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then what you're agreeing to is that the banks knew these people wouldn't be able to pay the loan...
so why did the banks go ahead with it ?
Because they make a profit when they pass the loan on to someone else, say a government entity or a wall street clown who wants to package and sell it.
And of course like everyone else they *knew* that real estate only goes up and hence it wouldn't be a problem.
Borrowers were willing to sign up for the loans. Other fools were willing to gobble up the paper. What bank wouldn't make money while the making is good and had out loans like candy?
when the banks/underwriters saw all the numbers, WHY did they approve it ????? if they saw no w-2, no income, over-leveraging... they SHOULD have been the acting agent (with no emotional investment) that said no.
Short answer = Greed. Many knew the risks involved but didn't care - it was getting passed off to the next sucker in the pyramid. The last guy in didn't have a clue, sort of like a ponzi scheme. And for those that did know full well what was going to happen, they could've chose to be ethical and say no and make no profits, but time and time again shows that greed overcomes. For if they chose to say no, they're competitor would've reaped the profits. This is how supposedly good and stable companies were brought into this disaster.
so I want everyone to STOP blaming the people and place the blame on the GREEDY chain/system that caused this mess. the biggest irrationality we have is that EVERYONE is rational... we know they are not, this is why there are checks and balances, processes and phase gates -- EACH of those gates failed to protect the integrity of the system and its process. people who DO need help are NOT getting it... the SAME banks/system that f'd up are the ones taking all of our money.
The individual is just as responsible. Who cares that some 18 year old mortgage broker says you can get a loan for 7x your salary. If your only bringing in 6 grand a month and have a mortgage payment of 5 grand, do the math....
Unfortunately this is the majority these days, the whole "masses are asses" concept. No one wants to take personal responsibility for their actions. These are also the same type of people who elected this administration - not because of they researched the issues at hand but because of a very successful facebook/online social media campaign (How Chris Hughes Helped Launch Facebook and the Barack Obama Campaign) and voting for an official like they were voting on an American Idol contestant. Popularity. FOLLOWERS not leaders. People screaming "HOPE" and "YES WE CAN"!! You know what hope is? Hope is that I buy a lottery ticket and hit it big. CHANGE comes from hard work, innovation, persistance and being responsible. All qualities that are being destroyed before our eyes.
Some bs loans are still going on, it's just a much rarer occurrence today than 2 or 3 years ago. And FHA are bs loans being backed by the government. For all it's intents and purposes, I'm sure some of the loans did serve some very responsible people well while most people just look to take a shortcut to home ownership that doesn't last.
For the posts by JG183 and JigglyPuff, you are making my head explode.
Everyone is at blame here, the greedy ppl on the street, greedy ppl on wall street, greedy real estate agents, greedy mortgage brokers, and finally our elected dumb@ss in the government. If you are laying the blame on only one group, you are just out of touch and in denial. Please blame it on ourselves too for not doing anything while all this is going on. Yes, that includes me and all of you.
While we are still arguing over this, we have our elected dumb@ss in the government spending our future away and we are not doing anything about it. We will get taxed the shiet out of us, if not in actual tax increases, it will be in our decreasing buying power in the world. Dollar will lose it's status as a reserve currency, this is increase our borrowing cost and start the down fall of US as THE dominant power. While we will still hold that title for awhile because noone is still ready to take over yet, it's there for the taken unless we get our act together. And no, that does not mean spending paper money that we don't have, print money that we can't afford to spend, and still act like the blockheads that we are.
We need new innovations, new technology, and new attitude. We HAVE to get rid of alot of elected officials in the office (I really can't see how this would happen under a democracy, so don't ask). We need start educating, and stop with too much of liberal arts bs that we have in the classes (not necessary saying to get rid of music and art classes, but to actually make math, science class meaningful and educate our kids to be responsible and entice their curiosity). There is just too little emphasis on actual knowledge and everyone try to get away with the main subjects because they are too difficult to understand.
While we are at this, this is for your entertainment.
then what you're agreeing to is that the banks knew these people wouldn't be able to pay the loan...
so why did the banks go ahead with it ?
The banks were able to unload their credit risk to either investment banks or the tax payer.
So there was an element of moral hazard here (there were many others also, but enumerating them all would make for a very long post). One way this could have been addressed would have been to have the loan originators hold subordinated mortgage debt.
However, this explanation is not completely satisfactory, because even when the banks bore the consequences, they were writing these things as quickly as they could. One such example was Lehman's mortage lending arm. They had a sub-company whose purpose was essentially to write loans that Lehman would take on their books. There was a gold rush mentality in this.
I take it that the investment banks largely believed that home prices would never fall. A loan backed by collateral that increases in value (e.g. a home loan) is much less risky than a loan backed by depreciating collateral (e.g. a car loan) which is again much less risky than a loan backed by no collateral (e.g. credit card debt).
One of the major shortcomings of most ideological narratives that explain the credit meltdown, is that the very existence of a bubble requires widespread collusion or at the very least, suspension of disbelief. The investment banks and loan originators were part of the problem, but that doesn't get the consumers off the hook.
The point is due diligence is being performed now, all info/income provided are being verified to be true.
If the government fha loans are blindly approving anyone with made up income then i agree with you the risk is being passed on to the taxpayer. But they are not, they are approving those loans based on verified income at certain debt/equity ratio etc..
Now you may disagree what this ratio should be and think it may be still too low from a risk/reward view. But that's your opinion, and very different than saying the government is being irresponsible for issuing fha loans.
How come noone is complaining the government is taking in the fha premiums profit from good borrowers who are paying their mortgage?
I think the current mortgage process is just fine. I had to go through 3 hours with wells fargo just to get a pre-approval letter even though i am well qualified for the amount i was asking for the pre-approval. They literally verified everything, w2, tax return, credit card, etc...
I joked with the approver if this is required just to get a pre-approval letter, do i need to give you my first born as collateral to get an actual mortgage, she said matter of factly we dont want to go through what citi/bac did. ZING!
Now you may disagree what this ratio should be and think it may be still too low from a risk/reward view. But that's your opinion, and very different than saying the government is being irresponsible for issuing fha loans.
How come noone is complaining the government is taking in the fha premiums profit from good borrowers who are paying their mortgage?
The government is clearly being irresponsible co-signing FHA loans. If the premium was high enough to actually cover the risk then the government wouldn't be needed in the first place - a private entity would do it for the profit it would be making.
That the government needs to step in is proof by itself that that the risk/reward is not in balance.
And I am complaining that the government is taking in the fha premiums from those paying - obviously I think they should be paying more since I'm claiming the premium doesn't cover the risk.
Seriously 3.5%. More government intervention to keep home prices over valued and hence the entire economy imbalanced.
Don't get me wrong, I'd take an FHA loan if I was buying something that qualified - 28:1 leverage! Once prices are mostly done falling and inflation is back, sign me up!
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