FEDERAL RESERVE IN FINANCIAL CRISIS

[clarence swinney]

FIVE-- POINTS

1. 1% INTEREST RATE-
ENCOURAGED BANKS TO LOAN LOAN LOAN

2.M-3 TOTAL MONEY SUPPLY
1990=4000 BILLION
2000=6000 BILLION
2008=10,000 BILLION

HUGH INCREASE IN MONEY SUPPLY ALLOWED BANKS ACCESS TO BEAUCOUP MONEY

3. DEVELOPERS PROFIT==BUILT HOMES TOO LARGE + TOO EXPENSIVE FOR MIDDLE CLASS INCOMES.
PROFITS WERE LARGE.

A DEVELOPER BUILT A GROUP OF HOMES WHICH SOLD FOR $700,000.

DOWNTURN AND HE BUILT SAME HOME IN ANOTHER DEVELOPMENT FOR $400,000. BEING SUED.

4. AVERAGE PRICE NEW HOME INCREASED BY 68% FROM 2001 TO 2007.

LABOR COSTS-MATERIAL COSTS DID NOT GO UP 68%. P R O F I T.

5. REALTORS HAD SURPLUS TO SELL SO MISLED MANY BUYERS WITH FALSE INFORMATION AS TO LONG TERM PAYMENTS.

BUNDLING BAD LOANS AND SELLING AND RESELLING
PROFITED RICH RICH RICH INVESTORS.

WALL STREET CASINO AT ITS WORST.

CLOSE IT.
clarence swinney

[louis-t]

1. As to your #5, where did you get info?

How does a Realtor "mislead" someone about their "long-term" payments? When you buy a home and get a mortgage, the payments are spelled out for you. Buyers knew ARMs would raise their payments after 2-5 years. And they knew how much they could go up. Loan officers disclose that they cannot guarantee availability or cost of refinancing at the time the interest rate adjusts. Buyers qualified for the loans at the time of purchase. What didn't happen is the values going up, and people keeping their jobs. Mortgage companies added home equity accounts on most mortgages whether buyers wanted them or not. As things got worse, people tapped those accounts. Saying anybody "misled" buyers is a stretch. Show me proof. You had me except for that one point.

[femrap]

2. Are you a realtor or something?

They were very slick...and spun the terms they wanted to...plus the people were excited about being homeowners. They pushed the ARMS big time....not the fixed.

Oh and if you refinanced a property and got some $$ out, many realtors were asking people what they were going to do for themselves..'You deserve a treat.' This happened to a friend of mine....she went on a trip that her income didn't really allow.

I worked in the investement industry as a stockbroker for many years...what sharks.

'Now' or Bill Moyers had a segment on this subject....google PBS.

[louis-t]

5. Wait, the Realtor forced the people to go on a trip?

"Spun the terms they wanted to"? Please don't be a low-information voter, you don't know what you're talking about. Realtors don't determine terms. If a buyer comes to me and says "I want to buy a home", the first thing I do is send them to a few mortgage brokers or banks to see how much they can qualify for. The mortgage people will give them info about what type of loans they qualify for and they can decide which way to go. I don't make a decision about what someone can or can't afford and I have rarely seen buyers use the full amount they can qualify for. Buyers have always said "I know I can qualify for a $1,500 a month payment, but I don't feel comfortable with that." People I have sold homes to that have or are now in danger of losing their homes, are in that position because they refinanced and took additional money out or had an adjustable rate, and have lost their job or had their pay cut. They can't sell because they owe more than the home is worth, not because a Realtor steered them into something they couldn't afford or told them to go on trip. :eyes:

[femrap]

11. Guess you weren't in CA, FL,

AZ, and NV. So you think ALL realtors are good people...same with the mortgage brokers? Some of these buddies of yours actually focused on neighborhoods of older people to get them to refinance.

Obviously you live a sheltered, naive life with Opie and Barney Fife.

I have worked with the sharks. And I have watched how they have manipulated people...good grief...just look how are media (O'reilly, limpballs, etc) manipulates the public.

Where do you live? In a fairy tale where you sell gingerbread houses?

You're a freaking repugnant trying to say it's all the fault of the poor people and this mess has noghing to do with derivatives and the rich white boys.

Go sell your crap to someone else. You sitting at Heritage and getting paid for this????

So what is it? Stupid or freeper? Go away.

[CoffeeCat]

4. My husband and I were recipients...

...of strong arm, misleading tactics that were used to encourage home buyers to make foolish
choices. These tactics were used by BOTH the realtor and the mortgage broker;
and also they were working in tandem to get people into loans that would enrich themselves--
and to hell with the consumer.

For example, we told our realtor our price ceiling. She constantly wanted to show us houses
that were $100k and more over that ceiling. When we told her that we were paying $1,500 per
month on our student loan, in order to aggressively pay it down--we got a call from the mortgage
broker, telling us that we could roll the student loan into the mortgage and do an ARM, "which
would make for a really, really low payment!"

I can't even imagine where we'd be right now, if we had followed that nearly-criminal advice.

It was also the realtor who discussed interest-only loans, 3-2-1 buydowns and ARMS, as if these
were the only financing options--and certainly options for the smart people who didn't want to
be burdened with high mortgage payments. When we would look at a house, she was constantly
reminding us of these financing options.

It really was a wild ride.

We ended up going with a conventional, fixed-rate mortgage. However, not everyone did. People
were really pressured and misled.

No one EVER talked about the downside of these loans...EVER! We were treated as ingrates for wasting
money on high monthly payments. We were told that if interest rates start to rise, "All you have to
do is re-fi to a fixed-rate!" Yeah, we all know how well that worked for everyone.

