Posted by CJ on 9/4/13 6:33pm
Msg #483220

What cause the previous housing crises?

Over Labor Day weekend, we were all talking about this housing crises vs. the last housing crises. People got pretty worked up over whether it was the government or the banks that did it. I thought that somehow, the government encouraged the banks to get creative, so that low income and minorities could own houses. Next thing you know, we were awash in Pick-A-Payments, and 80% on a loan with 20% down-payment on a Heloc. Banks were loaning like crazy, (I was paying off my debts) and then after 3 years, when that first pre-payment-penalty hit, and the Pick-A-Payments were upside down and could not refinance, it came to a screeching halt. Then the government was "Shocked! Shocked!" (just like on Casablanca), that they banks did this to these poor people. The government changed the rules back, and all the low-income and minorities (and everyone else who got these crazy loans), lost their houses. We had to wait about three years for all the those PPP to come down the pike and hit the sand before the crises was over and things started to get back to normal. That's how I saw it.

PLEASE, if I am wrong, which I could very well be, please tell me what really happened. How did YOU guys see it?

Reply by CJ on 9/4/13 6:42pm
Msg #483222

Sorry. I meant to put this in "Politics".

If this can be moved, that would be great.

Reply by PegiT_MN on 9/4/13 7:26pm
Msg #483231

Here is how I see the housing crisis.

Ameriquist and other predatory lenders like them is what started this housing crisis......high interest rates, gigantic pre-pay penalties, out of control closing costs, over inflated appraisals. Then along comes Countrywide with their stupid pay option arms and the negative amortization loans that even their employees, the brokers that sold them, and the customers that got them didn't understand how they worked. Don't forget about the many interest-only arms borrowers were lined up to get as well as 100% financing. Everyone in the business from the mortgage broker, loan officer, appraiser, realtor, builder, developer, lender, and title company all saw a way to cash in on the housing market frenzy. You also had every crook in the county scheming to get away with mortgage fraud....and big brother wasn't watching or regulating anything because it was a free for all out there.

With the relaxed lending guidelines, lenders were giving away money like candy, brokers were lining their pockets with yield spread premiums, realtors were pushing pay option arms and negative amortization loans to their customers as a way to get them to buy higher priced homes they couldn't even afford just to get that commission check. You had HELOC companies coming out of the woodwork offering homeowners 125% LTV loans. Builders and developers were over inflating the prices of homes with fake appraisals, people were buying homes knowing they could live in them free for a year or two or three because that is how long the foreclosure process was taking, and you still had every crook in the county figuring out more new ways to get away with mortgage fraud.....and big brother still wasn't watching or regulating.

All of this frenzy created bidding wars for homes thus driving up the prices to non-realistic values, people pulling as much cash out of their homes every year as the over-inflated housing values continued to rise, and well it all had to come crashing down sometime.......and so it did.

Reply by Shoshana/AZ on 9/4/13 8:06pm
Msg #483237

The Community Reinvestment Act signed by Carter is what

started the housing crisis. That's when they started putting the ethnicity on the 1003. The idea that anyone who could fog a mirror should own a house.

Reply by MW/VA on 9/4/13 9:22pm
Msg #483244

I've seen the documentary firm "Inside Job". It give a good

picture of how all this came about. Anything else I'm not going to discuss here, because a lot of what's been posted should be over in Just Politics, IMO.

Reply by Marazz/AZ on 9/5/13 9:02am
Msg #483270

IMHO, and, I saw it as an appraiser, what truly was at the heart of the problem was when the alphabet soup people at the gov't (HUD, FHA, FHFA, OCC, et al) started allowing people to "borrow" the down payment. This started under Clinton but the Bush administration thought it was a good idea and let it keep going and even expanded it. And it's still perfectly legal today.

How this worked was, say your house is worth $100K. Someone wants to make you an offer but has no money down. They want to buy it for $97K, and the gov't lets them "borrow" the $3K needed for a down payment from the seller and pay them back by making your loan $100K. This makes the sales price show as $100K. (I think the first program like this was Nehemiah but it quickly started happening all over without being part of a designated assistance program).

This is all great and hunky dory for the first few transactions. But what happens is, Joe's neighbor says, hey, Joe sold his house for $100K, I though it was only worth $97K, prices must be going up. I'm going to sell my house for $100K. So Joe lists for $103K (knowing he has to accept less than list price) and someone offers him $100K with a $3K borrowed down payment) that sale now records as $103K. It only takes a few sales to really throw an area out of whack.

Appraisers were always supposed to "back out" this type of assistance, and lenders were always supposed to require this. But lenders want the highest appraisals they can get so if you did back out the fuzzy math, you'd hear about it from the underwriters. And not get any more work from that lender. Realtors would scream and call you all sorts of names. I had crying homeowners call me. This, combined with an extreme relaxing of underwriting standards is what allowed the boom to happen. And of course Wall Street used fuzzy math in selling these loans too and created a demand for this paper, the whole thing spiraled out of control.

A lot of people broke a lot of laws but the government basically did NOTHING to enforce lending standards or enforce the laws on the books. It goes beyond politics because both political parties took the same stance. I can't blame appraisers because no appraiser ever inflated an appraisal for the heck of it, they did it because that was the only way to get any work. And some appraisers still to this day don't think it's correct to back out concessions and that doesn't count as "inflating" numbers. Because everyone is doing it, so that must be the market. But there is something in appraising called "cash equivalency" which basically says what would someone pay you for that house in cash? If they have cash, they don't need to borrow a down payment so the fuzzy math is out the window. But that concept is inconvenient for loan making so most underwriters and lenders pretend they've never heard of it.

The government created an artificial demand, which artificially increased prices. And they're still doing it by buying up the paper backing those loans. Just a mention of stopping is enough to send seismic shakes through the market. But how long can they keep it up?

Reply by Marazz/AZ on 9/5/13 9:05am
Msg #483271

Another good documentary, Bill Moyers, "The Best Way to Rob a Bank is to Own One." I believe he has put most of it on You Tube in sections.

Reply by Marazz/AZ on 9/5/13 9:07am
Msg #483272

Sorry I should clarify, William Black wrote that book, Bill Moyers did a series of interview with him and those are on YouTube, it's not Bill Moyers actual work.