Whose fault is housing crisis? People/banks/gov't?

Many of the big mortgage lenders were making loans that they KNEW the debtor would be unable to pay. They didn't care, though, because they were turning around and selling the loans immediately. It goes beyond people taking loans they shouldn't have. Lenders were acting as salesmen to convince people that

they really could afford these payments when it was 100% guaranteed that they would default if housing values so much as leveled off. Yeah, a sucker is born every day, but the real swindlers were the ones deliberately making bad loans.

X-Runner wrote:

homer jay simpson wrote:

The Gov't messed up 1. Fed Reserve keeping rates low

Then wouldn't today's lower rates extend the problem?

I haven't seen home values go up with today's historically low rates.

Housing prices do act like bonds, low yield increases price while high yield decreases price. Also driving price is supply and demand. There is a major imbalance in supply/demand.

20 percent down wrote:

The buyer also has VERY LITTLE invested and has no incentive to keep up on payments to keep from being foreclosed on.

If you like your house, can afford the payments and want to stay there, then the buyer has plenty of incentive to keep up on payments, even if they may be underwater for a good period of time.

There is still equity to be earned over time.

Walking away from your house, ruining your credit and moving to a rental is no picnic, either.

I don't think a 20% down absolute requirement keeps so many more people in their homes that it out weighs the value of adding so many truely credit worthy people without much cash that could be home owners - and mortgage customers.

It would take so many people out of the market that it would absolutely crush the housing market and bring the US to its financial knees again.

For everyone who blaims the public for "taking out morgtages they couldn't afford," I have a question. What do you mean? Do you mean:

A)That they couldn't afford them after they lost their job (because the market tanked)?

or...

B)Or they couldn't afford them (because the bubble burst and suddently their house was worth less than they bought it for)?

If you ask me, in each of these cases the issue had more to do with a financial panic than individuals being "at fault." It was realatively easy to make smart decisions based on pre-recession calculus but to still get f*cked for it later.

Can you say blaiming the victim?

It's one thing to target speculators. But, to lay down some sort of bullsh*t diffuse "it's the public's fault" blaime? Well, that's not only unproductive but a 100% dick move.

Next time it will be you.

Freelove wrote:Yeah, a sucker is born every day, but the real swindlers were the ones deliberately making bad loans.

If the market is up and the loan defaults who cares? You can still flip the house. At least, until everything blows up.

Flagpole wrote:

1) SOME WEALTHY people walking away from mortgages is the END RESULT of a housing market already in shambles CAUSED in part by the Clinton change to the Community Reinvestment Act. That started the problem that caused the housing to go down, and because of that, some WEALTHY people decided to let their vacation homes and second homes go.

Flagpole, this is why people sometimes have such animosity towards you. Several people, including me, have presented you with indisputable, objective data and reports showing that the CRA had little to nothing to do with the housing bubble/crash. Yet you 100% ignore this because, well because you are Flagpole, and once you decide on something, you stick to it come hell or high water. How about you try this: dispute the facts we've presented you, tell us exactly HOW the CRA was a prime cause of the crisis, backed with objective data, instead of just stating your opinion. Here's more for you to consider (/ignore) -

"Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis."

And more:

"However, data provided by the Home Mortgage Disclosure Act (HMDA) reveal that loans covered by the CRA accounted for only a fraction of mortgage lending to lower-income borrowers and neighborhoods. This is especially true of higher-priced, or subprime, mortgages. CRA assessment-area lending accounted for only nine percent of higher-priced loans to lower-income borrowers and neighborhoods, while independent mortgage companies accounted for the majority.

The data suggest that far from being forced into risky corners of the market, the institutions under the scrutiny of the CRA were crowded out by unregulated lenders.

And more:

"Talk to conservatives about the financial crisis and you enter an alternative, bizarro universe in which government bureaucrats, not greedy bankers, caused the meltdown. It’s a universe in which government-sponsored lending agencies triggered the crisis, even though private lenders actually made the vast majority of subprime loans. It’s a universe in which regulators coerced bankers into making loans to unqualified borrowers, even though only one of the top 25 subprime lenders was subject to the regulations in question.

Oh, and conservatives simply ignore the catastrophe in commercial real estate: in their universe the only bad loans were those made to poor people and members of minority groups, because bad loans to developers of shopping malls and office towers don’t fit the narrative."

