The mortgage crisis - a timeline.

[rn79870]

This timeline is really thorough, and too long to post, but the link is direct and well worth the click.

http://www.motherjones.com/new....html

As you can see the crisis has been a long time in the works.

(note April 2, 1987 too)

[Cold_Zero]

The Mortgage Crisis has really screwed up the Student Loan Industry. That coupled with Congressional Legislation has put the hurt on Lenders and Borrowers. It is amazing the extent of this crisis and the impacts around the financial markets.

While this article looks to have a lot of information, it should be pointed out that Mother Jones is not a balanced journal and a lot of the 'commentary' is one sided against, Republicans and 'Big Business.'Example

Nov 1999: Gramm-Leach-Bliley Act guts Glass-Steagall, setting off wave of megamergers among banks and insurance and securities companies. Driving force is Sen. Phil Gramm (R-Texas), who has received $4.6 million from fire sector over previous decade.

What they didnt say was all the good things that GLB does for borrowers. Sure you get bombarded with privacy policies from banks, lenders and credit card companies, but having companies that collect YOUR information tell you how they collection your information, why they collect it and whom they share it with is a good thing. Also, it insures that companies that collect your information PROTECT it as well. Something I wish the Government would do! The Government never seems to have to abide by these Acts/Laws. Our Government would be run totally different if they had to abide by ERISA, GLB, Serbanes Oxley (SOX404) and politicians be thrown in jail or fined for not complying with these Acts/Laws.

[AZhitman]

Mother Jones ranks right up there with "High Times" as good, solid journalism.

Point noted tho - And yes, this mess has been a long time coming.

[AZhitman]

May 6: Bush announces he will veto legislation directing $15 billion to neighborhoods ransacked by foreclosures. Also threatens to veto legislation to provide $300 billion for struggling homeowners (and force lenders to renegotiate some mortgages) because it would be a "burdensome bailout" that "opens taxpayers to too much risk."

Exactly. Why should my tax dollars go to those who have made retarded choices in their life.

And, if you think I'm not PERSONALLY affected by this, I'm sitting on a property that was worth $250K 2 years ago, that I can't sell, and continue to pay the mortage on. Thankfully, the mortgage is affordable, due in part to smart choices made when I bought it in 95.

[skylndrftr]

Hitman, something I finally agree with you on!

However, I would note that if we do bailouts they should be going to homeowners not to mortgage corporations. Personal responsibility is something that is missing in society at all levels right now (from parenting to governing).

However, I do believe a fair number of mortgage brokers willfully misled consumers. We all hate sleazy salesman, and would willingly accept somebody saying they were misled by a car dealership and would at least give them some leeway with 'personal responsibility' Unfortuantely, people dont buy houses as often as cars and so have a lot less experience.

[Cold_Zero]

Agreed.There is enough blame to go around with this mess.BorrowersBuildersHome InspectorsRealtorsMortgage CompaniesSecondary Markets There was a lot of crap that was pulled to get people into houses they couldnt afford, to move houses that werent selling and to buy stuff (rolled into the Prin of a Mortgage) to feed materialism. I am sure that certain elements of borrowers that under the normal approval process couldnt get a house were helped by this situation. And I am sure some of them are still paying their mortgage and enjoying their home. But I dont think we should bail out borrowers or the mortgage companies. When the government gets involved with mitigating loss to minimize the affects on the economy, they in affect take out certain cycles (Regression and Depression) that are natural. Also, a bailout would lead to a wholesale dismissal of punishment for behavior/activity that was culpable. What part of 125% loan to value ratio on a mortgage sounds rational to anyone? Now I do think that certain borrowers need to be helped due to Predatory Lending. It does occur and it should be stamped out. I would like to suggest a movie called 'Maxed Out.' It is a pretty interesting analysis of the lending markets in this country. While I dont agree with everything the movie says, the movie was very informative. Tidbit- The #1 campaign support of GW Bush? MBNA. Didnt Congress pass reform of the Bankruptcy Laws a few years ago to make it harder to write off credit card debt? bud

[WDRacing]

Tidbit- The #1 campaign support of GW Bush? MBNA. Didnt Congress pass reform of the Bankruptcy Laws a few years ago to make it harder to write off credit card debt? bud

Yes they did. Also if you use an agency like debt consolidation etc you still have to claim that as profit when you file taxes. So sometimes you end up owing a boatload of money to the IRS.

