Why the mortgage industry imploded
Posted by Mike Sylvester - 12/28/08 @ 12:42 pm - Filed Under National Politics
The mortgage industry is a complete mess because mortgage companies loaned money to people they should never have loaned money to. I have posted about this many times over the last few months. In my opinion there are three sets of people at fault for the mortgage meltdown:
- Politicians from BOTH major political parties have emphasized home ownership and have forced banks to make loans to people who they should have never loaned money to in the name of “fairness.”
- Mortgage companies and banks decided to make loans to people without verifying income, assets etc.
- Consumers borrowed more money they they could afford to borrow. Sometimes these consumers lied in order to get loans they should never have been allowed to take out.
This article says it all.
Mike Sylvester
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21 Responses to “Why the mortgage industry imploded”
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Once again, Mikey, we need to go over why the “CRA caused the crisis” argument is both wrong and racist.
Mike, You are correct on 2 out of 3 points, sort of…It’s kind of how you break down number 2.
You may very well be accurate when you say “Mortgage companies and banks decided to make loans to people without verifying income, assets etc. ” however, keep this in mind..
Mortgage companies used the guidelines (approved) and criteria REQUIRED by Fannie & Freddie. It was no longer a matter of underwriting approval for the banks’ sake, it was a matter of approval of FHA and FNHMA for THEIR sake. Banks and mortgage brokers did EXACTLY as they were instructed and if they didn’t follow the requirements, those loans didn’t get bought, they had to buy them back and place them “in house”…(which happened to my wife a number of times) Banks continued to make loans “in-house” but they were NOT at discounted FHA rates.
Blame lies squarely in one place here: FEDS…..
They induced it, they executed it, they championed it, and they enforced it. Call Barney Frank or Chris Dodd, not your local lender.
And, naturally, dimbo blames OMGZ TEH GFUMMINT LIBROOLZ. Ever the partisan hack, dim can’t go two minutes without someone who isn’t him to attack.
Oh and since I know that you kids won’t believe me because I’m not a self-centered rethug or losertarian:
http://blogs.wsj.com/economics/2008/12/03/feds-kroszner-defends-community-reinvestment-act/
Fed economists found that about 60% of higher-priced loan originations — the technical definition of subrpime(sic) — went to middle- or higher-income borrowers or neighborhoods who aren’t targeted by CRA. More than 20% of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by institutions that aren’t banks — and aren’t covered by CRA.
Of course, you’ll just dismiss this fact and continue on your tirades.
or you could call the REPUBLICAN Senators and Congressmen that did NOTHING about this when they had a majority in Congress.
Of course, Tim finds it more appealing to just blame the Democrats.
Kevin, I’ll grant you, it’s totally uncool to stand around and watch a fire without helping to put it out, however, the ones that lit the fire are to blame. Social engineering at it’s worst.
It doesn’t matter whether you are a democrat or not in this case, anybody that supports Frank & Dodd has either no moral compass, or no frickin’ brains.
Giving away everyone elses’ money to anybody that has a pulse is a long standing DEMOCRAT tradition.
I’ll blame the FEDS number one and all of it started with Andrew Cuomo the housing and urban development secretary in the clinton administration. So yes, both sides of the aisle can claim this as their fault.
There are as many starting points for the mortgage meltdown as there are fears about how far it has yet to go, but one decisive point of departure is the final years of the Clinton administration, when a kid from Queens without any real banking or real-estate experience was the only man in Washington with the power to regulate the giants of home finance, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), better known as Fannie Mae and Freddie Mac.
Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.
What he did is important—not just because of what it tells us about how we got in this hole, but because of what it says about New York’s attorney general, who has been trying for months to don a white hat in the subprime scandal, pursuing cases against banks, appraisers, brokers, rating agencies, and multitrillion-dollar, quasi-public Fannie and Freddie.
Typical politician…….he created the mess now he wants everyone to think he’s in there fighting for the little guy and he’ll fix this!!!! I’m sure Mark Souder will vote for any bailout again.
I agree that both parties share blame in the mortgage meltdown. There is no doubt the Community Reinvestment Act was instrumental in contributing to the massive foreclosures we are now experiencing. But, the rapid, sky-high, unjustified, escalation of property values up and down the East and West coasts helped to also contribute to this crisis (bubble).
Likewise, the questionable appraisals being assessed to properties as a basis for establishing a property’s value and determining a loan amount should have also been scrutinized more.
I remember a few years back, witnessing the feeding frenzy which took place in the state of Florida. The real estate closest to the ocean went first, and next it seemed as if any barren lot across the entire state was being snatched up by investors. A 1000 sf cement block house which had sold in 2000 for $75,000, was now being appraised for a loan for the amount of $245,000 only a few years later. Many of the small, beach-front motels that had been built in the 50’s and 60’s had been bought and were being demolished for twenty story, Mediterranean style condominiums. Ironically, not all of these condos have been built, and many of the cleared beach-front lots now sit vacant.
