Employment? Here's a link to standard form, Fannie Mae form 1005, right off their website.
Not to say that there weren't abuses, but the systems and procedures were in place to prevent them. Fannie is losing money right now, like most other investors at this time, because they based their risk criteria on an unsustainable market environment, just like the borrowers who are losing their homes.
Heh, who do you think is filling up the forms and making sure real employers enter those data? Fannie Mae or the broker?

I maybe a little over critical on the system and the regulations. But because brokers and lender (to a lesser extend) have such strong interest in selling as many loans as possible with the ability to pass the risk to MBS investors, we really need a strong regulation to make sure they are being ethical and follow the regulations.
And what law could be put in place other than whats already there to prevent brokers from lying on apps without consumer's knowledge? Wait...isnt that already against the law? And if a consumer helps said broker to submit false information, is that also not against the law now? And whose fault would that be? The lender?
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: blackangst1


Why would it not be the applicant's responsiblility if they provide false info? Sure. If the broker did so without informing the client that's a problem. But I highly doubt that is the norm. Again. It's the applicant's responsibility, not the lenders.
What if the broker work with the applicants on making the application looks good enough for the loans? The broker knows the system, and they know what is the requirement, and they want to see the application goes through so they get paid. All it takes is a wink wink fill that thing with xyz and you have a successful loan application. They don't even need to falsify the info sometime, all it takes is knowing the system and enter the right info and leave the wrong one out to get the loan goes through. With that type of help, how many borderline/high risk individuals beat the system and get the load they otherwise would very possibly unable to obtain.

And don't tell me that's not against the law because they didn't falsify any info. In financial world, fiduciary duty is a huge part of the ethics. You have to have client's interest in mind. If the broker knows client is likely to default and hurt by it, you shouldn't be helping them to get the loan, even if that's legal. I know because I am in CFA program and you lose your membership is you failed to follow the ethic requirement.
 

Nemesis 1

Lifer
Dec 30, 2006
11,379
0
0
Originally posted by: blackangst1
Originally posted by: Nemesis 1
Originally posted by: blackangst1
Originally posted by: Nemesis 1
Originally posted by: ironwing
Originally posted by: TastesLikeChicken
:confused:

So you're against minorities owning homes?
Homeownership didn't go up, only homeloanership*. While the nominal rate of home ownership has increased, the rate of equity ownership has declined faster than the nominal ownership rate has risen so more people own less of their homes.

Graph through 2003. If I could find equity data for more recent years I'd love to update the graph.







*I just coined that term. Makes you want to punch your monitor, doesn't it? ;)

This is exactly what happened. My son refinanced for 2x what he paid for his house. I to did the same thing.

I advised my son to invest the money . He didn't now he is paying more than he can afford. I invested my loan money . 3 years later I had 4x what I borrowed. Paid off the loan .

On a completely unrelated story my daughter was looking to buy new car . So she asked me what I thought.
I told here to borrow the money from her IRA. The repayment of the loan was @ 8% which she pays to her IRA. So she pays herself the interest . She couldn't believe she could do that . But she could and did. I stepped in once again . Me and wife bought new car . Gave daughter old car . I talked her into buying a stock I thought was going to do well . She bought it . After 3 years she 3x year investment . Plus paid herself interest on the loan . It was a WIN WIN all the way around.
Holy shit worst advice ever man...

First..."borrow" your own money? LOL

Do you understand compund interest? Rule of 72- take the interest rate youre earning and divide into 72. That tells you the number of years it takes for your money to double, assuming no additions. Lets say the car is $12000. Lets say conservatively she earns 12% on her IRA. $12000 in say, 35 years (assuming she's around age 30) would be roughly$384,000.

Thats one expensive car!
Your Kidding right . I hope your not going to college.

She borrowed $20'000 from herself paid it back in 4 years @8% interest and reinvested $60,000 . That she is making money on . You best redo your math.
Well, you failed to mention the addition of $60,000 in your origianl scenario. But, based on the info given, my numbers are correct.
No I planly said she made 3x on her investment. I just didn't say how much . I wish I could make 12% consevitively speaking on my IRa. I wouldn't invest in anything else.

Your math is flawed. Because you don't understand the concept.


