3 ms·

That's not what happened in 2008. This exact scenario was the primary cause of the financial meltdown at the time. The prevailing wisdom was people would always

That's not what happened in 2008. This exact scenario was the primary cause of the financial meltdown at the time. The prevailing wisdom was people would always pay their mortgage, so the securitization of real estate mortgages were viewed as a safe investment - and invest they did! When the housing bubble popped a lot of investment banks who thought they had safe assets suddenly found themselves upside down, further compounding the problem and turning it into a full-fledged crises necessitating congressional intervention. Perhaps you're too young to know this story, but this is what happened. There's no reason to believe homeowners won't behave in the same manner today. We can argue whether this behavior is rational or not, but we're rather infamous for not being rational creatures, are we not?

b3morales 4y ago
This is true, but it's also missing the key part where leading up to 2008 lenders offered mortgages to people they were pretty sure wouldn't be able to keep paying, and then laundered those into the so-called "safe" investment when it was anything but. Is that part repeating now too?
- taylodl 4y ago
  I think the laundering is a bit overstated. Yes, there were "risky" loans being made but those risks were being mitigated by bundling those loans with "safe" loans into a new securities product. No one was really surprised by the risky loans going under. It was the presumably "safe" loans going under that caught everybody off-guard and created the financial storm. The entire mortgage risk model turned out to be wrong. Your second question is interesting, I really don't know whether the securitization of mortgages is still happening today at the same level it was then. I would presume so? With a different risk model being employed to assess those mortgages, maybe?
  - theGnuMe 4y ago
    The securities rating folks basically rated subprime crap as prime. Nobody could trust anything so everyone want to sell and not buy.
Sohcahtoa82 4y ago
> When the housing bubble popped Your comment misses what created the popping of the bubble. The sibling comment talking about sub-prime mortgages talks about them, and I think they're right. I was always under the impression that the crisis began with people that couldn't pay their mortgages because banks were handing them out to people that couldn't afford them. This created downward pressure as foreclosed houses flooded the market, and irrational people decided to abandon their mortgages because they were underwater, exacerbating the problem. > Perhaps you're too young to know this story, but this is what happened. I'm 40, if that helps. Though in 2008, when I was 26, I was managing a Subway restaurant for $10/hr and living in a $650/month apartment (Which is now a ridiculous $1,300/month, literally double), whereas now I own a house and work in cybersecurity for an order of magnitude more.
- taylodl 4y ago
  Maybe you and the other commenter were talking about the so-called "jumbo" loans or interest-only loans that had become popular at the time. This was at the height of "flipping" and the idea was you'd make into your house and after five years you'd flip it and make a fortune because home prices were soaring so high. I saw the writing on the wall, but a lot of home buyers apparently didn't realize this was a first-mover opportunity and they may be left holding the bag. As it turned out, that was only the tip of the iceberg and that is what caught everybody by surprise!
  - theGnuMe 4y ago
    Jumbo loans are for any house over $648k which is where FHA limits stop.

b3morales 4y ago

This is true, but it's also missing the key part where leading up to 2008 lenders offered mortgages to people they were pretty sure wouldn't be able to keep paying, and then laundered those into the so-called "safe" investment when it was anything but. Is that part repeating now too?

taylodl 4y ago
I think the laundering is a bit overstated. Yes, there were "risky" loans being made but those risks were being mitigated by bundling those loans with "safe" loans into a new securities product. No one was really surprised by the risky loans going under. It was the presumably "safe" loans going under that caught everybody off-guard and created the financial storm. The entire mortgage risk model turned out to be wrong. Your second question is interesting, I really don't know whether the securitization of mortgages is still happening today at the same level it was then. I would presume so? With a different risk model being employed to assess those mortgages, maybe?
- theGnuMe 4y ago
  The securities rating folks basically rated subprime crap as prime. Nobody could trust anything so everyone want to sell and not buy.

Sohcahtoa82 4y ago

> When the housing bubble popped Your comment misses what created the popping of the bubble. The sibling comment talking about sub-prime mortgages talks about them, and I think they're right. I was always under the impression that the crisis began with people that couldn't pay their mortgages because banks were handing them out to people that couldn't afford them. This created downward pressure as foreclosed houses flooded the market, and irrational people decided to abandon their mortgages because they were underwater, exacerbating the problem. > Perhaps you're too young to know this story, but this is what happened. I'm 40, if that helps. Though in 2008, when I was 26, I was managing a Subway restaurant for $10/hr and living in a $650/month apartment (Which is now a ridiculous $1,300/month, literally double), whereas now I own a house and work in cybersecurity for an order of magnitude more.

taylodl 4y ago
Maybe you and the other commenter were talking about the so-called "jumbo" loans or interest-only loans that had become popular at the time. This was at the height of "flipping" and the idea was you'd make into your house and after five years you'd flip it and make a fortune because home prices were soaring so high. I saw the writing on the wall, but a lot of home buyers apparently didn't realize this was a first-mover opportunity and they may be left holding the bag. As it turned out, that was only the tip of the iceberg and that is what caught everybody by surprise!
- theGnuMe 4y ago
  Jumbo loans are for any house over $648k which is where FHA limits stop.