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How do you think that lenders caused the collapse in 2007? EDIT: I could convincingly argue that lenders (as a group and with the help of a lot of other people

by harryh 12y ago

How do you think that lenders caused the collapse in 2007? EDIT: I could convincingly argue that lenders (as a group and with the help of a lot of other people) caused an artificial inflation of property values preceding the collapse but at that point the collapse was inevitable and not really the fault of anyone.

logfromblammo 12y ago
It's complicated. Fannie Mae and Freddie Mac (secondary market) were ordered to buy more loans in economically depressed areas. Independent mortgage lenders and banks (primary market) expanded their lending in response, bringing in borrowers that had progressively higher risk profiles. They started falsifying documentation to meet the already-lowered standards of the major players in the secondary market. Those, in turn, fudged their accounting to make re-sales to the tertiary market more palatable. The tertiary market just leveraged the hell out of those repackaged mortgages, and sometimes just made up numbers to fill in the blanks. Then that first guy that got a mortgage loan with no actual income missed a payment. That increasing leverage all the way up turned that little blip into an explosion. Mortgage businesses hit the ground or hit the brakes, and now fewer new buyers could afford homes without loans. That lowered property values across the board. Those trying to sell their homes to pay off their mortgage loans could no longer do so. The foreclosures started. Financial businesses like to own liquid currency, not ugly real property. So they auction foreclosed homes at fire sale prices, often because pissed-off former homeowners commit waste prior to losing possession, and the new owner does not bother to even look at their new asset even once before selling it. This lowers values further. Renovation businesses that can afford to pay cash lowball the bank, because they know there might be concrete in the toilet drains now. If they can easily get as many foreclosures as they want, they don't buy regular, non-distressed properties. That's the summary. There's a lot more to the story than that. For a good time, read this: http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae.pdf http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae....
- harryh 12y ago
  OK ya, I agree with that. Though as I said I think that saying they caused a collapse is really only telling half the story. Before they caused that they also caused an unreasonable run-up in property values.

by harryh 12y ago

logfromblammo 12y ago

It's complicated. Fannie Mae and Freddie Mac (secondary market) were ordered to buy more loans in economically depressed areas. Independent mortgage lenders and banks (primary market) expanded their lending in response, bringing in borrowers that had progressively higher risk profiles. They started falsifying documentation to meet the already-lowered standards of the major players in the secondary market. Those, in turn, fudged their accounting to make re-sales to the tertiary market more palatable. The tertiary market just leveraged the hell out of those repackaged mortgages, and sometimes just made up numbers to fill in the blanks. Then that first guy that got a mortgage loan with no actual income missed a payment. That increasing leverage all the way up turned that little blip into an explosion. Mortgage businesses hit the ground or hit the brakes, and now fewer new buyers could afford homes without loans. That lowered property values across the board. Those trying to sell their homes to pay off their mortgage loans could no longer do so. The foreclosures started. Financial businesses like to own liquid currency, not ugly real property. So they auction foreclosed homes at fire sale prices, often because pissed-off former homeowners commit waste prior to losing possession, and the new owner does not bother to even look at their new asset even once before selling it. This lowers values further. Renovation businesses that can afford to pay cash lowball the bank, because they know there might be concrete in the toilet drains now. If they can easily get as many foreclosures as they want, they don't buy regular, non-distressed properties. That's the summary. There's a lot more to the story than that. For a good time, read this: http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae.pdf http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae....

harryh 12y ago
OK ya, I agree with that. Though as I said I think that saying they caused a collapse is really only telling half the story. Before they caused that they also caused an unreasonable run-up in property values.