Question about real estate bubble. When banks were approving all these

[raccoon]

huge loans to people who couldn't realistically carry such a loan, and didn't have to verify income (!), was this something that had fairly recently been "de-regulated?"

[RegieRocker]

1. Most of the failures on loans were from qualified loans to people that

were hit by the recession and or medical problems. The loans were income qualified.

[Lance_Boyle]

2. BS. If this was true

the "NINJA" loan would never have been invented.

Lots of people lied their way into more house than they could afford on the theory that they'd flip it and get rich quick. Those people deserved to get burned.

[RegieRocker]

5. You've been duped. It's the opposite, the loans you're talking about

were minuscule to the defaulted loans that were qualified and to regular honest folk. Do the research, ask around. Look at the data for bankruptcies.

[badgolfer]

9. Whose lying?

You say that people lied there way into more house than they can afford; probably so in some cases. Were there flippers of housing; yes absolutely especially in the preconstruction condo market in Florida. Were there people who got scammed by mortgage underwriters in order to get their cut; yes absolutely and was the biggest problem.

Just look at who in this industry was making the 'BIG' bucks and you have the answer.

[NutmegYankee]

13. The housing troubles started with those loans.

But the broader general collapse a year or so later was caused by the economy shedding jobs, causing people now unemployed to lose their homes. Many of these folks met all the criteria for the loans, but with zero income due to the worst job market in 50 years it's just inevitable they would go into foreclosure. These folks were not irresponsible at all; they are victims of this economy.

[badgolfer]

3. mortgage scams

There were a whole lot of companies, Federal agencies, and others involved in the mortgage mess.

The Office of Thrift Supervision (OTS), Office of Comptroller of the Currency (OCC), Federal Reserve, SEC, and others were asleep at the wheel or had Bush cronies running the show.

There were the rating companies, Moody's, S&P, others putting triple A ratings on every financial product that the Wall Street banks could think of selling to investors.

There was Congress, both Republican and Democrats, passing laws to enable this whole scam.

There were the independent mortgage brokers, Coutnrywide, Ameriquest, Ownit, and others convincing people into these subprime loans or refinace existing loans into subprime in order to garner fees.

Also included in this whole mess were; Fannie Mae, Freddie Mac, AIG, Bear Stearns, Goldman Sachs, J.P. Morgan, Merrill Lynch, and others.

There were numerous individuals that made hundreds of millions off this scam and no prosections yet.

If you want to try and understand what really was behind this scam, read "All The Devils Are Here" by Bethany McLean and Joe Nocera.

[RegieRocker]

7. Minuscule not worth the breath. The true crime was derivatives.

[Edweird]

4. I don't know anyone that took on such a mortgage.

My ex-wife and I bought our house at 1/2 market
value frome her parents. It was modest and affordable-
until there was no work. It doesn't matter how low
your payments are if you have 0$ in the bank.
We tried to 'float' on credit hoping it was just
a temporary dip. It wasn't and we lost everything.
This 'burger flipper in a mcmansion' talking point
is the new 'welfare queen driving a Cadillac' and
I resent it greatly.

[Dappleganger]

6. I know of entire neighborhoods which were built on such loans.

Interest-only ARM's, specifically. Of course I live in the foreclosure hell called Florida.

[RegieRocker]

8. The op was implying that the problem was from loans that people

acquired that didn't qualify for. Not loans that tripped people into default. Big difference.

[Dappleganger]

12. Most of theose loans in our immediate area where to small biz owners.

Based on stated income (which they no longer allow).

[Edweird]

14. The OP is talking about people misrepresenting their income

to qualify for a loan they wouldn't otherwise.

[mrcheerful]

11. Don't leave out how these loans were bundled then sold, which caused the interests on said loans

went up every time the loans were sold, so a person who started out with reasonable interests rates he could afford would end up with high interest rates he couldn't afford. This also created another problem because after being bundled and sold a lot of these loans over time became lost as to who owned peoples loans which then had loan companies foreclosing on houses that were paid off and owned by the home owner.

[BeFree]

10. yes

Lets say you came to me, a loan broker, for a house loan.
We signed papers that obligated you to a mortgage.
I make a percentage of that loan amount. Volume. Number of loans I broker = more money in my pocket.

Now that mortgage, a piece of paper promissory note, is sold to another broker who turns and sells the note again and the buyer turns and sells the note to someone else..... and they all take a cut.

The way they all made money was to make as many loans as possible. Volume. No one cared if the note would ever be paid. They made their money passing worthless notes.

The end buyers of all those notes used to be regulated. They used to be stopped from buying worthless notes. When they were allowed, @2000 to buy worthless notes the market for worthless notes expanded greatly.

So here we are.

[tjwash]

15. No...the ARM and interst only loans that folks got burned on, had actually been around for decades

Since the early seventies as a matter of fact.

And just the fact that you asked the question in your OP, and the responses you have so far received, shows how little the general public actually knows about real estate financing. It also shows how easily people can be taken advantage of by shady lenders (caveat-emptor and all of that).

Those particular loans were never meant to sell to the regular Mom-Dad-2.5 kids living in the property. When they first came out with the 5 year ARM in the early seventies, they were originally harder to qualify for, than a regular thirty year fixed. They were originally loans meant to only be taken out by land developers, and professional real estate speculators, who would either take out the loans, leverage them, tear down large areas they wanted to develop, and then build new properties on them selling them afterward for a profit. Not only did they get ran through the wringer credit-check wise to qualify, they had to also show that they had enough hard cash in the bank to pay it off at any time. The reason that there was a 5 year "life-span" was because no one actually ever kept the loan for that long.

There were never any real regulations in place as to who they gave the ARMs to, because it was always assumed the banks would be a little diligent on who they would actually gave a high-risk loan to, but, someone at a bank somewhere, figured out that you could cook the hell out of the books, sell a bunch of these to clueless individuals by peddling "buy now refinance later" snake-oil, leverage a ton of unsuspecting customers together, and then dump the commissions in a tax-free offshore, and bail before the shit hit the fan.

That's just a long winded way of saying that the banks got all kinds of greedy and fucked it up all to hell, and the rest of us got screwed.