 

blackangst1

Lifer
Feb 23, 2005
20,775
782
126
Originally posted by: rchiu
Originally posted by: blackangst1


Why would it not be the applicant's responsiblility if they provide false info? Sure. If the broker did so without informing the client that's a problem. But I highly doubt that is the norm. Again. It's the applicant's responsibility, not the lenders.
What if the broker work with the applicants on making the application looks good enough for the loans? The broker knows the system, and they know what is the requirement, and they want to see the application goes through so they get paid. All it takes is a wink wink fill that thing with xyz and you have a successful loan application. They don't even need to falsify the info sometime, all it takes is knowing the system and enter the right info and leave the wrong one out to get the loan goes through. With that type of help, how many borderline/high risk individuals beat the system and get the load they otherwise would very possibly unable to obtain.
Wait. If the application is made to "look good enough" to get the loan, and it is all inclusive and correct, is that not a valid loan? And if the broker and applicant decide to leave something out that is supposed to be there, is that not fraud? And against the law? And if the applicant and the broker decide to do this, how is this not the applicants responsibility? Do brokers make threats to applicants if they dont?
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: blackangst1
Originally posted by: rchiu
Originally posted by: blackangst1


Why would it not be the applicant's responsiblility if they provide false info? Sure. If the broker did so without informing the client that's a problem. But I highly doubt that is the norm. Again. It's the applicant's responsibility, not the lenders.
What if the broker work with the applicants on making the application looks good enough for the loans? The broker knows the system, and they know what is the requirement, and they want to see the application goes through so they get paid. All it takes is a wink wink fill that thing with xyz and you have a successful loan application. They don't even need to falsify the info sometime, all it takes is knowing the system and enter the right info and leave the wrong one out to get the loan goes through. With that type of help, how many borderline/high risk individuals beat the system and get the load they otherwise would very possibly unable to obtain.
Wait. If the application is made to "look good enough" to get the loan, and it is all inclusive and correct, is that not a valid loan? And if the broker and applicant decide to leave something out that is supposed to be there, is that not fraud? And against the law? And if the applicant and the broker decide to do this, how is this not the applicants responsibility? Do brokers make threats to applicants if they dont?
I know people is gonna raise this. I am in the CFA program and one of the first thing we talk about is the fiduciary duty to your client. It's not just about breaking the law or not, you should have client's interest in mind. You know the client is taking on high risk by taking the loan, and you are helping him because that get you paid, that is ethically unacceptable. Sometime is not what client wants too, as a financial adviser, which I see mortgage broker as the financial adviser for a home purchase, you should advise against the client for taking on inappropriate risk. I rarely see that in the mortgage lending industry, they just wanna get paid.
 

Engineer

Elite Member
Oct 9, 1999
39,255
699
126
Originally posted by: Starbuck1975
The problem is that as soon as the bank or whoever makes the house loan they are sold off to a third party. So the People who make the loans are not usually the people that are collecting the money or own the actual mortgage. This kind of sysem is ripe for failure.
Yet a lot of individuals, motivated by shows on HGTV and keeping up with the neighbors, exploited this weak lending system to enjoy double digit appreciation on their homes, and squandering phantom home equity on luxury items and vacations to exotic locales.

I don't recall borrowers complaining when this Ponzi scheme lined their pockets, and it should come as no surprise that this debt driven accumulation of wealth would eventually come crashing down.
I don't know about the keeping up with the neighbors, but the damn flip the house shows really kicked home prices in the ass as people bought with intentions of a quick flip, driving the prices of homes in certain areas up a great amount in a short time. Goddamn, I hate those shows. I'm always hoping that the bastards have to sell for less than they have in the damn home. :evil:
 

Vic

Elite Member
Jun 12, 2001
48,175
8,699
126
Originally posted by: rchiu
Heh, who do you think is filling up the forms and making sure real employers enter those data? Fannie Mae or the broker?

I maybe a little over critical on the system and the regulations. But because brokers and lender (to a lesser extend) have such strong interest in selling as many loans as possible with the ability to pass the risk to MBS investors, we really need a strong regulation to make sure they are being ethical and follow the regulations.
But wait! Who will be regulating these regulators?

It's not just that you're splitting too many hairs here, you're barking up the wrong tree. The safeguards, systems, and procedures were all in place. It's just that borrowers, brokers, lenders, and investors all decided to forgo them in the overexhuberence of an intensely heated speculative market. Nothing you're proposing here would have changed that. And as the worst of the lenders involved are already out of business Text, I'm not sure what you think you're going to change by closing the barn door now.
 

blackangst1

Lifer
Feb 23, 2005
20,775
782
126
Originally posted by: Nemesis 1
Well, you failed to mention the addition of $60,000 in your origianl scenario. But, based on the info given, my numbers are correct.
No I planly said she made 3x on her investment. I just didn't say how much . I wish I could make 12% consevitively speaking on my IRa. I wouldn't invest in anything else.