You may be a democrat, but you are repeating whacko conservative talking points that don't reflect reality. There are OF COURSE things that can be blamed partly on Dems (such as Larry Sumners and Rubin [ along with Greenspan] during Clinton years fighting against regulation of Derivatives market), but your CRA BS and blame the gov't for the housing crash nonsense is just pure worng-headed.

homer jay simpson wrote:

The Gov't messed up 1. Fed Reserve keeping rates low and 2. Community Reinvestment Act.

Not even close. CRA HAD ALMOST NOTHING TO DO WITH CRISIS. Read my links and open your mind for a second to reality, instead of talking radio idiotic garbage.

homer jay simpson wrote: The joint center for housing at Harvard did a study, "Subprime mortgages rose from only 8 percent of originations in 2003 to 20 percent in 2005 and 2006, while the interest-only and payment-option share shot up from just 2 percent in 2003 to 20 percent in 2005." And the Fed Reserve, "Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.”"

Yeah, so what's your point?? This really has nothing to do with gov't interference, the Fed, or CRA.

So some of you want to know "WHO IS TO BLAME????"

Read this:

It was LACK OF SENSIBLE GOV'T REGULATION and GREED and FRAUD and IGNORANCE.

Keep blaming others for mistakes the home buyers entered into will not solve this problem. Taking out a LOAN you could not AFFORD is the problem. Keep blaming others if you wish but do not borrow money you can not afford to pay back. House poor people are not RICH. Rich people by any definition do not allow a foreclosure to happen. They again took out a loan they could not afford. Rich people do not borrow 100% market value on a second home, and they truly could care less about the market value on a second home. If they like it they wait it out, if not guess what, they wait it out. Because they can afford to. Now go ahead and destroy me because I am a conservative who has worked hard for everything he has. Wake up!!!!!

redrock wrote:

Keep blaming others for mistakes the home buyers entered into will not solve this problem. Taking out a LOAN you could not AFFORD is the problem. Keep blaming others if you wish but do not borrow money you can not afford to pay back. House poor people are not RICH. Rich people by any definition do not allow a foreclosure to happen. They again took out a loan they could not afford. Rich people do not borrow 100% market value on a second home, and they truly could care less about the market value on a second home. If they like it they wait it out, if not guess what, they wait it out. Because they can afford to. Now go ahead and destroy me because I am a conservative who has worked hard for everything he has. Wake up!!!!!

What the hell are you rambling on about??

PLENTY of rich people have defaulted. Did you read any of the links posted on this thread? They were defaulting at higher rates than the poor! Do you know anything about the commercial real estate market and what has happened there? Were these all poor people? Of course not. So you are wrong there.

And who is more to blame: poor people who get suckered into a bad mortgages, or the people who sucker them, or the people who take a whole bunch of those risky loans and who slice and dice them and turns them into investments without full disclosure of risk, or the agencies who are in cahoots with them and gives those ratings top ratings,etc, etc.... ? Ok, they are all to "blame", but if you can't see how it was the greed and ignorance and fraud of the people at the TOP of that chain that really set the ball in motion, and drove the bubble, then you are crazy. Ok, fine, everyone was being irrational, overly optimistic, and greedy. These are all normal human behaviors, and will always exist. So what would have stopped this chain in its tracks?

Sensible gov't regulation. Call it the nanny state if you will, but it would have saved a lot of people a lot of misery.

1) The vast majority of the most high risk loans were done by banks who were not even subject to the CRA. The CRA only had sway over FDIC insured banks. The high risk loans were made by mortgage companies Like IndyMac who in turn sold them to Wall Street banks who were plenty happy to buy them. Wall Street proved that they were all too happy to buy those loans. They could package and hedge them and push the risk on to others. Those who were subject to the CRA were not forced to make high risk loans. Yes, the were compelled by regulators in various ways. But that is called the cost of doing business. And a lot of banks were just fine with it and stayed clear of the mortgage problems even if it may have been an annoying regulation.

2. )How can people be more to blame then Wall Street? Is a person who buys a bag of cocaine as big a part of the drug problem as the street dealer who is constantly pushing it on people and telling them it will not hurt them? And again, the big untold story is the vast amount of people who didn't take loans even as it was being offered and pushed on them. Again, Wall street was buying these loans and through the mid 00's they couldn't get enough of them.

