Phoenix's image problem??? (to rent, credit rating, loan)

[azriverfan.]

Originally Posted by Ponderosa

But it was the sale and resale of complex (and worthless) security instruments backing those flaky loans that crashed (almost) the banking system. The lenders would never have offered, -and actively pursued subpar customers with ads, mailings, and cold calls -those loans had they not been able to peddle them to investors who were either unwilling or unable to see the risks involved. We can argue chicken or egg forever I guess.

People took out bad loans. They couldn't afford their homes so they defaulted on those loans. The bank then took possession of those deals and tried to resell them in securities to foreign investors. Those worthless security instruments you speak of are originally loans that people defaulted on.

I don't care about chicken/egg or who deserves more blame, the point is without people's greed and irresponsibility to buy homes they couldn't afford, none of this would have happened regardless of how shady the lenders were. Just because someone offers you an enticing deal, you don't have to accept it.

[Ponderosa]

Originally Posted by azriverfan.

People took out bad loans. They couldn't afford their homes so they defaulted on those loans. The bank then took possession of those deals and tried to resell them in securities to foreign investors. Those worthless security instruments you speak of are originally loans that people defaulted on.

No. That is not how it works. A bank or lender sells a loan to a debtor. The loans are packaged (high and low risk) and sold to investors - securities. The price of the loan packages and securities is based on ratings given by the rating agencies who also profit from the sales and were under a great deal of pressure to inflate their worth and downrate the risks. In addition to the securities there are typically a myriad of secondary products called derivatives that are bought on borrowed money.

The loan packages are not all bad loans, they are mixed. What happened to cause our world to collapse was not in fact, loan defaults, per se. Sure a lot of loans did default. But many of the loans in the portfolio were good loans. Fannie Mae didn't buy sub-prime portfolios. But when investors experiencing losses went to the security issuer (insurer) they learned that there was no security - no collateral available to pay them; There was no money, just worthless paper holding up this massive asset class; And on top of that, investors had placed bets that the loans would default. They paid money in order to get payoffs in case the loans went bad (Credit Default Swaps). The CDS were sold again and again with leverage 40 times face vales. There was no money to pay those either. The rating system was exposed as a sham. no one would touch the assets, and investors had no way (and still don't) of knowing what there securities were truly worth.

So what happened? Confidence crisis. And that lead to a pull back in lending across the board - a full blown liquidity collapse. The liquidity crisis took far more worth out of lenders and you and I than the losses on the loans to undeserving borrower would have. There was a multiplicative effect. Fortunately, Paulson and the Democrats got it and they moved quickly to put confidence and money back into the system sparing us Great Depression II. The Republicans got it too, but put politics ahead of the national good knowing the Dems could pass the package without them and save the day, an act for which they should never be forgiven.

To summarize, it was the lack of transparency in the finance system - permitted and encouraged by relaxed regulation - that lead to a crisis of confidence and a near collapse. The bad loans alone would not have brought down the worlds economy.

Securities, derivatives and credit default swaps are among, if not the most, complex topics in finance and I glossed over a lot, I know.

[The_Cadillac_Lawyer]

It always is and always will be much easier to blame the blue collar society vs. the white collar society. Because we each probably know someone that borrowed more than they could afford, yet I'm willing to bet none of us know any lenders, or multi-billion dollar ponsi schemers. People tend to believe what is right in front of their face

[Ponderosa]

Originally Posted by trudawg

It always is and always will be much easier to blame the blue collar society vs. the white collar society. Because we each probably know someone that borrowed more than they could afford, yet I'm willing to bet none of us know any lenders, or multi-billion dollar ponsi schemers. People tend to believe what is right in front of their face

So true. Put yourself in the place of Joe Sixpack in 2006. He sees houses going up so fast that he feels he must move and move quickly if he is ever to own a home of his own. He goes to the realtor who confirms his fears and then to a lender who signs him to a contract he does not have the education to understand along with assurances and, in fact, evidence, that with prices rising like they are, he will be able to refinance and take cash out when his loan recasts. Then, through no fault of his, the corrupt finance industry implodes on all the shenanigans it has been involved in under the weight of a relative handful of defaults, taking with it the world economy and Joe's job, house, and credit rating. And the white collar boys blame Joe!