Bailing out the banks that loaned people the money at 125% is a bad idea IMO. Then again so isn't using my tax dollars to assist people that signed the mortgage paperwork and assumed responsibility for the loan.

I say this because I got screwed myself and don't expect to be bailed out by anyone.

Country Wide labeled my PMI payments as Escrow on the Payment Schedule Doc. Then they raised my payments $320 a month because they weren't paying my taxes which as we know is what Escrow is actually for. So they basically lied on the Payment Schedule and didn't include my taxes at all. But I signed therefore I took responsibility of the loan. Am I pissed...hell yes. This house isn't worth $1440 a month...but I'll sell it in 3.5 when I move and chalk it up as yet another learning curve. Never pay PMI...ever and have a lawyer go over any document a bank tries to get you to sign.

WD

[Cold_Zero]

Been in the same situtation.

PMI is a funny thing. They charge you insurance in the case you default. Isnt that what part of the interest on your Mortgage is for as well?

[WDRacing]

Man don't get me started...PMI is Banks taking money from the people for no better reason then pure profit. Otherwise the PMI would go into a secure account, acrue interest, that the bank can keep, and then be refunded when the loan is paid. Since I have never foreclosed why do I have to pay PMI? Because Joey Baganachos can't make his friggin payments? Now I have to pay more taxes to bail out the very people that are already costing me $201 in PMI every fukin month because they have a shady history. So I'm stuck paying and repaying for someone elses financial blundering.

That is the friggin American Dream right there.

[skylndrftr]

I think some of what you said is a stretch WDR. Obviously peopel need to take responsibility for their money like I said. But why is the mortgage broker giving them these loans? Many of the people who get hurt are first time homebuyers who honestly didn't know better. Its not a great exucse and let me tell you when I buy a hosue in ~2 years I will have a lawyer of my own watching, but your not paying because Joey can't pay, your paying because the lender took to big of a risk.

There seems to be this corporate goal to blame the people getting the loans so their sleazy dealings and unnecessary and unreasonable risk taking doesn't bite them in the ***

[WDRacing]

I think some of what you said is a stretch WDR. Obviously peopel need to take responsibility for their money like I said. But why is the mortgage broker giving them these loans? Many of the people who get hurt are first time homebuyers who honestly didn't know better. Its not a great exucse and let me tell you when I buy a hosue in ~2 years I will have a lawyer of my own watching, but your not paying because Joey can't pay, your paying because the lender took to big of a risk.

There seems to be this corporate goal to blame the people getting the loans so their sleazy dealings and unnecessary and unreasonable risk taking doesn't bite them in the ***

You just misunderstand what I said and or don't have enough info to understand it. PMI is paid because when a house is foreclosed on and then resold the bank only gets 80% back on average. So unless you have 20% to put down on the house during purchase you have to pay PMI. So because Joey didn't pay and the house got foreclosed on, I am paying PMI...there is a 100% direct correlation between the two.

What you really misunderstand is that you think I'm placing 100% of the blame on the people...that is simply not true. Banks and other Mortgage based loan establishments are definitely guilty of using shady tactics to get you approved to buy the house. They are also skilled at telling you exactly what you need to hear in order to make the sale. But then again they are salesman and get paid by commission only. Anyone that gets paid by commission has one goal, to take as much of your money as possible...period. So you should never ever believe a single thing a salesman says to you...in any line, be it cars or property and even the guy selling you INS. In fact they get trained in the art of taking your money.

Salesman are not to be trusted.

But like I said, that does not remove responsibility from the individual. The signature is a very powerful thing. It can't be forced, but when given is almost 100% unbreakable.

For the record, there are many places and institutions that give free advice and classes when it comes to buying a house. They go over all the fee's and danger zones to watch for. They go over buying down interest points and how much interest you pay for over the life of the loan vs principle etc. Very good tool to have. I'll be taking another one before my next purchase, which will be house #3 for me.

WD

[Eikon]

This whole thread makes my head spin.

This timeline is really thorough, and too long to post, but the link is direct and well worth the click.

http://www.motherjones.com/new....html

As you can see the crisis has been a long time in the works.