Your math is flawed. Because you don't understand the concept.


[/quote]

There are hundreds of mutual funds that have averaged over 12% for 5-10 years or more. I think the lowest I ever got in one year was 7% back in the late 80's. Check it out.

Here is just one link click and sort by 10 yr avg. Over 10 pages of 12% or better.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
There is not one "root cause" for the housing bubble, there are many root causes.

First, the change in the tax laws enacted in 1998. I believe that was the "start", in as much as people saw that they could arbitrage the tax schemes for investments. However, since the tech boom was going on, nobody cared. Afterwards, they saw a nice ripe opportunity, but a lack of funding.

Second, many people blame lower rates on the Fed, which was only part of the 2nd problem. Number one could not "boom" without funding. Now, people with plenty of money were looking for alternative investments. As the Fed dropped rates, people with higher priced mortgages looked toward refis, this, combined with more money entering the market, not only dropped the rate via cheaper funding costs from the Fed, but also from the flood of money compressing the risk spread. The combination drove massive refis. After those were done, thousands of mortgage people sat around asking "now what?"

Third, after they solved the "now what?" question, with a "hey, lets drive new purchases", the new money flooded the market for purchases. Since it was a good tax scheme, the DJIA was sucking wind, and cheap funding was available, people decided that new purchases were good "investments".

See, this is where I think the biggest piece of the puzzle lays. I have asked dozens of older people how they felt about buying a house 1+ decade ago. Almost all of them viewed a house as a stable place to live, to raise a family, to grow old in, and to sell in retirement for a smaller place. That's it. It wasn't an investment first, but a house first and an investment second. That mentality changed in the last 5-10 years as it was seen as an investment first, and a house second.

The only notable exception was my father in law, who put them on equal footing. When he moved he naturally bought a house, but also looked for areas that were new, but undervalued because of their uncertainty. He looked for key elements, such as good schools, proximity to shopping, a good neighborhood..etc. He would buy in, then, somehow, it always worked out that they would sell at the peak, just as the neighborhood had filled out, jacking the entry fee to existing houses, not new builds.

However, that wasn't flipping, nor was it "this house was 500,000, now it should be 600,000".

Which brings me to the final problem. People think that just because you paid X, then somebody should pay X+1. In the time of easy financing, this was a great pyramid scheme. If you could upgrade, tax free or with diminished taxes, then you could always keep going to higher appreciating houses. This required inventive appraisers, who also fell into the idea.

Then of course there are investors in mortgages, who fooled themselves into thinking that going downcredit was a great idea. There are the bankers who shilled the products to investors. The list can go on and on.

What it comes down to is that people did what they shouldn't have done. They thought that such a good deal was true, instead of being prudent.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: LegendKiller
There is not one "root cause" for the housing bubble, there are many root causes.

First, the change in the tax laws enacted in 1998. I believe that was the "start", in as much as people saw that they could arbitrage the tax schemes for investments. However, since the tech boom was going on, nobody cared. Afterwards, they saw a nice ripe opportunity, but a lack of funding.

Second, many people blame lower rates on the Fed, which was only part of the 2nd problem. Number one could not "boom" without funding. Now, people with plenty of money were looking for alternative investments. As the Fed dropped rates, people with higher priced mortgages looked toward refis, this, combined with more money entering the market, not only dropped the rate via cheaper funding costs from the Fed, but also from the flood of money compressing the risk spread. The combination drove massive refis. After those were done, thousands of mortgage people sat around asking "now what?"

Third, after they solved the "now what?" question, with a "hey, lets drive new purchases", the new money flooded the market for purchases. Since it was a good tax scheme, the DJIA was sucking wind, and cheap funding was available, people decided that new purchases were good "investments".

See, this is where I think the biggest piece of the puzzle lays. I have asked dozens of older people how they felt about buying a house 1+ decade ago. Almost all of them viewed a house as a stable place to live, to raise a family, to grow old in, and to sell in retirement for a smaller place. That's it. It wasn't an investment first, but a house first and an investment second. That mentality changed in the last 5-10 years as it was seen as an investment first, and a house second.

