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Aesma
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FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 6:47 am

I'm watching more and more economic programs, mostly about finance and markets, confirming that everyone has his own opinion of what's going to happen, so no surprise there.

I just heard about what was done by FDR in the early 30's : he had the government buy back loans from banks, and changing the terms so that people could continue to pay them back. This saved the home of a million families.

Apparently there were provisions to do this under Obama, but it wasn't put in practice. As a result, "as of March 2008, an estimated 8.8 million borrowers – 10.8% of all homeowners – had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgage loan."

Even without knowing much about economics, but watching the banks who created this situation get bailed out with huge amounts of money, I couldn't figure out why the state couldn't bail people out too. But now, knowing that it was not only possible, but had been done successfully in the past, I'm even more puzzled.

By comparison, in my country, France, nothing of the sort happened. Not due to the state's intervention, but because mortgages here have a fixed rate, and due to the nature of our economy and job market, the crisis was weathered much more smoothly. Home prices barely budged, too. If a situation similar to the US one had happened, I would have expected the Elysée palace burned down and president Sarkozy's head on a pike. In the US it seems you find the situation perfectly acceptable, and it might happen again !
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
seat64k
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 11:04 am

Aesma wrote:
I just heard about what was done by FDR in the early 30's : he had the government buy back loans from banks, and changing the terms so that people could continue to pay them back. This saved the home of a million families.


I don't know anything about the 1930s situation, but maybe the difference is that in 2008 people were unable to afford their mortgages in the first place. It may have been better to let people get foreclosed on or go bankrupt and start over, than "helping" by keeping them stuck in a negative equity mortgage?

By comparison, letting the banks go under will screw over everyone including people who didn't over-extend themselves, could afford their mortgages, etc.

Aesma wrote:
Apparently there were provisions to do this under Obama, but it wasn't put in practice. As a result, "as of March 2008, an estimated 8.8 million borrowers – 10.8% of all homeowners – had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgage loan."


Obama only became president in January 2009 though - by what time was the provisions available? Might have been far too late?

Also note, these percentages only tells us something about the market value of the homes, and nothing about the ability of the owners to pay the loans. I'm going to guess a substantial percentage of the foreclosures happened fairly early on, and that many of the 23% is made up of both homes that have already been foreclosed and homes whose owners are still able to service their mortgages.

Aesma wrote:
By comparison, in my country, France, nothing of the sort happened. Not due to the state's intervention, but because mortgages here have a fixed rate, and due to the nature of our economy and job market, the crisis was weathered much more smoothly.


When I started working in the UK I was absolutely horrified by my colleagues taking on 25-30 year mortgages on 2.5% flexible rates, while they could have a fixed rate at 4%. Where I'm from you were lucky if you got anything under 10%. The thought of gambling on interest rates staying as low as they are for half my life would give me sleepless nights.
 
GalaxyFlyer
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 12:01 pm

Texas and, I believe, Vermont have a minimum 20% down payment law. No mortgage problems in 2009 there.

GF
 
Okie
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 12:45 pm

Aesma wrote:
Apparently there were provisions to do this under Obama, but it wasn't put in practice. As a result, "as of March 2008, an estimated 8.8 million borrowers – 10.8% of all homeowners – had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgage loan."


Clinton and the housing reinvestment act. Demanded that home loan down payment be lowered from 20% down to 0% by year 2000. Sub prime loans guaranteed to the lender by the government otherwise the lender would be under investigation and business shut down. (Sub prime loans)
Then followed by legislation that required that Freddie Mac & Fannie Mae to increase its holdings in Sub Prime loans to 50%. Again to be backed by the tax payers who did pay their loans.

People were buying houses they could not afford if they would have gave them 50% forgiveness on the loans value. It was a game, buy a house you could not afford pay only your house payment and run up your credit cards for a year for your living expenses then refinance with a newer sub prime loan. Then you take the cash difference and pay off your cards and recycle with another sub prime loan when you maxed your cards out again.

They people that went Tango Uniform were so far in debt with house and unsecured debt that there was no way out.