(note April 2, 1987 too)

I quit reading your timeline about 1/3 of the way through when it became abundantly clear that it is liberal propaganda. Note that nearly everyone mentioned is republican and all mentions of republicans are negative.

If anyone thinks for a second that one political party was the cause of this situation, they need to go turn on the car and close the garage door. I'm so sick of this crap!

I've been in the business for nearly 5 years, and learned a ton about the business. While I'm sure I won't be invited to speak on national TV anytime soon about my opinions, I am certainly qualified to speak with some authority here on the a car site about the situation.

Politics had little to do with the mortgage crisis. Sure they had some influence, or lacked the foresight to take measures that may have reduced the affects of the problems, but Politics was not the major influence. Rather it was economical issues at hand. Some purely natural business cycles converging at the wrong times and some manmade issues that added powder to the keg.

The current mortgage mess is in fact a "Perfect Storm". If you are familiar with the movie you may remember that the big storm was a confluence of three storms that met in such a way as to create a massive storm.

Some of the factors of this "Perfect Storm Mortgage Crisis":

1.) Poor decision making by the mortgage industry. The housing industry was a huge boom from the mid 90's to the mid 2000's. The mortgage industry got especially fat in around 2003 when rates dropped really low. Boom times are nice! But, they tend to have harmful impacts when people don't manage them properly. So in order to keep things booming, the mortgage biz decided to expand their lending practices. With business booming, they could afford to take on some riskier loans because they had the income offset it. Those loans got riskier and riskier, and they started to make some really stupid loans. Those loans not only hurt the buyers because they were often interest only, or adjustable rate, or had huge prepayment penalties (all factors to increase revenue in order to offset the risks). So a ton of people made really stupid decisions and bought homes they couldn't afford on loan terms they couldn't afford.

2.) The american public's abuse of credit. Since the 70's we've all heard on the news that our nation has very poor habits with credit. The average consumer's credit card debt rose and rose and rose. This impacted the mortgage crisis because the lending industry learned to market home equity loans to help consumer's consolidate credit card bills. As our country experienced record gains through the 90's and 2000's in home values, that available "often fictional" equity was used to pay credit card bills. Now everyone owes more money on their house than they are worth. Instead of putting the heat on the credit card industry for costing the public so much money, we now have the heat on the mortgage biz. Instead of people declaring Bankruptcy to get rid of credit cards, we now have people going into foreclosure. Same problem, different method and different name on the legal documents.

3.) The cyclical nature of the housing market. Some people think our housing market has been very steady. That's not true! It has been steadily increasing over 5 or 10 year periods, but the pace at which property changes hands, and the rate at which property increases in value has always fluctuated and been cyclical in nature. The late 90's and early to mid 2000's were an incredible boom period. So naturally boom's have to wear off and subside. So we've finally entered a period in which the housing market is not so strong. It would have been harmful to the industry by itself, but not catastrophic to the entire nations economy without other factors coinciding to create this "perfect storm".

4.) Loss of available equity. This may sound like a repeat of the previous issue, and perhaps it's very close, but the effects on the economy are worth noting individually. The fallback of previous difficult periods has always been available equity. If people fall behind on their bills and need money, they borrow against their house. If they can pay that amount back short-term, or they can absorb that for the long term, it at least get's them out of a bind temporarily. With the housing market turning down, and the value of homes reducing, that old safety is now gone. Before people could count on the equity in their home to save them from a rainy day. Now they have no net and they wind up in foreclosure.

5.) Foreclosures. Clearly this is the big name issue on the news. When a person can't pay their mortgage for months in a row, the mortgage company takes control of the collateral. Foreclosures hurt the banks short term because they harm the flow of money. Long term they will weather the foreclosure storm because they will get their money back through sale of the collateral and collection of mortgage insurance companies. Foreclosures have other affects besides weakening the banks. They harm home values in neighborhoods because they have a bad reputation. They harm home values nationwide by adding to the supply factors in the supply and demand equation. The biggest problem however, is the affect on the secondary markets.