The only notable exception was my father in law, who put them on equal footing. When he moved he naturally bought a house, but also looked for areas that were new, but undervalued because of their uncertainty. He looked for key elements, such as good schools, proximity to shopping, a good neighborhood..etc. He would buy in, then, somehow, it always worked out that they would sell at the peak, just as the neighborhood had filled out, jacking the entry fee to existing houses, not new builds.

However, that wasn't flipping, nor was it "this house was 500,000, now it should be 600,000".

Which brings me to the final problem. People think that just because you paid X, then somebody should pay X+1. In the time of easy financing, this was a great pyramid scheme. If you could upgrade, tax free or with diminished taxes, then you could always keep going to higher appreciating houses. This required inventive appraisers, who also fell into the idea.

Then of course there are investors in mortgages, who fooled themselves into thinking that going downcredit was a great idea. There are the bankers who shilled the products to investors. The list can go on and on.

What it comes down to is that people did what they shouldn't have done. They thought that such a good deal was true, instead of being prudent.
Sounds like a logical reason but I am not sure if I buy this. The whole problem started with "subprime loans", how many of those investors would be considered subprime? I mean those who have the know how and the initiative to buy houses as investments usually do okay financially, and they would probably not be considered "subprime" borrowers. My feeling is still that lower income, people who shouldn't be taking out certain loans are talked into taking out the loans by predatory mortgage lending practices. Once they started defaulting, it triggers a confident crisis in the credit market/MBS market and the as the credit tighten, free money is no longer there to support the housing bubble.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: rchiu
Originally posted by: LegendKiller
There is not one "root cause" for the housing bubble, there are many root causes.

First, the change in the tax laws enacted in 1998. I believe that was the "start", in as much as people saw that they could arbitrage the tax schemes for investments. However, since the tech boom was going on, nobody cared. Afterwards, they saw a nice ripe opportunity, but a lack of funding.

Second, many people blame lower rates on the Fed, which was only part of the 2nd problem. Number one could not "boom" without funding. Now, people with plenty of money were looking for alternative investments. As the Fed dropped rates, people with higher priced mortgages looked toward refis, this, combined with more money entering the market, not only dropped the rate via cheaper funding costs from the Fed, but also from the flood of money compressing the risk spread. The combination drove massive refis. After those were done, thousands of mortgage people sat around asking "now what?"

Third, after they solved the "now what?" question, with a "hey, lets drive new purchases", the new money flooded the market for purchases. Since it was a good tax scheme, the DJIA was sucking wind, and cheap funding was available, people decided that new purchases were good "investments".

See, this is where I think the biggest piece of the puzzle lays. I have asked dozens of older people how they felt about buying a house 1+ decade ago. Almost all of them viewed a house as a stable place to live, to raise a family, to grow old in, and to sell in retirement for a smaller place. That's it. It wasn't an investment first, but a house first and an investment second. That mentality changed in the last 5-10 years as it was seen as an investment first, and a house second.

The only notable exception was my father in law, who put them on equal footing. When he moved he naturally bought a house, but also looked for areas that were new, but undervalued because of their uncertainty. He looked for key elements, such as good schools, proximity to shopping, a good neighborhood..etc. He would buy in, then, somehow, it always worked out that they would sell at the peak, just as the neighborhood had filled out, jacking the entry fee to existing houses, not new builds.

However, that wasn't flipping, nor was it "this house was 500,000, now it should be 600,000".

Which brings me to the final problem. People think that just because you paid X, then somebody should pay X+1. In the time of easy financing, this was a great pyramid scheme. If you could upgrade, tax free or with diminished taxes, then you could always keep going to higher appreciating houses. This required inventive appraisers, who also fell into the idea.

Then of course there are investors in mortgages, who fooled themselves into thinking that going downcredit was a great idea. There are the bankers who shilled the products to investors. The list can go on and on.

What it comes down to is that people did what they shouldn't have done. They thought that such a good deal was true, instead of being prudent.
Sounds like a logical reason but I am not sure if I buy this. The whole problem started with "subprime loans", how many of those investors would be considered subprime? I mean those who have the know how and the initiative to buy houses as investments usually do okay financially, and they would probably not be considered "subprime" borrowers. My feeling is still that lower income, people who shouldn't be taking out certain loans are talked into taking out the loans by predatory mortgage lending practices. Once they started defaulting, it triggers a confident crisis in the credit market/MBS market and the as the credit tighten, free money is no longer there to support the housing bubble.
are you so sure about that? Take a look at TLC or HGTV sometime with the "house ladder" or "flip this/that house". The problem isn't subprime loans, per se, since there were always subprime loans. It was the volume of subprime loans backed by bubbled houses.

