DenverSooner
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1. The mortgaged back securities probably don't work without the federal insurance. I can buy that paper with little to no downside risk because the bad loans are effectively guaranteed by the government. I can make a bad loan because I can sell it on the secondary market because the federal government guarantees the loan. It was the complex regulatory system that encouraged in the speculation and unreasonable acceptance of risk.
2. The economy was actually doing fairly well until the democrats took control in 2006. Bush warned about the impending real estate crashed and Barney Frank insisted there was nothing to worry about. Frank held a very powerful position in Congress. This does not mean everything is the fault of the democrats. There is plenty of blame to go around but to ignore the role of Barney Frank and the democrats in all of this is ridiculous.
3. Adjustable rate mortgages or ARMS were not the cause of the real estate crash or a contributing factor if by adjustable rate mortgage you mean a rate tied to an appropriate industry standard. Interest rates actually went down so an adjustable rate mortgage that was tied to a bench mark would have gone down. The problem is that the banking industry and regulators allowed complete garbage loans that would say something like you pay 5% for 4 years and then your interest rate goes to 9%. The person qualifies on an ability to pay at 5% when they are clearly headed towards 9%. It would be sold to the consumer on the notion that your property would appreciate in value, you could refinance and you don't have to worry about that fixed 9% rate that is absolutely going to happen unless you can refinance.
4. The programs to help debtors were stupid. They provided no help to someone in trouble but making payments. This encouraged more defaults.
5. Zero doc or stated income loans. I am not sure who came up with this idea but basically it allowed a borrower to say I have $X of income and no proof was required. The banks would then sell the loan so what do they care. The federal government guaranteed the loan so what do the buyers care. The really scary thing is banks are doing this again.
6. Second loans became common at the time of closing. Historically a person borrowed 80% of the value of his or her house, maybe 90%. At some point in the 90s the mortgage industry began to have people borrow 95% or more. Bank A loans 80% in a first lien position. Bank B loans 10-19.9% in a second lien position. Now the homeowner has nothing at risk other than his or her credit score. Times get hard, the borrower just defaults because he or she is losing little if anything. This was a very bad idea.
2. The economy was actually doing fairly well until the democrats took control in 2006. Bush warned about the impending real estate crashed and Barney Frank insisted there was nothing to worry about. Frank held a very powerful position in Congress. This does not mean everything is the fault of the democrats. There is plenty of blame to go around but to ignore the role of Barney Frank and the democrats in all of this is ridiculous.
3. Adjustable rate mortgages or ARMS were not the cause of the real estate crash or a contributing factor if by adjustable rate mortgage you mean a rate tied to an appropriate industry standard. Interest rates actually went down so an adjustable rate mortgage that was tied to a bench mark would have gone down. The problem is that the banking industry and regulators allowed complete garbage loans that would say something like you pay 5% for 4 years and then your interest rate goes to 9%. The person qualifies on an ability to pay at 5% when they are clearly headed towards 9%. It would be sold to the consumer on the notion that your property would appreciate in value, you could refinance and you don't have to worry about that fixed 9% rate that is absolutely going to happen unless you can refinance.
4. The programs to help debtors were stupid. They provided no help to someone in trouble but making payments. This encouraged more defaults.
5. Zero doc or stated income loans. I am not sure who came up with this idea but basically it allowed a borrower to say I have $X of income and no proof was required. The banks would then sell the loan so what do they care. The federal government guaranteed the loan so what do the buyers care. The really scary thing is banks are doing this again.
6. Second loans became common at the time of closing. Historically a person borrowed 80% of the value of his or her house, maybe 90%. At some point in the 90s the mortgage industry began to have people borrow 95% or more. Bank A loans 80% in a first lien position. Bank B loans 10-19.9% in a second lien position. Now the homeowner has nothing at risk other than his or her credit score. Times get hard, the borrower just defaults because he or she is losing little if anything. This was a very bad idea.