6.) Secondary Markets. Most people think the bank that originates the mortgage holds that mortgage and makes huge profit on the interest they collect. Not true. The dollars for most mortgages are issued by quasi-government agencies called Freddie Mac and Fannie Mae. They issue a set of standard by which mortgages are supposed to be written. They determine what credit scores and down payment requirements are put forth. These are called "conforming loans". Loans that are granted at the descretion of the bank itself and traded without the backing of Freddie and Fannie are called non-conforming loans. The mortgage is an asset, it's a note that will create future revenue. That mortgage is packaged with hundreds or thousands of other assets which we call "mortgage backed securities". These are packages are then sold in shares on the secondary markets or in large blocks to single investors... just like stocks and bonds. When foreclosures go up, the secondary markets freak out because they are uneducated investors or simply have short term needs and goals. So they back out and stop buying these securities. This causes wholesale mortgage companies to go out of business.

7.) Bankruptcy and going out of business: Wholesale mortgage companies have a line of credit they work from. The loans they originate are a debt that they owe. They give out millions of dollars to fund those loans based on the promise that Freddie and Fannie are going to repay them for those dollars because they originated them based on their guidelines. These conforming loans are somewhat stable due to the large size and security of Freddie and Fannie. These agencies have enough capital and government backing to absorb and take some hits. Non-conforming business, frequently called "Sub-prime" doesn't have the same security blanket. They are not backed by large quasi-government agencies. Loans that didn't fit Freddie and Fannies' guidelines were still sold, but done so based on indivual buyers desires. So what happens when foreclosures go up and people freak out... they stop buying on the secondary markets. The Sub-prime companies found that they had put forth millions of dollars to fund loans based on the expectation that they'd be able to resell those loans shortly after. They now found themselves stuck with huge groups of loans that were unsaleable. So they extended millions or billions in loan dollars which created a debt. They didn't get that money back. So at the end of the day, when the creditors made the margin call, they found themselves massively in debt with no hope of future revenue to fix the problem because they couldn't sell the loans anymore. So they locked the doors.... often in a matter of hours!

8.) Reform in the mortgage business reduces buyers. When the secondary market stopped buying sub-prime loans, those companies went out of business. Of course they destroyed tons of investments and stock values in the process. It also signaled a change in the mortgage industry... REFORM. Nobody buys risky loans anymore. So all subprime loans are now gone. Freddie and Fannie are now taking HUGE losses (check the news recently). So in order to avoid going out of business, they have also made huge changes in their business models. They are now charging much higher rates for lower credit scores. They have increased the minimum scores required. They have done away with zero down programs (for the most part). All of these changes has created another huge problem... Less Demand!!! So the people who had marginal credit or shady income, or no money down who used to be able to buy homes, are now not able to do so. That could be as high as 25% or more. While I haven't seen anyone in the national media pick up on this, it's definitely a huge issue. The loss of this base of buyers means less people can buy houses. Lower demand for homes mixes into the supply and demand laws and results in an increase in supply and subsequent reduction in values.

9.) Misunderstanding of loans. Most subprime loans were meant to be temporary. These loans were usually originated on short term rates that had high rates. They were meant to get a person into a house, help them repair their credit, bulid some equity, then refinance into a conforming loan when they were able. Most of the people who took them didn't follow through on their end of the bargain. They didn't take the steps required to improve their situation, so when the short term rates expired, they were not able to refinance to better terms. In fact they were not even able to refinance to similar rates because the industry had changed and those sub-prime loans were no longer available. So what was meant as a short term fix was never fixed, and the borrower found themselves eating the worst case scenerio of being stuck with the terrible adjustments.

10.) Oil prices go up. The cost of oil takes several different paths to influence the nation, but all of them wind up at the same ending.. They increase our cost of living. Gas prices, energy costs, food prices, etc... We have less available funds now. So when things get tight, people fall behind on their bills and especially mortgages. This adds to foreclosures and continues to affect housing values, secondary markets, and supply and demand. While this is my shortest paragraph, it's only because it's very easy to explain. The impact of this issues is just as great as any of the others.

11.) Greenspan and Bernanke. I won't pretend to be an economist, so I can't go into great detail on what affect the raising and lowering of interbank rates has done to our economy, but I can say that neither person did a good job of things. On top of that, they have somewhat different approaches to the issues. I think Greenspan lowered rates too far and too quickly around 2003 to 2004. He then raised them too quickly in 05 and 06. Bernanke did the same thing... Greenspan is now out of power, but won't shut up. His negative comments are very harmful today because so much of the mortgage crisis is influenced by private and corporate investors in the secondary markets.