As GF indicated if you have nothing invested then you have no reason to pay just like Socialism.

Okie
 
afcjets
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 1:10 pm

It's a perfect example of the the road to hell is paved with good intentions, which IMO pretty much explains liberalism. The idea behind it was it would help more people become homeowners.
 
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casinterest
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 2:13 pm

The Mortgage crisis in the US in 2007-2010 was driven by a lot of external factors. Subprime lending was a major culprit, but there were other drivers that everyone else forgets.
1. Tax Cuts of 2001/2003 allowed more cash into the pockets of consumers.
2. The Fed held rates too low for most of 2002-2005 allowing people to refinance and purchase at exceptionally low rates
3. Starting in 2006 there were many oil shocks that took oil prices sky high
4. Certain markets that were in demand had prices skyrocketing as investors were pricing out everyday workers for their money as everyone wanted a loan
5. The Markets were overheated and out of line with what people could afford
6. The financial downturn sent unemployment from 4.5 to 10%, and many folks had to settle in that economy in 2010 for jobs that paid less than they previously made
7 Houses were sold off or foreclosed as investors and everyday people could not afford them, and the values plunged

The government worked hard for short sales, and for refinancing for those that could qualify, but in markets where the houses dropped by 30-50% of value, many folks preferred to walk from the payments.
Where ever you go, there you are.
 
StarAC17
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 2:36 pm

Aesma wrote:
Even without knowing much about economics, but watching the banks who created this situation get bailed out with huge amounts of money, I couldn't figure out why the state couldn't bail people out too. But now, knowing that it was not only possible, but had been done successfully in the past, I'm even more puzzled.

By comparison, in my country, France, nothing of the sort happened. Not due to the state's intervention, but because mortgages here have a fixed rate, and due to the nature of our economy and job market, the crisis was weathered much more smoothly. Home prices barely budged, too. If a situation similar to the US one had happened, I would have expected the Elysée palace burned down and president Sarkozy's head on a pike. In the US it seems you find the situation perfectly acceptable, and it might happen again !


The banks lobby congress which is why they get first priority. Also the intention of a lot of the bailouts were to stop the bleeding and to get the banks to lend as the credit market was frozen.

Also in France lending guidelines are likely strict and those who buy homes are ones who the bank know can pay back the loan. The mortgage business is probably a pretty boring one and fancy investments weren't being created with mortgage debt.

Okie wrote:

People were buying houses they could not afford if they would have gave them 50% forgiveness on the loans value. It was a game, buy a house you could not afford pay only your house payment and run up your credit cards for a year for your living expenses then refinance with a newer sub prime loan. Then you take the cash difference and pay off your cards and recycle with another sub prime loan when you maxed your cards out again.

They people that went Tango Uniform were so far in debt with house and unsecured debt that there was no way out.

As GF indicated if you have nothing invested then you have no reason to pay just like Socialism.

Okie


Here is the thing though as a financial advisor I see often.
People have no idea what they can qualify for and even those who are financially literate and have good credit might not know how to know how much a bank will approve them for or how it is calculated. If the bank is telling you that you can afford it then the average Joe is going to believe them.

Furthermore if this had been a simple foreclosure crisis it would have been manageable. What ended up happening is that Mortgage backed securities were a hot investment during the bubble and the investment banks insured them with credit default swaps which AIG had a large amount on their book that forced the bailout.

The HBO documentary Too Big To Fail and The Big Shirt does a good job of showing what happened leading up to and during the crash.

afcjets wrote:
It's a perfect example of the the road to hell is paved with good intentions, which IMO pretty much explains liberalism. The idea behind it was it would help more people become homeowners.


Wasn't a lot of this done under Bush with GOP congress?
Engineers Rule The World!!!!!
 
seat64k
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 2:48 pm

Okie wrote:
Aesma wrote:
People were buying houses they could not afford if they would have gave them 50% forgiveness on the loans value. It was a game, buy a house you could not afford pay only your house payment and run up your credit cards for a year for your living expenses then refinance with a newer sub prime loan. Then you take the cash difference and pay off your cards and recycle with another sub prime loan when you maxed your cards out again


I have family who did exactly this. It's painful to watch when I know their financial problems have nothing to do with what they're earning and everything to do with what they're spending.