I personally know several anecdotes of people who wouldn't really be considered "subprime", but took out questionable loans. I know one woman who makes 30k, but has 600k in mortgages all in SoFLA. A good friend of mine in Orlando just found out the person he rents from owes 60k in closing costs, but doesn't have the cash, he was a big flipper in CA and moved to FL recently. The landlord we rented from in Reston, VA, owned 4 places. The two owned in my condo community had more than 50k of HOA fees due. It was so bad that the condo company was going to put our rent checks into escrow to pay down the fees. She was a realtor.

I remember when we signed the lease she asked me why we weren't buying. I said that I thought the area was overpriced and was going to come down. She was sort of insulted I thought she was being foolish. Too bad she's probably now in foreclosure on at least 2 of the houses.


all of these people are college educated, had brains, but all got caught up in the investment perspective.
 

Pabster

Lifer
Apr 15, 2001
16,988
1
0
Originally posted by: LegendKiller
all of these people are college educated, had brains, but all got caught up in the investment perspective.
Ah, the lure of money :laugh:

 

piasabird

Lifer
Feb 6, 2002
17,183
60
91
A lot of this link talks about increasing home ownership by minorities. It has nothing to do with the cause of a housing bubble. First thing minority people need to do is to get married and stay married and have 2 incomes to pay for that house and work together to raise up a real family. I guess this part of the speech eluded them.
 

Slew Foot

Lifer
Sep 22, 2005
12,387
94
86
If you think "subprime" is the cause of the problem, what are you going to say in the next couple years when all of the Alt-A/prime loans reset?

The subprime loans reset faster, that's why they got into trouble first.

 

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
Link

US subprime lenders targeted blacks, poor: report

20 hours ago

WASHINGTON (AFP) ? US mortgage lenders targeted minorities and people with low incomes in recent years as the "best candidates" for subprime home loans, with devastating economic consequences, a report claimed Tuesday.

The report by the United for a Fair Economy (UFE) advocacy group said subprime mortgages, home loans issued to Americans with scant finances, were "ruthlessly hawked" and that a "solid majority of subprime loan recipients were people of color."

Hundreds of thousands of families lost their homes to foreclosure last year after failing to keep up with mortgage payments, a hefty chunk of which were subprime loans, amid a national housing downturn that shows no sign of easing.

Some economists believe the almost two-year-long housing slump could pitch the world's largest economy into a recession.

"The crisis has ruined many economic lives and many communities," the UFE report said, adding that "even a surface check of the demographics shows that, in city after city, a solid majority of subprime loan recipients were people of color."

UFE researchers said Detroit, Michigan has been hit by more foreclosure filings than any other city in the one hundred largest US metropolitan areas, and that it ranks third among cities with the largest black populations.

The report's authors said many blacks and poor Americans were deliberately targeted by lenders marketing a range of money-making home loans that were sometimes confusing for borrowers to understand.

"Hungry for new and different products, the financial services industry added features to these loans -- exploding adjustable rates, balloon payments, penalties for early re-payment -- that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all," the report said.

The Boston-based UFE, which released its findings to coincide with the January 15 birthday of Martin Luther King Jr, the US civil rights icon who was assassinated in 1968, said pre-payment penalties benefit lenders, but penalize borrowers from paying off a loan early.

The group said that although subprime loans were once a niche product, they had swelled during a years-long housing-boom to account for around 20 percent of all US mortgages.

Some lenders made it difficult for borrowers to understand their loan's full terms and steered customers into taking out subprime loans when they could have qualified for better terms, the UFE said.

The report estimated the total loss of wealth "for people of color" including Latinos to be between 163 and 278 billion dollars for subprime loans taken out during the past eight years.

"We believe this represents the greatest loss of wealth for people of color in recent US history," the UFE said, saying America was entering an economic downturn that could match the Great Depression.

The administration of US President George W. Bush is mulling remedies to bolster the economy after brokering a vast mortgage relief plan last month aimed at helping up to 1.2 million distressed homeowners at risk of foreclosure.

