After 9/11 the fed drastically lowered their interest rates to near zero. The fed rate bottomed out about July 2002 and stayed there until about July 2005.
The mortgage crisis was preloaded into the system staring with the CRA of 1977. By 2003 the mortgage rates were so low, that buying houses with no money down, and very low adjustable mortgage rates(ARM). The credit checks were already removed from the system, allowing anyone to essentially buy homes. Including in our area, illegals aliens bought houses. In some criminal cases filed locally, illegals provided the 'warm bodies' to apply for the low interest no down loans, the racketeers used multiple illegal aliens to acquire large numbers of homes and condos.
The noise attracted more people to participate, some began buying more than one house, just making low INITIAL payments. Flipping became the buzzword which allowed people to 'buy into' instant profits. It didn't last.
Then came another ratchet up, equity loans. Don't know about your situation, but we used to get multiple calls a day for us to take out equity loans, cash in on the ever increasing value of our home. We didn't bite, but plenty of people did. They then spent the money and the rates started going up, the home values started dropping. Tell me you weren't tempted by the 'easy money sell' on home equity loans ...
I doubt we spent ‘all the money’ on consumer goods. I will acknowledge that the home equity market was going nuts in my area of south Florida, the pushing to borrow on your home equity at low interest rates, and spend, was insane. The condos of South Beach Miami is like a disaster area as a result of this, and the insane up up and away buying.
We have criminal cases in the Florida courts right now, where rings of scam artists were using illegals to buy many houses, at the no down, no credit check point. All they needed was a Spanish name and how to mark an X on the forms. And yes, some banks and mortgage companies were the ones behind the scamming. All the scammers wanted, and they were mostly fly by night mortgage companies, were the lending fees.
However, IMHO, the financial chaos all rests on the CRA and lending rules changes, which allowed the insane lending process to take place -- Without the “no credit report” borrowing allowed, the majority of the out of control home loans, which drove up home prices, would not have happened.
There is enough evidence in the public about the scams to know what was going on. It wasn't the lenders, or even the scammers, it was the enabling CRA, the lending rules changes, Fannie and Freddie, that caused the underlying problem.
One thing that is true and inviolate, you cannot spend and tax to a sustainable economy. The Acting President Obama is a financial disaster for America.
Keynesian Economics 101 : "If you won't spend your money WE WILL, and your kid's too!"
2 comments:
You have been misled by the media, I would guess.
The source of the deeper problem is not the relatively small number of poor people or speculators buying houses, but the dramatic shift in interest rates.
Low interest rates mean high inflation -- in this case mainly directed toward housing. Prices rose at an unprecedented rate. Then, when interest rates were reversed, inflation was turned into deflation and the market for housing collapsed. This led to the financial crisis and current economic collapse.
Entire neighborhoods around here have been emptied of illegal immigrants as the jobs dried up. The housing, most of which were new a few years or less, now sit vacant. The State is thinking of bulldozing the houses, because they are now a glut on the market.
I personally know one mortgage banker who said the law changes forced making the loans with no credit check, no income statement, no citizenship check, and the final straw, no money down. All forced by the governemtn. He refused to participate in that market.
The numbers are huge, as much as 60-80% were bought by people who would not qualify.
The fed holding interest rates unecessarily low did contribute to the problem, but unless the banks were forced to lend, there would have been no problem. The deriviatives market were simply a way that the banks tried to spread the risks.
And the credit for the disaster was all Democrats, from their ACORN like groups, their Obama type community organizer lawyers and the enablers in the Demorat Congress.
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