WatchTwelve Facts That May Surprise You About the Housing Bust
May 4, 2012
Fact 1: Resets of adjustable-rate mortgages did not cause the foreclosure crisis.
Fact 2: No mortgage was “designed to fail.”
Fact 3: There was little innovation in mortgage markets in the 2000s.
Fact 4: Government policy toward the mortgage market did not change much from 1990 to 2005.
Fact 5: The originate-to-distribute model was not new. .
Fact 6: MBS, CDOs, and other “complex financial products” had been widely used for decades.
Fact 7: Mortgage investors had lots of information.
Fact 8: Investors understood the risks.
Fact 9: Investors were optimistic about house prices.
Fact 10: Mortgage market insiders were the biggest losers.
Fact 11: Mortgage market outsiders were the biggest winners. .
Fact 12: Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.
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47 male
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Wow, I see that the Wall Street Journal is living up to the raw sewage standard of all other Newscorp publications. Many of these are flat out lies:
thomas.wong1986 says
In fact the mortgage bond trail was so obscure that some lenders lost the right to foreclose because they had no idea who owned the mortgage or where the paperwork ended up.
Others are misleading and intentionally disingenuous:
thomas.wong1986 says
Government policy from 1990 to 2005 can be summed up this way: There was no government policy. Mortgage lending was almost entirely deregulated by Reagan in 1982. (the act that killed the Savings and Loans) All that was left was to remove limits on commissions, repeal Glass–Steagall, remove LTV limits, and block regulation of derivatives.
And then some of these are simply semantics games:
thomas.wong1986 says
A CDO is literally a bond backed by mortgages. This is just childish game playing. The bottom line was fraud by the ratings agencies, not whether or not bonds were bundled and then cut into tranches.
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thomas.wong1986 says
OH GOODY ! Why not express hundreds of ideas that DID NOT CAUSE the housing bubble.
Three global changes that DID cause the dog pack mentality are:
#1. Women were granted credit in 1973. (prices doubled).
He's Gay, thank goodness he did not stay !
#2. Exorbitant Income generated by the greatest invention in history. (computer)
#3. Gubmint easing of lending regulations. (ferdie & fanny)
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The financial meltdown of the whole world was caused by home buyers who refused to listen to the warnings of the Realtor®s and mortgage brokers who were trying to help them avoid financial over-reach.
That's human nature, I guess.
Nothing to be done.
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TMAC54 says
You're correct. Barney Frank had nothing whatsoever to do with the housing bubble.
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Frank BLEW the housing bubble because he is gay! Everyone knows that!
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iwog says
Homer Simpson (in front of computer): "I invested in something called 'NewsCorp'..."
Lisa Simpson: *gasp* "Dad, that's Fox!"
Homer: "YAH! UNDO! UNDO!..."
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Number one reason.
GREED!
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13. Following the herd of sheep.
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Fact 7: Mortgage investors had lots of information.
I actually agree with this fact. Mortgage investors DID have lots of information. Unfortunately all of it was completely wrong. They were being told this security is rated AAA, when in fact it was the the highest rating for all the crap that was listed as JUNK in other securities. In short it was the best of the crap.
Fact 2: No mortgage was “designed to fail.”
As for this fact, any moron mortgage broker with half a brain could see this interest only adjustable mortgage given to a guy working at McDonald's was guaranteed to FAIL. But so long as they got there commission, who gives a crap.
Fact 2: No mortgage was “designed to fail.” Instead, the products weren’t designed to sustain a drastic decline in home prices.
Actually it's far worse than that. They weren't designed to even survive a stagnated market, let alone a falling one. Without the ability to refinance the mortgage into ever bigger one using the houses increased equity, it was doomed to fail. If this mortgage wasn't designed to fail, surely the next one or the one after that was.
I believe if the shell game continued a little longer, I can't help to wonder even with increasing equity, would it be enough to keep up with the ever increasing larger refinancing amounts. Would the increasing level of equity even be enough to keep up with the rapidly increasing debt.
Sorry Mr. Jones, we can't approve the refinance of your interest only teaser rate adjustable no-doc sub-prime mortgage. Your equity in your house only increased 200% and it needs to have increased to 220%. Guess you'll just have to start making the $8,000 a month payments now that the teaser rate is up.