Honestly, I cannot work out why any right thinking person would get a house on a mortgage, if they've worked out how much it would actually cost them. Let me illustrate - rough back-of-the-envelope calculations here. I picked Austin TX (coz I have family there), checked out Zillow, seems $250k is a decent starter home. Assume $50k income, no debt, and $25k saved up for 10% deposit. Went onto Rocket Mortgage and used their calculator to see what I can get:

House: $250,000 (sweet!)
Down payment: $13,000
Loan: $237,500
APR: 4.738 (-0.5)
Years: 20
Closing cost: $10,000
Monthly: $2,010
Estimate down payment + closing costs: $23,000

Ignore for the moment that I think $2010 is way more than someone earning $50k can afford. So R23,000 up front + 2010/m x 20 years = $505k

Lets try alternative universe. Rent an apartment for $1000 (Zillow shows plenty cheaper but I'm being generous here. Family member rents a nice pet-friendly place with parking for under $700). Put the 25k savings plus the $1010 monthly saving in sensible fund like VTSAX, re-invest the dividends. VTSAX returned 12.35% (annualised over the last 10 years) after tax (YMMV on the tax). It will take just under years to save up the 250k. By this time it's compounding so strongly, it will only take 4 more years to get to 500k.

I don't know what sort of mortgages was on offer before the the 2008 crash, but I'm willing to bet the math doesn't look much better.
 
Okie
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 3:00 pm

StarAC17 wrote:
Wasn't a lot of this done under Bush with GOP congress?

Clinton modified the Housing & Community Development Act signed by Carter that started the Subprime loan market.

Okie
 
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casinterest
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 3:10 pm

seat64k wrote:
I have family who did exactly this. It's painful to watch when I know their financial problems have nothing to do with what they're earning and everything to do with what they're spending.

Honestly, I cannot work out why any right thinking person would get a house on a mortgage, if they've worked out how much it would actually cost them. Let me illustrate - rough back-of-the-envelope calculations here. I picked Austin TX (coz I have family there), checked out Zillow, seems $250k is a decent starter home. Assume $50k income, no debt, and $25k saved up for 10% deposit. Went onto Rocket Mortgage and used their calculator to see what I can get:

House: $250,000 (sweet!)
Down payment: $13,000
Loan: $237,500
APR: 4.738 (-0.5)
Years: 20
Closing cost: $10,000
Monthly: $2,010
Estimate down payment + closing costs: $23,000

Ignore for the moment that I think $2010 is way more than someone earning $50k can afford. So R23,000 up front + 2010/m x 20 years = $505k

Lets try alternative universe. Rent an apartment for $1000 (Zillow shows plenty cheaper but I'm being generous here. Family member rents a nice pet-friendly place with parking for under $700). Put the 25k savings plus the $1010 monthly saving in sensible fund like VTSAX, re-invest the dividends. VTSAX returned 12.35% (annualised over the last 10 years) after tax (YMMV on the tax). It will take just under years to save up the 250k. By this time it's compounding so strongly, it will only take 4 more years to get to 500k.

I don't know what sort of mortgages was on offer before the the 2008 crash, but I'm willing to bet the math doesn't look much better.


These numbers are a little off. In the US you would do a 30 year loan in most cases.
Sensible numbers would tell you that at 50K of income you would not be looking much above 150K for a house.

However, the side you are missing on all of this is what happened in 2002-2005.
People took low variable rate loans and flipped houses. Housing values were going up at 10-15% for awhile in California. Even recently they have done well.

If you can get approved for a mortgage and just flip out when the value goes up it is easy money :)

Of course now the recent tax laws are creating a new crisis. It really is cheaper to rent a home now, until the pricing differential catches up. Housing is cooling down, and the market is cooling.
Where ever you go, there you are.
 
seat64k
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 3:30 pm

casinterest wrote:
These numbers are a little off. In the US you would do a 30 year loan in most cases.
Sensible numbers would tell you that at 50K of income you would not be looking much above 150K for a house.