12.) Lack of government intervention. The government doesn't understand where the true root of the issues are. They think they need to bail out the people facing foreclosure. That's not really the issue. They need to figure out how to get people buying again on the secondary market. They have done nothing so far but argue and bicker. The fixes have made very small ripples, but not fixed anything. They continue to fight over the issues and play partisan politics because nobody truly wants to do anything in an election year but smear the other party.

13.) The Media. Knowing that the mortgage industry is liquid based on buyers on the secondary market, you can see that consumer confidence is very important. The media is killing us right now because they broadcast nothing but bad news. It's all doom and gloom on the tube during the evening news. The internet is full of uneducated morons (like me ) blogging about how bad the world is. We need consumer and investor confidence to return to the marketplace. We need them to start seeing mortgages as the powerful investment tools they are. We need them to start buying again. But they won't do it until our media starts breaking some good news for a change. The problem is that good news doesn't sell, and we all know that the media has turned into a sales business.

So to sum it up... Take a natural downturn in the housing market, a natural downturn in the mortgage business, add huge amounts of poorly managed credit adding to debt levels, a dramatic increase in foreclosures, a dramatic decrease in home values, tons of companies going out of business due to sudden shifts in the secondary markets, lack of equity for people in trouble to fall back on, lack of buyers on the market, the higher costs of living, poor planning by the FED, and very poor leadership by our government, and you get what... A PERFECT MORTGAGE CRISIS.

[Eikon]

You guys can hate PMI if you want to, but know that without it, you would be renting right now.

It's a good thing for our public and for our economy. Sure you'd rather not pay it, but imaging how much worse the whole mortgage crisis will be in a little while if (when) the PMI companies go out of business because they are loosing their butts right now on all the foreclosure payouts.

How many home buyers will we have left when they are required to come up with 20% downpayments. Imagine how that plays out in California...

[AZhitman]

Good education by Seth above...

Not much to say in response to the factual info provided by a guy who's IN the business...

[WDRacing]

Great article Seth...as a friend I expect you to review all my upcoming paperwork. I of course will pay you in beer

[rn79870]

You guys can hate PMI if you want to, but know that without it, you would be renting right now.

It's a good thing for our public and for our economy. Sure you'd rather not pay it, but imaging how much worse the whole mortgage crisis will be in a little while if (when) the PMI companies go out of business because they are loosing their butts right now on all the foreclosure payouts.

How many home buyers will we have left when they are required to come up with 20% downpayments. Imagine how that plays out in California...

The (up to) 20% can come from a 2nd mortgage on a property. They have been doing them for years in CA. Sure, the borrower pays a little more interest on the 2nd, but he doesn't get ripped off by a PMI company.With PMI the borrower gets a larger 1st. and a larger payment for 30 years, plus a PMI payment that they will continue long after the property has appreciated or the loan has been paid down to the 80% level.

With a 2nd, the borrower pays more interest on the 2nd, but his 1st. TD is lower (for all 30 years), he has no PMI and his 2nd can be for a shorter term - 10 years for instance). PMI is for the lenders benefit and truly is a rip off to the borrower. The insurance benefits never benefit the borrower, only the lender.

One way, his entire payment works to reduce his obligation where with PMI there is no benefit to the borrower.

[Eikon]

A year ago you'd have been dead on Bob. But things have changed. While the 2nd mortgage business hasn't been hit quite as badly as the first mortgage biz, it's a shell of what it once was. The only 2nds to 100% now are from small member credit unions (at least in the midwest this is the case). So you can't readily find a 2nd mortgage to get you to 100%.

Besides, Freddie and Fannie guidelines have changed, and CLTV's are not capped at 95%. In addition, it's very difficult to find a first mortgage company that will allow you to fund a first and second loan simultaniously anymore.

Also first mortgage companies charge penalties or hits to rates on the first mortgage based on having a second mortgage behind it.

PMI is tax deductable now, which is a benefit. PMI also will go away when you hit 20% equity, while the higher rate you get on the 1st mortgage with a 2nd behind it may never go away.

we could spend hours talking about it.. but suffice it to say that PMI is a good thing, not a bad thing because it opens up opportunities to those who otherwise might not have them. However, if I can find a way to help a customer avoid PMI... by all means... I'll do it.