3.) Don't disagree with the third point. The tragedy is how investment banks haven't been evicted

[quote]Flagpole wrote:

1) Yes, the Community Reinvestment Act forced banks to offer loans to high-risk borrowers. I don't accept the spin that paints that differently. Philosophically not a horrible idea...I mean housing should be available to everyone, but in practice in this way was wrong.

2) How can the people be the least to blame? Why are you removing responsibility from those who agreed to these loans? Just because the government and lenders said it was ok? We are allowed to drink ourselves into oblivion every day and load up on only ice cream and Doritos all day if we want to too, but that would be the fault of the individual would it not? How is taking a bad mortgage any different?

3) Good that those who took bad loans have been punished...evict them, damage their credit so they can't do this again in the near term. Fine...that's what happens when you try to buy something you can't afford. My children are aware of this already. Why weren't these adults aware?

[quote

Matt Taibbi on the CRA:

"In order for this vision of history to be true, one would have to imagine that all of these banks were dragged, kicking and screaming, to the altar of home lending, forced against their will to create huge volumes of home loans for unqualified borrowers.

In fact, just the opposite was true. This was an orgiastic stampede of lending, undertaken with something very like bloodlust. Far from being dragged into poor neighborhoods and forced to give out home loans to jobless black folk, companies like Countrywide and New Century charged into suburbs and exurbs from coast to coast with the enthusiasm of Rwandan machete mobs, looking to create as many loans as they could.

They lent to anyone with a pulse and they didn’t need Barney Frank to give them a push. This was not social policy. This was greed. They created those loans not because they had to, but because it was profitable. Enormously, gigantically profitable -- profitable enough to create huge fortunes out of thin air, with a speed never seen before in Wall Street's history."

Borrowers absolutely are responsible, but lenders have a professionals obligation to assess the qualifications of potential borrowers. Do you really believe borrowers are supposed to be the brake on the loan system? That's an ongoing recipe for disaster. Should the patient or the doctor set the limit of a patient's medications?

[quote]Flagpole wrote:

2) How can the people be the least to blame? Why are you removing responsibility from those who agreed to these loans? Just because the government and lenders said it was ok? We are allowed to drink ourselves into oblivion every day and load up on only ice cream and Doritos all day if we want to too, but that would be the fault of the individual would it not? How is taking a bad mortgage any different?

3) Good that those who took bad loans have been punished...evict them, damage their credit so they can't do this again in the near term. Fine...that's what happens when you try to buy something you can't afford. My children are aware of this already. Why weren't these adults aware?

[quote]

How about the student loan crisis? I blame government.

The absurd thing here is that we are talking about the housing crises which is a financial crises related to housing prices plummeting. Individuals are responsible for taking out a loan they can't pay back. They are not responsible for overall home values. So how can they be blamed?

The crises is really about unregulated financial derivatives Which has incredibly managed to turn a perfectly healthy trend of housing becoming more affordable into a supposed economic disaster.

Why play the blame game?

Okay, not to say the banks didn't make mistakes, but I think sometimes people don't look at it too rationally. People yell that banks shouldn't have made loans to unqualified people but did so anyways because of greed. But what if the banks hadn't made those loans? Assuming the economy never crashed, the same people complaining about banks now would still be complaining, but about banks "restricting the American dream". People would probably claim they were in cahoots with the apartments owners who would probably have been charging higher rates because if the banks avoided all risky people, there would be a ton of people who could only get housing through renting. I work with small businesses and saw first hand after the credit market tightened up because some banks said "woah, we need to put better restriction on our lending" the businesses that were deemed too risky cried that the banks were going to kill them by not making the loan. So, would the bank rather the public hate them for killing the small businesses by not loaning to them, or be know to the public as the greedy aggressive bank that made poor lending decisions?

And not to mention the governmental pressure on banks to advertise and accept applications from low income areas without trying to show any prejudice. Yeah, the banks can still turn around and deny them with valid credit reasons, but there's still that pressure to make things look good and avoid having regulators beating at you thinking you did something wrong, so some marginal credit squeaked by that probably shouldn't have in order to try to make the gov happy and say "see? we're following your rules and making loans there"

But, then what if the gov didn't have those regulations in place? People would complain the banks were specifically avoiding those areas, which come on, anyone would do. If you have 4 non-credit worthy people for every 1 credit worthy person in a certain area of town, it's a waste of time and money to put a lot of effort over and most banks wouldn't do it unless they're required to.