Judging from the housing crisis and the amount of foreclosures--it's obvious that many people were worked
over--by realtors and mortgage brokers who worked in tandem to make a ton of money.

Just thought I would give my perspective. The days of the conservative, steady banker in a suit and tie--
cogently going through the loan terms---is pretty much a relic from the 1950's.

[louis-t]

6. I don't understand some of your statemetns.

"No one EVER talked about the downside of these loans...EVER!" What, no one told you the economy was going to crash? No one told you home values were going to go down and money would tighten up so you can't refi? No one told you if you buy all the toys and electronics on credit that you have to pay for them somehow? No one told you you were going to lose your job or have a medical crisis? Again, no promises were made to ARM buyers about availability of financing at the time of rate adjustment. It's made very clear at the time of applying for mortgage and at closing and it's the law. "We were treated as ingrates for wasting money on high monthly payments." I have no idea what this means. If your Realtor was showing you houses $100,000 out of your range, that should have been (and usually is) your first clue to find another Realtor. And if you were paying $1,500 a month on student loans, what are you doing looking at houses? Unless you have at least $5,000 a month income and no other expenses, you're taking a big risk. People were allowed to buy homes with 0 down. That is the single biggest cause of this crisis. There is a reason why this has not been allowed before except with the VA. With no equity in the home, there is no incentive to stay if things get tough. There is a greater chance you will end up owing more than the house is worth. People are just walking away and it's like they were renting for 2 years. Realtors should not be involved in telling you what financing to choose, and to generalize and say that is the "cause" of all this is silly and uninformed. In most cases, Realtors are NOT mortgage people and prefer to let professionals handle that part. People will always be optimistic about the future and think opportunities will present themselves for refinancing and that values will go up. Didn't happen this time.

[CoffeeCat]

7. Ok...

We went through this process three years ago, when we purchased our house. So no...no one said that the economy was
going to crash. Was ANYONE saying that three years ago? Again, no downsides were discussed.

You said you didn't understand my comment, "We were treated as ingrates for wasting money on high monthly payments."
When the realtor mentioned that we could get into a $500k house for only $1,100--we said we really weren't interested
in lower payments. We were concerned about the total cost of the loan. The mortgage broker did the same thing.
Her main "selling point" was that she could get us into a house for very low monthly payments. Again, we stressed that
lower monthly payments weren't tantamount. We needed a fixed rate...a responsible loan. They looked at us
like we had three heads--because we didn't want to sign up for this "creative financing" and it's because they talked
so many into it.

As far as the student loan--yes, we are making $1,500 monthly payments. That's to pay off the loan quickly. We
are foregoing material possession and other things---to get our debt to zero (except for the mortgage). The student
loan is our only debt. And yes, we make more than $5 monthly.

In our case, the realtor and the broker were working in tandem. The realtor discussed "the wide range of financing
options" available to us. No, she didn't sit down and run figure with us. However, I don't know any real
estate agent who isn't versed on current mortgage rates and options, because the subject can come up with buyers.

[truedelphi]

10. Thank you foryour story

There must be some truth to your perspective, as the state of CA has had the attorney General go after some realtors and mortgage people who were in collusion. They would hammer away at prospective buyers to "boost" their income up. And they would do "splits" where they would pay off the assesser on the estimate of the home's value, and then sell the home at the inflated value (which seems especially heinous in that housing pricves went up so dramatically anyway you have to wobder why anyone would lie!)

[truedelphi]

9. There have been some people posting here on DU as to all the lies that they

Were told between the time they made an offer on a house and the time they moved in.

I think the mortgage companies were usually mentioned as being more careless with the truth than realtors. But let's face it - many realtors are usually rather full of it. I spent a good deal of time trying to tell friends that their lives would not end if they didn't buy a house in late 2005 - after all - "buy low and sell high" is a good maxim to live by- and one that could only be obeyed by NOT buying in Calif in 2005.

But the real estate agents were telling everyone that "Housing prices were only going to go up" and "Buy now or you'll be priced out."

One DU'er was told by a loan officer at mortgage co. that there would be like neglible closing costs for the home loan, and on the day they went in to finalize the paperwork, they were told they better produce $ 6K or they'd be out of luck.

My overall sense of things is that the mortgage companies were becoming less and less regulated, more like car dealership finance brokers, and those people lie a lot!!

[Citizen Number 9]

12. So what? People lie all the time

In particular, sales people lie.

If you don't know enough to protect yourself against these kinds of lies, how can you function as a consumer on a day-to-day basis?

Lord knows there are plenty of regulations to help folks.

Isn't there a very old adage that goes something like "Let the buyer beware"?

[Citizen Number 9]

3. Sounds dramatic, but....

1. I think Greenspan already admitted that they miscalculated and should not have let rates go so low for so long. If you recall they were trying to keep things functioning after 9/11. The 1% rate only lasted a year, however, and as far back as 2004 they were bringing it up.

2.Remember that GDP increased during that time. If you look at the money supply with respect to the GDP, it was 69%, 61% and 76% respectively. Not a big difference there.

3. I'm not sure what this point is, but developers built all kinds of homes during that time and it was all about building to market. They built what folks wanted to buy.

4. I'd reserve judgment on this because I can't quantify how much labor and materials did go up. I priced the construction of a new home during this time and one year later, the costs of labor and materials went up 50%. Subcontractors charged a lot because they were busy and materials went up worldwide. There was no general contractor involved in this.

5. Same comment on realtors as poster above.

[Rabrrrrrr]

8. You don't have to shout everything - please learn to communicate properly. Use lowercase.

There's a reason God gave us lowercase letters.