[AZhitman]

If you can't put 20% down on a house, maybe you need to keep shopping.

No one's ENTITLED to more goodies than they can pay for, and the mortgage companies have every right to make money off the riskiest borrowers.

[rn79870]

My age is showing again. Sorry for the misinformation.

[Encryptshun]

If you can't put 20% down on a house, maybe you need to keep shopping.

No one's ENTITLED to more goodies than they can pay for, and the mortgage companies have every right to make money off the riskiest borrowers.

I'll speak from personal experience, since that's the only thing I know. I bought a house. I put 10% down. I pay PMI. I bought it solo with the intention of it being the home of myself and my spouse. Mortgage, insurance, taxes and PMI all included I pay about $400 more a month than I did renting a decent apartment. To me that's simple math, considering the equity I'm building and the tax incentives for home ownership that I'm able to leverage. Compared to the tax writeoff alone, my $100/month PMI premium is worth it. It wasn't about making the payment, it was about how long it would take to save up 20% of a home price when I could be reaping 80% of the benefit immediately.

And for the record, 6.125% 30 yr fixed issued in April of 2007. I refused to get the lower APR 3 year ARM...

[szh]

If you can't put 20% down on a house, maybe you need to keep shopping.

Exactly right!!! And, nowadays, the number needs to be higher perhaps.

We bought our last house with 30% down (the bank tried to ask for PMI and tax escrow and I told them to take a hike!) ... because I was concerned about house prices dropping and getting into negative equity situations. Fortunately, the house has increased in value - and I refinanced to a 4.75% 15-year fixed three or four years back, but kept paying as if I still had the original 7% interest - so our equity is closer to 75% to 80% now in nine years of ownership.

We expect to own it outright in another 5 to 6 years or so - and refuse to get onto the band-wagon of continually buying more house than we can use or afford. Our choices and we take full responsibility for it. No government bail-out needed if we are unable to continue to make the payments right now.

"Life - deal with it" is what I say to the folks who want me to fund their bailout.

No one's ENTITLED to more goodies than they can pay for, and the mortgage companies have every right to make money off the riskiest borrowers.

Yup.

Z

[szh]

I refused to get the lower APR 3 year ARM...

Good Stuff™!!

Z

[skylndrftr]

You just misunderstand what I said and or don't have enough info to understand it. PMI is paid because when a house is foreclosed on and then resold the bank only gets 80% back on average. So unless you have 20% to put down on the house during purchase you have to pay PMI. So because Joey didn't pay and the house got foreclosed on, I am paying PMI...there is a 100% direct correlation between the two.

No, I did understand. I just think its crappy to say that because their other risk didnt work out I will pay extra. If you need insurance on an investment that should be giving you pause. Your paying because the mortgage broker invested in Joey and he didn't pay, not simply because Joey didn't pay. Thats my point. Would you invest in a company that you felt you needed insurance of a profit?

Salesman are not to be trusted.

Agreed, but as an RCG ...recent college graduate (sorry work term) This is not something that kids learn about in school. And if you asked almost all of them (trust me we do discuss this ) they don't realise mortgage brokers are salesman, they think the realtor is. I'll bet that opinion isn't limited to young people. I am not taking away responsibility from people I just ant you to keep in mind that many people are rather uneducated about something they do few times in their life and involves numbers that are hard to comprehend without a spreadsheet. Not an excuse, but ethics and morals say this situation should put significant pressure on the broker.

For the record, there are many places and institutions that give free advice and classes when it comes to buying a house. They go over all the fee's and danger zones to watch for. They go over buying down interest points and how much interest you pay for over the life of the loan vs principle etc. Very good tool to have. I'll be taking another one before my next purchase, which will be house #3 for me.

Definitely! there should be some certification for these programs though because they are open to malfiesence just like 'credit counselors'

EDIT: removed where I work its irrelevant
Modified by skylndrftr at 9:09 AM 7/10/2008

[heliochrome85]

a few weeks ago, NPR news in conjunction with This American Life, made a show detailing what happened with the morgage crisis. I thought it was the most well layed out explanation of the crisis that ive ever seen. check it out. its called Big Pool of Money, or Giant Pool of money. i cant remember. its a podcast btw.