Basic point is people are complaining about the current situation, but then again people would be complaining if things had been different too. People just like to complain. I'm not saying greed didn't amplify the problem, but I think people like to use greed as the only thing that caused this. Because it's easy to point fingers and vilify people when you paint them in black and white pictures in terms of greed. But the shame behind all this is that I think this leads to a dangerous direction of dehumanizing others. The people trying to dehumanize the bankers, politicians, etc. are falling trap to the same thing they are blaming others. Yeah, I agree, changes need to be made. But without tossing around words such as "greedy CEO" and "corrupt politician". This should not be an us vs. them.

X-Runner wrote:

20 percent down wrote:

The buyer also has VERY LITTLE invested and has no incentive to keep up on payments to keep from being foreclosed on.

I don't think a 20% down absolute requirement keeps so many more people in their homes that it out weighs the value of adding so many truely credit worthy people without much cash that could be home owners - and mortgage customers.

It would take so many people out of the market that it would absolutely crush the housing market and bring the US to its financial knees again.

False

For years and years you couldn't get a mortgage with less than 20% down and it didn't hurt the economy. It would also not crush the housing market because investors that have money would buy the properties and RENT them to the people while they were saving their 20%. The other upside is that if somebody got in trouble and needed to sell the house, they may lose a portion of that 20% but would not damage their credit in any way.

If I could magically make the rule, I would ABSOLUTELY NEVER give a loan unless 10% was put down. Even that is fairly risky. Why do you think the banks require mortgage insurance until you have 20% equity in the house? Because hitorically that is the point the loan becomes safe enough.

Last, if those people are truely credit worthy, it will take them no time to save the required down payment if they want to buy a house.

I can guarantee if they keep letting people buy houses with 3% or less down, this mess will never go away because EVERYBODY involved is playing with OTHER PEOPLE'S MONEY.

This is obviously only one facet of the problem as I mentioned in my earlier, lengthy response, but, can you say Enronesque, special-purpose, off-balance sheet entities?

http://american.com/archive/2011/july/the-government2019s-four-decade-financial-experiment

And we're doing it all over again via government-sponsored Ginnie Mae subsidizing FHA loans, among other high risk loans. This article's dated,

http://online.wsj.com/article/SB10001424052970204908604574334662183078806.html

but it doesn't seem to be too far off the mark.

http://www.insidemortgagefinance.com/issues/imfpubs_ima/2011_36/latest_data/MBS-Supply-Grew-Slightly-in-2Q11-1000017794-1.html

Flagpole has been thoroughly discredited by several posters.

The funny thing is that the typical argument from the right is that the "free market" (where free = "unregulated") ALWAYS provides the best possible economic outcomes.

This principal is more likely to hold water where buyers and sellers are equally informed of the risks.

In fact, with the housing market, it is a point of logic that the banks have a much higher level of expertise in loan risks than the average population (excluding the really smart individuals like Flagpole, myself, and a few others).

Given the above facts, I would argue that the lenders ought to bear AT MINIMUM the same amount of blame as borrowers, and a good argument can be made that they are actually more to blame by virtue of their expertise. So, the moral argument against ONLY the borrowers FAILS here in a big way.

Yet for some reason Flagpole (and many other right wingers) think the moral blame MOSTLY lies with the borrowers, and have a strong preference to bail out (provide WELFARE) to the lenders .

Based on these kind of arguments, the right-wing "solution" to these kind of problems amounts to:

- Punish borrowers who take on excessive risk (agreeed, but should they REALLY take MOST of the blame? That is ABSURD! )

- Reward lenders who take excessive risks (disagree! Be consistent and demand PAIN here too.)

- Fight regulations to protect the consumer and overall economy, with preference to "free markets" (disagree!)

What we have is market failure, with government NOT doing it's job to prevent it from happening again.

The loans were fraudently made, then repackaged and sold...you didn't even have to show real income to qualify for a mortgage....then factor in subprime mortgages, especially the adjustable rate-mortgages and it was a disaster waiting to happen... With that beind said it was the lenders and the customers fault for falsifying incomes and other debt...????