Of course, that's why I said I think $2010 is way more than someone earning $50k can afford. BUT, the information I plugged into Rocket Mortgage's calculator was income, debt, and down payment. It gave me the 250k figure.

casinterest wrote:
If you can get approved for a mortgage and just flip out when the value goes up it is easy money :)


Oh definitely. I can see the appeal too. If my life didn't turn out so nomadic, I might have fallen into that trap myself.
 
cledaybuck
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 3:52 pm

Okie wrote:
StarAC17 wrote:
Wasn't a lot of this done under Bush with GOP congress?

Clinton modified the Housing & Community Development Act signed by Carter that started the Subprime loan market.

Okie
The Housing & Community Development Act of 1974 was signed by Gerald Ford and the Housing & Community Development Act of 1992 was signed by George H.W. Bush. Clinton did sign the Financial Services Modernization Act of 1999 which had bipartisan support in congress. Both parties (and Wall Street) share plenty of blame.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
cledaybuck
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 3:57 pm

casinterest wrote:
seat64k wrote:
I have family who did exactly this. It's painful to watch when I know their financial problems have nothing to do with what they're earning and everything to do with what they're spending.

Honestly, I cannot work out why any right thinking person would get a house on a mortgage, if they've worked out how much it would actually cost them. Let me illustrate - rough back-of-the-envelope calculations here. I picked Austin TX (coz I have family there), checked out Zillow, seems $250k is a decent starter home. Assume $50k income, no debt, and $25k saved up for 10% deposit. Went onto Rocket Mortgage and used their calculator to see what I can get:

House: $250,000 (sweet!)
Down payment: $13,000
Loan: $237,500
APR: 4.738 (-0.5)
Years: 20
Closing cost: $10,000
Monthly: $2,010
Estimate down payment + closing costs: $23,000

Ignore for the moment that I think $2010 is way more than someone earning $50k can afford. So R23,000 up front + 2010/m x 20 years = $505k

Lets try alternative universe. Rent an apartment for $1000 (Zillow shows plenty cheaper but I'm being generous here. Family member rents a nice pet-friendly place with parking for under $700). Put the 25k savings plus the $1010 monthly saving in sensible fund like VTSAX, re-invest the dividends. VTSAX returned 12.35% (annualised over the last 10 years) after tax (YMMV on the tax). It will take just under years to save up the 250k. By this time it's compounding so strongly, it will only take 4 more years to get to 500k.

I don't know what sort of mortgages was on offer before the the 2008 crash, but I'm willing to bet the math doesn't look much better.


These numbers are a little off. In the US you would do a 30 year loan in most cases.
Sensible numbers would tell you that at 50K of income you would not be looking much above 150K for a house.

However, the side you are missing on all of this is what happened in 2002-2005.
People took low variable rate loans and flipped houses. Housing values were going up at 10-15% for awhile in California. Even recently they have done well.

If you can get approved for a mortgage and just flip out when the value goes up it is easy money :)

Of course now the recent tax laws are creating a new crisis. It really is cheaper to rent a home now, until the pricing differential catches up. Housing is cooling down, and the market is cooling.

Of course the difference between monthly rent payment and monthly house payment isn't always (usually isn't?) that high either. I have seen plenty of times when rents and mortgage payments were similar.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
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casinterest
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 4:01 pm

cledaybuck wrote:
casinterest wrote:
seat64k wrote:
I have family who did exactly this. It's painful to watch when I know their financial problems have nothing to do with what they're earning and everything to do with what they're spending.

