So let's say you're the loan officer, and you look at the paperwork and sees Pedro makes $15k/yr...
And let's say, you do a basic diligence check - like checking his credit score....
And you see he wants a loan to buy a $725k house...
APPROVED!!!
Is "Too Big to Fail" Too Light on Blame? Seriously!!
- Thread starter schizo
- Start date
So let's say you're the loan officer, and you look at the paperwork and sees Pedro makes $15k/yr...
And let's say, you do a basic diligence check - like checking his credit score....
And you see he wants a loan to buy a $725k house...
APPROVED!!!
Quote from MarketMasher:
So let's say you're the loan officer, and you look at the paperwork and sees Pedro makes $15k/yr...
And let's say, you do a basic diligence check - like checking his credit score....
And you see he wants a loan to buy a $725k house...
APPROVED!!!
You forget that at one time you didn't even need to document your income. It was never asked by the loan officers. Why? Because those loans were never kept on their own books but sold to Wall Street. It's the ones who created and issued the CDO tranches that shoulder the biggest blame here.
Quote from MarketMasher:
So let's say you're the loan officer, and you look at the paperwork and sees Pedro makes $15k/yr...
And let's say, you do a basic diligence check - like checking his credit score....
And you see he wants a loan to buy a $725k house...
APPROVED!!!
You are still missing the point. The buyer didn't go to the loan officer the RE Agent did. If anyone "outsmarted" the loan officer it was the agent not the buyer. Remember the buyer was doubtful they could afford such a house themselves. The agent convinced both the buyer and the lender that they could afford it.
How do you "outsmart" someone into thinking a guy making $15K/yr can pay off a $725K loan?
Ok - that was sarcasm.
We agree that it is pretty lame to say that some dudes who were probably dealing with a home loan for the first time in their lives were somehow the crux of the problem, and guys in suits making loans from 9-5, five days a week (barring holidays and vacations) as a business were somehow innocently duped....
Now, the next question would be - WHY did the guys in the suits give Pedro that loan?
Were they forced to give a guy making $15k a year a $725k loan?
Or were they making $$ off of the loan, no matter how shitty it was?
And if they were making $$ - then WHO was giving that money to them?
And why?Quote from MarketMasher:
1- Now, the next question would be - WHY did the guys in the suits give Pedro that loan?
2- Were they forced to give a guy making $15k a year a $725k loan?
3- Or were they making $$ off of the loan, no matter how shitty it was?
4- And if they were making $$ - then WHO was giving that money to them?
for help once again i'll requote the answer to questions 1 and 2
3- the real estate agents made money no matter what, the individuals made out like bandits living in houses they couldn't afford for a long time (often for several years for free after stopping making any payments), and the banks ultimately held and are holding the bag on these as well as freddy and fanny- and ultimately freddy and fanny passed their bag right along to the politicians (as you could argue the rightly should have since it was the legislated mandates that forced them into the market to create a bubble in the first place) most people keep forgetting the banks have repaid the vast majority of the tarp funds already (although they are making craploads off of the zero interest rate policy, but that is mainly self-serving by the government trying to avoid dying from the disease they mandated through legislation).
4- if the loans were freddy / fanny loans then that is who was paid for them, if not the banks or pension funds and other large supposedly informed investors that were grasping for the highest yields they could find irregardless of risk because it had become a recognized fact that the housing market could go no where but up, i mean look at our demographics.
Wow. How long has Fannie existed? Freddie? The Community Reinvestment Act?
How come it took so long to blow up?
How come the rest of the world economy had a housing bubble and tanked too? Do they use Fannie and Freddie and CRA?
Fannie and Freddie (i.e. the public) are holding a big bag of doo-doo now. Who's coming up roses?
Quote from MarketMasher:
Wow. How long has Fannie existed? Freddie? The Community Reinvestment Act?
How come it took so long to blow up?
How come the rest of the world economy had a housing bubble and tanked too? Do they use Fannie and Freddie and CRA?
Fannie and Freddie (i.e. the public) are holding a big bag of doo-doo now. Who's coming up roses?
as the total value of the housing market expanded, they had to bend over backwards to find more and more unqualified applicants to throw mortgages at to maintain the mandated percentage (for equalities sake of course) at some point all bubbles burst, and if you review the percentage of overall loans that were given out in 2006-2008 that would have never been close to qualifying in 1995 it becomes apparent how the bubble burst.
the rest of the world's economies all faltered because of the old saying "when the US sneezes the rest of the world gets a cold"- when everyone is so reliant on one economic "powerhouse"(of cards) when it falls they all fall- and their banks all came close to failing because they just loved the extra juice those subprime loans offered (iceland/ireland are prime examples), they might not have had freddie and fannie, but they bent over backwards competing with them for our "highest yielding" pieces of paper. now that they are in trouble, with their almost entirely socialist economies, with even worse demographics than we have, they have literally no hope of not completely collapsing (not like we will be able to avoid it for more than 7-10 years optimistically anyways).
who's coming up roses? well i'd say anyone that bought a house and sold it to an unqualified buyer during the 2000's after making likely several hundred percent return (those crazy people who bought homes to live in originally and not as investments), all of the real estate agents who made money riding the bubble up and maybe they have to find a new job now- but at least they made a lot of money on the ride and didn't necessarily have skin in the game (unless they decided they wanted to get skin in the game and became speculators themselves), and all of the people who are still living in houses they cannot afford because their foreclosures are now deemed illegitimate and are at a standstill (years after they stopped paying any mortgage / rent- just imagine the hit to our gdp once all of those leeches have to start paying for their roof again).
the banks still have medicine to take, i mean no market has returned to anywhere near "normalized" when 40% of the homes for sale are still owned by the banks and being sold in foreclosure (chicago). i also wouldn't expect freddie and fannie to stop begging for money basically ever.
Quote from MarketMasher:
Ok - that was sarcasm.
We agree that it is pretty lame to say that some dudes who were probably dealing with a home loan for the first time in their lives were somehow the crux of the problem, and guys in suits making loans from 9-5, five days a week (barring holidays and vacations) as a business were somehow innocently duped....
Ok so we are on the same page to this point. To me the big question is how do the banks, get to write off the bad loans, get TARP money to hold them over, 0% interest loans for themselves from the Fed (which is how many of them paid back TARP) AND they get to keep the houses the repossessed too!! Seriously how do you sell something, repossess it, get the taxpayer to pay the bill and still get to keep the asset?