Quite a few of the new condos that were sold, changed hands two, three, or more times before the condominium complex had even broke ground. These “speculators” were often investors gambling for a quick profit and riding the wave of real estate buying hysteria which had overcome not only Florida, but other states as well. I would imagine a lot of these speculators were caught holding the bag when the property values began to plummet, and found themselves underwater on their mortgage and ultimately foreclosed on.
I’m just sick and tired of politicians grandstanding through all of this.
While I agree with Tim’s position, personally, I think we should be blaming the idiots that took out mortgages they knew they could not afford.
I was a mortgage loan processor during the refinance and purchasing boom. From what I understand the Clinton administration started this mess and the Bush administration added to it. Not to mention Daniel Mudd and Dick Syron (weren’t they friends of Obama’s?)ran Fannie and Freddie into the ground and received serverance packages! I agree with others, they should have been tarred and feathered. Anyhow, if you want to know the real nuts and bolts of the subprime fiasco, ask me, I will tell you about loan programs, qualifying criteria etc. Needless to say, there were many people approved for home purchases that I KNEW would lose their homes–some due to job loss by the way. Most of the time the loans were FHA, 3/1,5/1 ARMs and of course subprime or C paper. Yes, there were many, many people who bought more than they could afford; I saw it every day. It was like dangling candy in front of a child. Also, there are or were loan progams called “stated” income. With a conventional loan “stated” income was typically for borrowers with strong credit scores. For subprime borrowers it was a way to “FUDGE” the truth. I could go on forever!! You want to know more, just e-mail me, and I will TRY to answer your questions. I have been out of the mortgage industry for 3 years,and I don’t claim to know everything!
Blue Field Damian,
Once again your are completely wrong and it is not racist; it is fact.
Mike Sylvester
Tim Zank,
While what you say is true; that is not an excuse for banks to use bad lending practices no matter who they were approved by.
Not every bank and mortgage company is in trouble; just the ones who did stupid things.
Mike Sylvester
Kevin Knuth;
I blame both parties almost equally for the housing mess…
Mike Sylvester
I have yet to see a news report of someone who I felt sorry for. All I’ve seen are the people who got loans and couldn’t pay them back no matter what.They got a loan while not having a job or a job that didn’t pay well. The house flippers who got caught when it started to crumble. The couples who bought a much bigger house with an adjustable rate mortgage, because they could just live on credit cards. They were all adults and have to be responsible for there actions.
Tim R -
There are plenty of other casualties as a result of this mortgage meltdown that warrant some sympathy.
Here’s just a few stories of renters who were forced out of their homes due to foreclosures:
http://www.cnn.com/2008/LIVING/wayoflife/05/28/renters.booted/index.html
http://www.kidk.com/news/local/26268054.html
Mike, just because you plug your ears and shout about how you can’t hear me doesn’t mean I’m not talking.
[remaining comment deleted]
Edited by Jeff Pruitt:
Damian,
Just because someone holds a contrary opinion, even if it is misinformed, does not make them racist. I wouldn’t be so quick to judge people on a personal level based on a post you read on the internet.
As to your rant about this usefulness of this site all I can say is - to each their own. The thing is, you are not forced to read anything here. It doesn’t show up on the radio, television or your local newspaper. It won’t be in your inbox or show up as junk mail.
The absolute only way you will ever be bothered by reading something here is if you CHOOSE to visit the site. I do realize that many people probably hate the conversation here and choose never to visit again. Just as I choose not to listen to Sean Hannity or watch Bill O’Reilly.
I guess the disappointing part is that your original comment had a lot of merit but there was no need to follow it up the way you did. You’re free to comment again but I would ask you not make everything so personal. Of course since you seem to hate this site and everyone on it I’m sure you won’t be back to even read this right?
Damian,
Your latest rant explains why you can only hold a job at Burger King.
1. Mike makes no mention of CRA in this post.
2. If you think that this website is a waste of bandwidth, wouldn’t coming here and pointing it out to us be a waste of your time?
3. Do you hope to sway any of us to your enlightened point of view by using profanity and insults?
Why is it that Fort Wayne missed the rapid price increases? Whenever I travel, a lot!, people are always blown away at how our real estate prices are.
And how long will it be before things calm down! And would CRA have worked if it weren’t for all the speculaters around doing thier thing?
Fort Wayne is a practical place to live. It is not a fashionable place to live. As of 2007, you could buy a house in Fort Wayne or a parking space in Manhattan for about $30K. Personally, I’d rather make $20K a year in Fort Wayne and live in a house than make $30K a year in NYC and sleep in my car.
High housing prices are only desirable if you already own a home. They hurt renters and people looking to move out of their parents’ house. Any policy intended to artificially inflate the cost of buying a home hurts lower income Americans.