Honestly, I cannot work out why any right thinking person would get a house on a mortgage, if they've worked out how much it would actually cost them. Let me illustrate - rough back-of-the-envelope calculations here. I picked Austin TX (coz I have family there), checked out Zillow, seems $250k is a decent starter home. Assume $50k income, no debt, and $25k saved up for 10% deposit. Went onto Rocket Mortgage and used their calculator to see what I can get:

House: $250,000 (sweet!)
Down payment: $13,000
Loan: $237,500
APR: 4.738 (-0.5)
Years: 20
Closing cost: $10,000
Monthly: $2,010
Estimate down payment + closing costs: $23,000

Ignore for the moment that I think $2010 is way more than someone earning $50k can afford. So R23,000 up front + 2010/m x 20 years = $505k

Lets try alternative universe. Rent an apartment for $1000 (Zillow shows plenty cheaper but I'm being generous here. Family member rents a nice pet-friendly place with parking for under $700). Put the 25k savings plus the $1010 monthly saving in sensible fund like VTSAX, re-invest the dividends. VTSAX returned 12.35% (annualised over the last 10 years) after tax (YMMV on the tax). It will take just under years to save up the 250k. By this time it's compounding so strongly, it will only take 4 more years to get to 500k.

I don't know what sort of mortgages was on offer before the the 2008 crash, but I'm willing to bet the math doesn't look much better.


These numbers are a little off. In the US you would do a 30 year loan in most cases.
Sensible numbers would tell you that at 50K of income you would not be looking much above 150K for a house.

However, the side you are missing on all of this is what happened in 2002-2005.
People took low variable rate loans and flipped houses. Housing values were going up at 10-15% for awhile in California. Even recently they have done well.

If you can get approved for a mortgage and just flip out when the value goes up it is easy money :)

Of course now the recent tax laws are creating a new crisis. It really is cheaper to rent a home now, until the pricing differential catches up. Housing is cooling down, and the market is cooling.

Of course the difference between monthly rent payment and monthly house payment isn't always (usually isn't?) that high either. I have seen plenty of times when rents and mortgage payments were similar.



Definately.
Back when I purchased. a 3 bedroom 1200 square foot apartment was going to cost me more than my mortgage for 2000+sqft home
Where ever you go, there you are.
 
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Tugger
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Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 4:27 pm

cledaybuck wrote:
Okie wrote:
StarAC17 wrote:
Wasn't a lot of this done under Bush with GOP congress?

Clinton modified the Housing & Community Development Act signed by Carter that started the Subprime loan market.

Okie
The Housing & Community Development Act of 1974 was signed by Gerald Ford and the Housing & Community Development Act of 1992 was signed by George H.W. Bush. Clinton did sign the Financial Services Modernization Act of 1999 which had bipartisan support in congress. Both parties (and Wall Street) share plenty of blame.

Thank you, I was going to post on this but you caught it.

I hate the silliness when some try to lob things onto to one party when it is clear it was supported by both parties. The Republicans supported the changes and had been pushing for changes in banking and loosening the restrictions for years, the Democrats were pushing for easing to allow more to be "home owners". The two came together on this for all the right and wrong reasons.

Such largess also inflates housing prices with cheap money and a lot of people able to access it. People bought home with the expectation the price would increase after. You cannot buy a home for that reason.

A similar thing happened under Reagan with taxes and removing the bottom 50% of tax payers from having to pay taxes. The two parties came together as it made political points for both. Yes, the bottom 50% pays very little in taxes and the cost to collect them and police them basically obviates what is paid, so why not just free them of the burden? They make so little it helps them. But just like "home owners" who own nothing of their home but the promise of debt, people MUST be required to contribute and pay for their government and the services they use so they have investment in what they are voting to do, to support.

We all must contribute so we all think hard "Do we need this" versus "Why not?!? I don't have to pay for any of it."

