who's to blame for the subprime mortgage crisis?

[novaman]

I just got back from a week in the UK and it was interesting to see their take on the mortgage crisis, which is effecting them as well.

They are pointing the fingers at the obvious heads of banking companies- but the interesting thing is they put the biggest blame on two guys no longer in the picture; namely Allan Greenspan and Bill Clinton.

They are saying that Greenspan kept rates way too low for too long, and Clinton pushed for greater home ownership which resulted in loosening of the rules. These two things leave our country in the mess we are in now.

What are your thoughts?

 

[OAG]

good as any, since there will not be any justice anytime soon. Maybe the 17 FBI investigations will eventually find some culprits to prosecute, but I would not bet on it.

 

[novaman]

Justice? I don't think any of that will come to pass in this case. lending requirements need to be re examined/changed or simply enforced.

 

[Calgary_Girl]

I have a slightly different view since I think people should take some responsibility for their own decisions. If I was a potential home-owner whose net income was $2K per month and the bank qualified me for a mortgage of $1200; geez, common sense would tell me that I'd have a tough time living off of $800 don't ya think? Just because a bank tellls you what you CAN qualify more, doesn't mean that you should take it. Duh.

 

[mickeyd]

The mortgage companies failed to deny credit to many who had no business securing a ARM. The homeowners failed to read/understand the contract documents that they signed.

I do not see how any of this is the fault of the US government (me) and these two parties should resolve it as best they can without Uncle Sam's interference.

 

[Walt34]

I have a slightly different view since I think people should take some responsibility for their own decisions. If I was a potential home-owner whose net income was $2K per month and the bank qualified me for a mortgage of $1200; geez, common sense would tell me that I'd have a tough time living off of $800 don't ya think?

Naw, it's easy. All you have to do is ride a bicycle to work, don't use any electricity or hot water, live like a monk when not working, cut your dietary requirements in half and get a part time job or lots of overtime. And don't even think about getting sick.

And some people do it. I bought a house almost that way in 1985. A house payment took one entire paycheck (out of two per month) and although single I was claiming 14 deductions on the withholding form. But I had no employment-related expenses as my employer (police dept.) furnished everything, even the car to drive to work in. My budget was so tight a dentist's bill co-pay came out of meager and carefully hoarded savings, and I did volunteer for overtime, although I never counted on it since it was unreliable. Lunches were brown-bagged of course.

Recreation was a bicycle, a couple of R/C model airplanes, and the occasional dinner out with girlfriend paid for with overtime. "Occasional" means every three or four months. And that was it. No trips, ever, for years. Luxuries like the Kennedy Center in DC? Not for me. If it wasn't free like the museums I didn't go. Idle shopping simply did not happen, I had shirts ten years old or older. A stereo? Forget it.

I did it because owning my own home was important to me and I was confident that the day would come when the house payment would be a joke and I was right. But I did have enough sense to reject the notion of an ARM.

Sure a single person can live on $800 a month. But does she want the house bad enough to do it?

 

[d]

1. those brokers who knowingly sold product unsuitable to the buyer
2. those clients who didn't understand what they were buying
3. those lenders who accepted unsuitable contracts
4. those "investors" who bought product they didn't undertand

it's convenient to blame goverment (especially during a republican presidency), but that's way off the mark.

 

[growing_older]

Long before the current credit crisis, when I was trying to buy a house and standards were still strict, the bank was still willing to lend me more money than I was confortable taking on as debt. Even then people could "stretch" to buy as much house as they could and be in trouble. I'm sure the relaxing of standards and proliferation of loans beyond even those scary old guidelines just made things worse. Instead of getting into a bad situation and being house poor though people can really go bust with the "new" loan programs. Seems obvious in hindsight that this was a bad idea.

 

[UncleHoney]

From my viewpoint there are turkeys on both sides of the fence in the mortgage mess.

Back in 2004 my mom died and her estate was split between two sisters and myself. My younger sister wanted to buy mom's house and with her share of the estate plus $60k it would be hers.

She financed the $60k with a 6.75% mortgage in August 2004 and got the house. (6.75% is what people with "sub zero" credit ratings had to pay back then)

In early September she sold her old house and cleared $37K. Now she's only $23K away from owning the house outright.

What's she do? She refinanced the end of September 2004 and grabbed the full appraised value of the house, $210K. She got an ARM 30 year mortgage. In the spring of 2005 she refinanced out of the ARM and got a 30 year fixed mortgage and grabbed another $10K all for 6.25%. And she grabbed a $20 HELOC a month after that.

Now she's sitting on a $240K mortgage in a declining market and out of places to borrow money. I have no sympathy but as long as she keeps making the payments she'll be ok. She'll be 83 when the house is paid off and BIL will be 88.

 

[calmloki]

Who's to blame? "An unemployed black man sitting on a crumbling porch somewhere in Alabama in a string vest".
YouTube - The Long Johns - The Last Laugh - George Parr - Subprime

 

[clifp]

Now she's sitting on a $240K mortgage in a declining market and out of places to borrow money. I have no sympathy but as long as she keeps making the payments she'll be ok. She'll be 83 when the house is paid off and BIL will be 88.

I am guessing the 240K isn't split between Vanguard Total Stock Market and bond market. But what did she do with the money.

 

[dumpster56]

From my viewpoint there are turkeys on both sides of the fence in the mortgage mess.

Back in 2004 my mom died and her estate was split between two sisters and myself. My younger sister wanted to buy mom's house and with her share of the estate plus $60k it would be hers.

She financed the $60k with a 6.75% mortgage in August 2004 and got the house. (6.75% is what people with "sub zero" credit ratings had to pay back then)

In early September she sold her old house and cleared $37K. Now she's only $23K away from owning the house outright.

What's she do? She refinanced the end of September 2004 and grabbed the full appraised value of the house, $210K. She got an ARM 30 year mortgage. In the spring of 2005 she refinanced out of the ARM and got a 30 year fixed mortgage and grabbed another $10K all for 6.25%. And she grabbed a $20 HELOC a month after that.

Now she's sitting on a $240K mortgage in a declining market and out of places to borrow money. I have no sympathy but as long as she keeps making the payments she'll be ok. She'll be 83 when the house is paid off and BIL will be 88.

Wow just wow.

 

[UncleHoney]

I am guessing the 240K isn't split between Vanguard Total Stock Market and bond market. But what did she do with the money.

As far as I can tell, the input is a little sketchy here, she put some of the money into a business she is trying to start. I can only guess at the amount debt she had paying for two cars, a mortgage and blowing money on everything under the sun.


Her biggest problem is that she and BIL don't know how to run a business of any kind. They have a trail of disasters that is about 30 years long. They've owned 5 houses in their lives and cashed out of every one when the credit cards got loaded up.

I know it's just a matter of time before the next going out of business sale.

My grandmother hit the nail on the head years ago (now this comment was made by an 80 year old woman who was legally blind) And her exact words were, "I see way too much extravagance".