[Greatday]

IF there were no borrowers, there would have been NONE of those "bad" loans.

IF those borrowers had admitted to themselves that they were buying more home than they could, realistically, afford, there would have been NONE of those "bad" loans

IF mortgage brokers had not MISREPRESENTED the ultimate terms and conditions of some of these "Alt" loans, there would have been FEW of these "Bad" real estate loans

IF real estate agents / brokers had FULLY DISCLOSED to the potential buyers / borrowers the RISKS of these "Alt" loans, there would have been FEW of these "Bad" real estate loans.

IF FNMA/FHLMC/GNMA had not dropped their underwriting standards that provided for the "fog the mirror" loans, there would have been FEW of these "Bad" real estate loans

But ultimately it comes back to the laps of the CONSUMERS - no one was twisting their arms to buy these homes.

[Ponderosa]

Originally Posted by Greatday

IF there were no borrowers, there would have been NONE of those "bad" loans.

IF those borrowers had admitted to themselves that they were buying more home than they could, realistically, afford, there would have been NONE of those "bad" loans

IF mortgage brokers had not MISREPRESENTED the ultimate terms and conditions of some of these "Alt" loans, there would have been FEW of these "Bad" real estate loans

IF real estate agents / brokers had FULLY DISCLOSED to the potential buyers / borrowers the RISKS of these "Alt" loans, there would have been FEW of these "Bad" real estate loans.

IF FNMA/FHLMC/GNMA had not dropped their underwriting standards that provided for the "fog the mirror" loans, there would have been FEW of these "Bad" real estate loans

But ultimately it comes back to the laps of the CONSUMERS - no one was twisting their arms to buy these homes.

Uggghhh!

[Greatday]

Originally Posted by Ponderosa

Uggghhh!

I know, the truth hurts Ponderosa.

I know.

[ArizonaBear]

Originally Posted by Ponderosa

So true. Put yourself in the place of Joe Sixpack in 2006. He sees houses going up so fast that he feels he must move and move quickly if he is ever to own a home of his own. He goes to the realtor who confirms his fears and then to a lender who signs him to a contract he does not have the education to understand along with assurances and, in fact, evidence, that with prices rising like they are, he will be able to refinance and take cash out when his loan recasts. Then, through no fault of his, the corrupt finance industry implodes on all the shenanigans it has been involved in under the weight of a relative handful of defaults, taking with it the world economy and Joe's job, house, and credit rating. And the white collar boys blame Joe!

Originally Posted by Greatday

IF there were no borrowers, there would have been NONE of those "bad" loans.

IF those borrowers had admitted to themselves that they were buying more home than they could, realistically, afford, there would have been NONE of those "bad" loans

IF mortgage brokers had not MISREPRESENTED the ultimate terms and conditions of some of these "Alt" loans, there would have been FEW of these "Bad" real estate loans

IF real estate agents / brokers had FULLY DISCLOSED to the potential buyers / borrowers the RISKS of these "Alt" loans, there would have been FEW of these "Bad" real estate loans.

IF FNMA/FHLMC/GNMA had not dropped their underwriting standards that provided for the "fog the mirror" loans, there would have been FEW of these "Bad" real estate loans

But ultimately it comes back to the laps of the CONSUMERS - no one was twisting their arms to buy these homes.

The bottom line is that both of you are correct-------but for different reasons.

[Ponderosa]

Originally Posted by ArizonaBear

The bottom line is that both of you are correct-------but for different reasons.

OK, Bear. But who is MORE correcter?

[fcorrales80]

Originally Posted by Ponderosa

OK, Bear. But who is MORE correcter?

MORE correcter! I love it...that reminds me of the movie "Drop Dead Gorgeous." It was based in Minnesoootah and the phrase "mooohst smaeertest" just makes me laugh! LOL