Tugg
I don’t know that I am unafraid to be myself, but it is hard to be somebody else. - W. Shatner
There are many kinds of sentences that we think state facts about the world but that are really just expressions of our attitudes. - F. Ramsey
 
slider
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Joined: Wed Feb 25, 2004 11:42 pm

Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 5:15 pm

casinterest wrote:
The Mortgage crisis in the US in 2007-2010 was driven by a lot of external factors. Subprime lending was a major culprit, but there were other drivers that everyone else forgets.
1. Tax Cuts of 2001/2003 allowed more cash into the pockets of consumers.
2. The Fed held rates too low for most of 2002-2005 allowing people to refinance and purchase at exceptionally low rates
3. Starting in 2006 there were many oil shocks that took oil prices sky high
4. Certain markets that were in demand had prices skyrocketing as investors were pricing out everyday workers for their money as everyone wanted a loan
5. The Markets were overheated and out of line with what people could afford
6. The financial downturn sent unemployment from 4.5 to 10%, and many folks had to settle in that economy in 2010 for jobs that paid less than they previously made
7 Houses were sold off or foreclosed as investors and everyday people could not afford them, and the values plunged

The government worked hard for short sales, and for refinancing for those that could qualify, but in markets where the houses dropped by 30-50% of value, many folks preferred to walk from the payments.


Don't forget the CRA....
 
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Tugger
Posts: 10747
Joined: Tue Apr 18, 2006 8:38 am

Re: FDR Solves The Mortgage Crisis

Wed Jul 31, 2019 8:14 pm

slider wrote:
casinterest wrote:
The Mortgage crisis in the US in 2007-2010 was driven by a lot of external factors. Subprime lending was a major culprit, but there were other drivers that everyone else forgets.
1. Tax Cuts of 2001/2003 allowed more cash into the pockets of consumers.
2. The Fed held rates too low for most of 2002-2005 allowing people to refinance and purchase at exceptionally low rates
3. Starting in 2006 there were many oil shocks that took oil prices sky high
4. Certain markets that were in demand had prices skyrocketing as investors were pricing out everyday workers for their money as everyone wanted a loan
5. The Markets were overheated and out of line with what people could afford
6. The financial downturn sent unemployment from 4.5 to 10%, and many folks had to settle in that economy in 2010 for jobs that paid less than they previously made
7 Houses were sold off or foreclosed as investors and everyday people could not afford them, and the values plunged

The government worked hard for short sales, and for refinancing for those that could qualify, but in markets where the houses dropped by 30-50% of value, many folks preferred to walk from the payments.


Don't forget the CRA....

Absolutely don't forget it!
Clear evidence shows that CRA covered only a small fraction of mortgage lending, including risky subprime lending and mortgage-backed securities, in the years leading up to the foreclosure crisis. Further, CRA loans are less likely to default than loans by less-regulated lenders.

https://communitycapital.unc.edu/resear ... re-crisis/

Tugg
I don’t know that I am unafraid to be myself, but it is hard to be somebody else. - W. Shatner
There are many kinds of sentences that we think state facts about the world but that are really just expressions of our attitudes. - F. Ramsey
 
WIederling
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Re: FDR Solves The Mortgage Crisis

Thu Aug 01, 2019 9:01 am

[quote="GalaxyFlyer"]Texas and, I believe, Vermont have a minimum 20% down payment law. No mortgage problems in 2009 there.

GF[/quote
Another straw that broke the camels back was doing object valuation at current market values in an environment of
galloping price escalation.
Banks here are forced to account value in a rather conservative way ( undervalue assets, overvalue liabilities book profits when the case is "closed", US GAAP in contrast allows heavy cosmetics ).
They'll never hand out more than 80% mortgage for that conservative value either.
Murphy is an optimist
 
slider
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Re: FDR Solves The Mortgage Crisis

Thu Aug 01, 2019 1:00 pm

Tugg- the issue with CRA wasn't the aggregate number of mortgages, nor the rate of default, it was that it lowered the bar for lending practices by statute. Required equal lending based on census tracts...that was one of the primary criteria, in order to gauge what were "fair" lending practices.... if a bank wasn't issuing mortgages in certain neighborhoods based on census tracts, it implied (not proved, merely implied, which is enough) discriminatory lending practices.
 
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Tugger
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Re: FDR Solves The Mortgage Crisis

Thu Aug 01, 2019 1:58 pm

slider wrote:
Tugg- the issue with CRA wasn't the aggregate number of mortgages, nor the rate of default, it was that it lowered the bar for lending practices by statute. Required equal lending based on census tracts...that was one of the primary criteria, in order to gauge what were "fair" lending practices.... if a bank wasn't issuing mortgages in certain neighborhoods based on census tracts, it implied (not proved, merely implied, which is enough) discriminatory lending practices.

