The Great Mortgage Fraud Conspiracy Unravels in 2008
Source:
http://boiserealestateinfo.net
Publish Date: 10/18/2008
Typical real estate recessions happen when demand for houses decreases. In the wake of every real estate decline comes an inevitable shrinking of demand for loans and that eventually hurts the mortgage industry. But today’s crisis is just the opposite. It started with a failure of the mortgage industry – which looked to Wall Street instead of real estate for its sustenance this time around – and leaked back into the real estate market in two abnormal ways.
- First it caused the home price bubble to expand artificially, as homeowners bought houses that cost more than they could afford because lenders gave them money and encouraged them to do so.
- Next it helped pull valuable equity out of homes through low down payment mortgages and cash-out refinances that were pushed on homeowners without regard to repayment ability.
Because of Wall Street’s raging appetite for mortgage-based investments, an excessive number of mortgages needed to be made to feed the insatiable hunger. The fact that people didn’t need the mortgages or qualify for them didn’t matter any more. The mortgage industry was making money by creating them and dumping them off on Wall Street.
|
Mortgage brokers pushed refinances and home equity loans like real estate ATM machines. Some resorted to illegal tactics, and a lack of government oversight made it easier to get away with lender fraud. Scores of borrowers who qualified for low-cost, low-risk prime loans were sold expensive subprimes instead, because those carried higher rates of interest and bigger returns for Wall Street.
Investment banks were not required to keep adequate capital reserves to cover potential losses on mortgage based assets, and they were told to regulate themselves. Rating agencies in charge of grading investment asset quality gave Wall Street high marks for worthless assets, because they were paid to join the conspiracy despite obvious conflicts of interest. Unsuspecting investors around the world kept buying toxic mortgages due to the lack of transparency, and investment portfolios worldwide are now overpopulated with bad loans that nobody will buy. Banks who made those bad loans with the goal of unloading them on Wall Street investors cannot get rid of them, so their misdeeds are coming back to haunt them. The reckless and greedy behavior has left us in one of the worst economic climates in American history as the entire global financial system spirals toward calamity. Mortgage companies conspired with Wall Street to create our housing bubble, mortgage crisis, and credit meltdown. They may try to blame it on homeowners, but that argument doesn’t add up in the face of so much compelling and disturbing evidence. ### |
Then adjustable rate loans and “teasers” began to reset. That fueled a national foreclosure crisis, because when borrowers asked to refinance their lenders refused – citing a lack of availability of affordable mortgages. The reason mortgages were scarce was because scared and skeptical investors had already fled. Defaults caused housing prices to fall and lack of equity created an avalanche of new defaults in a downward spiral. The Wall Street pyramid scheme imploded like a house of cards, but millions of Americans were living inside that house and the ensuing foreclosure crisis left them destitute.