This system worked quite well, but it wasn't enough. The banks were looking to their peers (the investment banks on Wall Street) and noticed that they were really making big gains, but were lacking the big capital that the savings and loan banks had. So, the banking industry lobbied for deregulation. They wanted to join forces and *really* start making money. This was largely seen as a good thing as it was supposed to really help the economy grow. Loans were easier for everyone to secure because banks were making more money than ever. A certain malaise and greed led the banks to start taking on more high-risks investments (such as sub-prime loans) to make even more money. They started merging traditionally savings and loan companies with investment banking and started creating very clever ways (which I'm not too knowledgeable about) to combine their investment assets into new assets. Also, the idea of accurate accounting became blurred and speculation was high. When it was exposed that several financial powerhouses were suddenly reporting huge and completely unexpected losses, people got nervous and started pulling their capital out of these speculation investments. Then, the banks were left with way less capital than they were previously promoting. More withdrawals equalled less confidence and so on until the banks were drained or sold (or more recently, bought by the US gov't). So now, we have this spiraling situation of positive feedback loops that threatens a new Depression.
Hopefully that helps. Btw, if anyone has additional info or corrections to the above, that is certainly welcome.
There are so many people in bed (so to speak) with each other on these failed mortgages it may be nearly impossible to unravel the extent of the fraud and manipulation, real estate powerhouses, mortgage companies that were offshoots of the bigger investment corps, and all protected by and from each others accounting by labeling them separate corps for tax purposes.
Original mortgage, May 1997: $54,500
Terms: 30-year fixed-rate mortgage at 6.75 percent
Closing costs: $2,346
Principal and interest payment: $389
Refinance, November 2004: $64,231
Terms: 30-year adjustable-rate mortgage at 6.38 percent for the first two years
Closing costs: $3,990 including a $1,682 origination fee
Cash back: $10,505
Principal and interest payment: $401
Refinance, December 2005: $85,200
Terms: 30-year "pick-a-payment" negative amortizing adjustable-rate mortgage that started at 6.51 percent
Closing costs: Approximately $4,000, including a $2,054 yield-spread premium and an unusually high $700 title insurance payment
Cash back: $12,036
Interest-only payment: $332
Refinance, October 2007: $112,000
Interest rate: 30-year fixed-rate mortgage at 7.625
Closing costs: $7,502
Cash back: $5,903
Principal and interest payment: $793
The above is from an article in the startribune about a developmentally disabled couple who are now losing their home and how the phone calls encouraging them to refinance over and over put them into a position that they lost their homes. The full article is an interesting read on how predatory some of these loans really were.
Original source here:
If it does not load the article name is Foreclosure: 'They were preyed upon'
There are other articles out there from other parts of the country similar to this, and even more fraudulent. Heres an snippet from an opinion piece that touches on some of the manipulations:
"The Washington Post noted in 2005: "Hispanics, the nation's fastest-growing major ethnic or racial group, have been courted aggressively by real-estate agents, mortgage brokers and programs for first-time buyers that offer help with closing costs."
ILLEGAL ALIENS & THE MORTGAGE MESS - New York Post
I am not a fan of M. Malkin, but this doesnt mean there isnt a point being made from the bigger picture.
Nor am I saying all illegals took part in illegal home purchasing with the intent to fraud, but you cannot tell me these illegals were at any more advantage when dealing with slick real estate agents in bed with mortgage brokers who were bundling these packages to sell to wall street investors than the people from the star-tribune article which as far as I understand it, shows the people who were supposed to represent the best interests of the buyers did not do their jobs, as well as the people in the investment houses did not protect the interests of their investors. It was all about the commission they made by getting someone else to sign on the dotted line, with the assurances from the people above them these issues would be solved further up the ladder (so it seems). And now it seems the top rung on this particular ladder is the US government with the failed (to this point) bail out.