Except the banks that were regulated by the CRA, under its rules weren't the problem. The banks that loaned excessively to unqualified peopel were ones that were not under the CRA.

Tugg
I don’t know that I am unafraid to be myself, but it is hard to be somebody else. - W. Shatner
There are many kinds of sentences that we think state facts about the world but that are really just expressions of our attitudes. - F. Ramsey
 
WIederling
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Joined: Sun Sep 13, 2015 2:15 pm

Re: FDR Solves The Mortgage Crisis

Fri Aug 02, 2019 7:22 am

Tugger wrote:
Except the banks that were regulated by the CRA, under its rules weren't the problem. The banks that loaned excessively to unqualified peopel were ones that were not under the CRA.


The banks that ground these loans into "money grit", (re)packaged them and distributed them with high quality assurance
is what really screwed the pooch.
Murphy is an optimist
 
GalaxyFlyer
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Re: FDR Solves The Mortgage Crisis

Fri Aug 02, 2019 5:00 pm

Tugg,

I’d argue about the lower half of the income distribution not paying Federal Income Taxes, they still pay a heavy FICA tax load of 6.2% (12.4% if you include the “employer’s share” which economics agree is borne mostly by employees by lower investment and wages). Worse, the return on FICA taxes later in life is estimated at about 1%, if they live to collect Social Security. If they don’t live, it’s a big goose egg.
 
bhill
Posts: 1862
Joined: Thu Sep 13, 2001 8:28 am

Re: FDR Solves The Mortgage Crisis

Fri Aug 02, 2019 7:08 pm

Okie wrote:
StarAC17 wrote:
Wasn't a lot of this done under Bush with GOP congress?

Clinton modified the Housing & Community Development Act signed by Carter that started the Subprime loan market.

Okie


Nope.....easily researched from Wiki.....the CRA did NOT tell lending institutions to LOWER good lending requirements..

"The Financial Crisis Inquiry Commission formed by the US Congress in 2009 to investigate the causes of the 2008 financial crisis, concluded "the CRA was not a significant factor in subprime lending or the crisis". Ben Bernanke, then Chairman of the Federal Reserve, wrote that experience and research contradict "the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." Government economists and officials, including Janet Yellen, then President and CEO of the Federal Reserve Bank of San Francisco, FDIC Chair Sheila Bair, Comptroller of the Currency John C. Dugan, and Federal Reserve Governor Randall Kroszner, also hold that the CRA did not significantly contribute to the subprime crisis. According to Yellen, former Chair of the Federal Reserve, independent mortgage companies made risky "higher-priced" loans at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the "higher-priced" loans that have contributed to the current crisis. During a 2008 House Committee on Oversight and Government Reform hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, when asked if the CRA provided the "fuel" for increasing subprime loans, former Fannie Mae CEO Franklin Raines said it might have been a catalyst encouraging bad behavior, but it was difficult to know. Raines also cited information that only a small percentage of risky loans originated as a result of the CRA.
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SanDiegoLover
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Re: FDR Solves The Mortgage Crisis

Sat Aug 03, 2019 2:02 am

GalaxyFlyer wrote:
Tugg,

I’d argue about the lower half of the income distribution not paying Federal Income Taxes, they still pay a heavy FICA tax load of 6.2% (12.4% if you include the “employer’s share” which economics agree is borne mostly by employees by lower investment and wages). Worse, the return on FICA taxes later in life is estimated at about 1%, if they live to collect Social Security. If they don’t live, it’s a big goose egg.


Not to mention these same families pay property taxes whether they rent or own, plus state and local sales and use taxes (gasoline tax, utilities tax, phone tax, etc...)

There are also a number of CEOs and other millionaires and billionaires who pay virtually no income taxes. They get a nominal salary like $1 a year, and take $100s of thousands or millions of $$$ in stock and bonus packages where they pay 15% or less as capital gains, but no income taxes.

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