"Communities across the nation are being torn apart. As mortgages go into foreclosure, people move out, houses are boarded up, crime and fires increase, neighboring properties are devalued, and the tax base erodes," Brenda Cotto-Escalera, one of the report's co-authors, said.

The UFE also criticized the trading of mortgages between banks, compared to times when loans were overseen by a local bank manager familiar with a borrower's income and outgoings.

The Boston-based group seeks to address what it says is a widening income gap in the United States, and advocates for a "powerful fair economy."

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So, do you blame the borrowers for failing to understand the loans they took? Or do you blame the banks for lowering the standards for making loans and giving loans to people who did not understand what they were signing? And people who were too poor to start with aka deadbeats?






 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: GrGr




So, do you blame the borrowers for failing to understand the loans they took? Or do you blame the banks for lowering the standards for making loans and giving loans to people who did not understand what they were signing? And people who were too poor to start with aka deadbeats?
It's not just the bank lowering the standards. Those brokers and lenders were eager to make the loans and they don't lose anything if the borrowers default so many unethical ones will do anything to get the loan out the door. Some of those loans can be pretty complex financial products and I don't blame many of those people for not able to understand what they were signing. Also like I said in the previous post, those brokers/lenders can help borrowers to come up with a good looking loan applications because they know the "system" well.

Unfortunately we will always have people who don't can't even read, let along understand what a jumble loan is and how interest rate work. If we don't have good enough regulations, or make sure lenders/brokers's interests tie to client's interest, we will always have unethical lenders/brokers take advantage of those people and try to make as much money as possible.
 

1EZduzit

Lifer
Feb 4, 2002
11,834
1
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Originally posted by: rchiu
Originally posted by: GrGr




So, do you blame the borrowers for failing to understand the loans they took? Or do you blame the banks for lowering the standards for making loans and giving loans to people who did not understand what they were signing? And people who were too poor to start with aka deadbeats?
It's not just the bank lowering the standards. Those brokers and lenders were eager to make the loans and they don't lose anything if the borrowers default so many unethical ones will do anything to get the loan out the door. Some of those loans can be pretty complex financial products and I don't blame many of those people for not able to understand what they were signing. Also like I said in the previous post, those brokers/lenders can help borrowers to come up with a good looking loan applications because they know the "system" well.

Unfortunately we will always have people who don't can't even read, let along understand what a jumble loan is and how interest rate work. If we don't have good enough regulations, or make sure lenders/brokers's interests tie to client's interest, we will always have unethical lenders/brokers take advantage of those people and try to make as much money as possible.


The dumb will always be preyed upon but when the market got so high the smarter people started backing off. The brokers still have to sell houses to make their living, so who does that leave? The trusting and the stupid.

That's why they had those silly rules like requiring a 20 to 30% down payment in the first place.


 

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
Originally posted by: 1EZduzit
Originally posted by: rchiu
Originally posted by: GrGr




So, do you blame the borrowers for failing to understand the loans they took? Or do you blame the banks for lowering the standards for making loans and giving loans to people who did not understand what they were signing? And people who were too poor to start with aka deadbeats?
It's not just the bank lowering the standards. Those brokers and lenders were eager to make the loans and they don't lose anything if the borrowers default so many unethical ones will do anything to get the loan out the door. Some of those loans can be pretty complex financial products and I don't blame many of those people for not able to understand what they were signing. Also like I said in the previous post, those brokers/lenders can help borrowers to come up with a good looking loan applications because they know the "system" well.

Unfortunately we will always have people who don't can't even read, let along understand what a jumble loan is and how interest rate work. If we don't have good enough regulations, or make sure lenders/brokers's interests tie to client's interest, we will always have unethical lenders/brokers take advantage of those people and try to make as much money as possible.


The dumb will always be preyed upon but when the market got so high the smarter people started backing off. The brokers still have to sell houses to make their living, so who does that leave? The trusting and the stupid.

That's why they had those silly rules like requiring a 20 to 30% down payment in the first place.
Yup. Until Genius decided it was a brilliant idea to remove those down payments... (see the speech).






 

Vic

Elite Member
Jun 12, 2001
48,175
8,699
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How dare those poor people and minorities dream of homeownership? Don't they know their place?

:roll:
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: Vic
How dare those poor people and minorities dream of homeownership? Don't they know their place?

:roll:
So we give them loans they cannot afford so they loss their home later and have worse credit then they started with. And that's helping them how?
 

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