The Housing Crash: How it happened and who is responsible.
Source:
http://boiserealestateinfo.net
Publish Date: 7/16/2008
Even those who do not own a house and are not shopping for one are now adversely affected by the real estate and mortgage crisis plaguing the USA. What at first appeared to be an isolated problem in one tiny corner of the loan market – representing less than one percent of loans – has spread within less than a year. Now economists are calling it the worst financial crisis since the Great Depression, and they aren’t just using sensational language or offering unreasonable alarmist comparisons.
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A major mortgage bank – IndyMac Bancorp – collapsed after a “run-on” by depositors – a scenario that is reminiscent of the Great Depression.
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On the same day, the Federal National Mortgage Corporation nearly collapsed. The entity was created to help ensure smooth functioning of the mortgage markets in the wake of the Great Depression.
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Economic experts say we may have only seen the tip of the iceberg in terms of the financial toll on the nation’s economy related directly to mortgage defaults.
- Meanwhile 250,000 homes per month enter foreclosure. Mortgage lender efforts to arrange more manageable mortgages for homeowners are on the decline; despite loan industry promises to Congress that they would help rework mortgages to avoid foreclosure.
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The blame can be spread far and wide, but the core of the problem relates to how the mortgage business evolved during the early years of this decade. Previous real estate crashes were typically tied to the slump in actual property values. This time around, the crash can be tied to the value of the mortgages themselves. In other words, this crisis was primarily caused by the tail wagging the dog. In the old days, a bank or mortgage company would deal directly with the homeowner for the life of the loan. Nowadays, loans made by lenders are almost immediately sold to third party investors. More recently, Wall Street began to package hundreds of those individual home loans into bundles worth billions. Investors all over the planet bought them – trusting that the original lenders who made each individual loan in the gigantic packet had already verified that the borrower could and would repay them. And if they defaulted, the investors believed that the property being mortgaged could be sold to offset any losses. Fast forward to today. Billions of dollars in loans have not been repaid, and the collateral Everyone assumed that somebody else was minding the store, but nobody was scrutinizing these loans. Too much money was being made too fast to pause and worry about examining each and every loan. Loans were made to people who should never have been approved for them in the first place – and mortgage companies and investors profited immensely from those loans, temporarily. Now the artificially created market has had a severe reality check, and it’s payback time. Unfortunately, taxpayers are bearing the burden of much of this reckless profiteering and homeowners caught up in a sophisticated global investment scheme are losing their family homes. ### You have my permission to republish the “In My Opinion” articles in your web site, newsletter, or ebook, if you follow these terms and conditions:
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securing them has lost so much value that selling the foreclosed houses doesn’t come even close to covering the losses. Nobody checked all those hundreds of millions of packaged loans carefully enough. Government regulation was scaled back, so nobody in a position of authority was overseeing the process to insist that loans be made according to prudent standards. Banks just made them to homeowners and quickly resold them to people on Wall Street who sold them again to investors who may have sold them yet again to someone else. 