My assesment of the housing market crisis (including blame)

[Joshex]

right, so.. yeah I like to think about things in great detail, and when I do that for long enough I tend to realize things that were not as apparent before hand.

lets talk about the housing crisis, what really caused it and who is to blame from #1 the most to blame to #2+ the least to blame. (as there are multiple people to blame)

but lets write the facts first in a non-biased objective form and see where logic takes the conclusion:

We know there was bad paper associated with mortgages that individuals had taken out. now the government (especially obama) stopped the Investigation buck right there and blamed the general populace for abuse. and so now we have to pay it off for the next 200 years.

well lets continue the Investigative male deer then shall we?

What would/did cause people to in mass hoards suddenly follow a fad of mortgage abuse? were people really that alert to the market that they knew they could get that extra money? I think not, the people in question were too gullible and ignorant to realize what the banks were offering seemed fishy, so I hardly see the intent of theft in the minds of such ignorant people. they just sheerly didn't have the intellect to figure out this scam in the first place.

Watson: ok Holmes, so, then it's the banks fault for issuing bad paper right? I mean after all they admitted to it!

Don't be so quick to take a conclusion watson, that is until you view all the evidence from all parties involved. I bring you the question of "why would the banks knowingly issue bad paper that at the end of the day would hurt them?" they knew it was bad paper, they knew it would blow up in thier faces eventually! no person with a banker's financial education would willingly pull such a stunt, and further to that conclusion I find it Very improbable that all the banks would begin the same trend at the same time! the banks are not the start of the issue, someone else forced them to begin the issue!

lets go back a bit in our deer's life before it lost it's antlers and was defenselessly eaten by savage wolves shall we?

something or someone forced the banks to issue these rediculous loans. well the only thing that can Force a bank to do anything is the law, which would bring the blame to the government, now if you go back to the start of the housing crisis, when the bad paper first started to be written a law had been passed by our smoothest president ever, thats right good old William Clinton. the law he signed (of which he was a strong influence into the laws writing) was intended to help the average american afford things they otherwise couldn't afford by demanding that the banks issue loans to everyone regardless of credit history or yearly salary. this stipulation would force banks to give everyone the highest loans available if anyone would come asking for such!

watson: so clinton haphazardly has committed criminal neglect on a national financial scale that errupted into the whole world due to the bank's bad paper?

I'm sorry watson but not all the culprits have been taken into questioning yet! it is too soon to make a conclusion.

So, clinton signs a law to make loan issuing by banks mandatory no matter who comes for a loan. but inorder for this to happen the general populace would have to know of this law's existence, and that law is not known by any of the citizens effected by this circumstance.

Watson: so, someone else put these citizens upto it!

Correct watson! but who did it? let us continue in our invesitgation. now I believe the answer of where to go from here in the investigation comes from one of my previous deductions which has left a blatant opening. "the law he signed (of which he was a strong influence into the laws writing) was intended to help the average american afford things they otherwise couldn't afford" the hole is blatant here, our next culprit is the people charging the price of coarse!

Watson: but who would charge such a price that people can't afford?

Realtors selling newly built houses after demolishing old ones that the banks foreclosed on. and Colleges charging 30,000+ for one semester of education. as well as some car manufacturers.

Watson: obsurred!! you are saying that the people we respect most for thier Education and intellect are responsible for bad paper? this would be outrulled by the same thing you said gave the banks amnesty! intelligent people wouldn't create bad paper that would negatively effect them!

hmm, you are correct but we have yet to fully investigate the parties I merely listed with an example of thier overcharging. and to be clear they were overcharging, so part of the problem definitely exists here, why don't we look in closer detail!

Why such high prices? I have talked with actual construction companies about the costs to build a house and buy the land, and they gave me an esitmate of $45,000 at normal construction hourly rates which were average considering the dangers of the work. and that $45,000 house was being sold for $400,000, I talked to city officials and realtors to try and ascertain how much ti costs to keep one of these houses till it's sold (taxes and electricity and water fees for showing the house, and advertisement fees, plus commision) I found that inorder to do all that, it would only cost another say $55,000 on average, so the price should be around $100,000, why on god's green earth is it $400,000? thats 400%!!

and while sniffing around the clue hit me right in the face as they spoke about trying to sell me property, they would need my credit information and income information before they would consider selling me a house. same with colleges they want credit info and income info if they can get it. cars? the same.

I see a trend the things people can;t afford require us to give these companies access to our financial records, they actively look at these records to see if we can afford thier products and services!

Watson: well thats a normal part of business, I hardly see anything wrong there..

to the untrained eye that would be the case, but there is another side to this visibly innocent issue and it is malicious in it's intent and filled with greed.

Elementary My Dear Watson; Any Credit sniffer would immediately notice the law clinton made, and see that it gave the average citizen the ability to get loads of money from mortgages, with thier new found knowledge they were encouraged to find out just how high they could push the market's cieling in the intent of fleecing this wolly sheep of a market, milking the cash cow, savagely taring appart our poor defenseless buck!

so the credit sniffing companies raised the price of houses and college and cars because they knew that people could get these loans of $400,000 and had income on top of that. and they didn't just want some of the money, they wanted all of it!

so They told the citizens about the bank's mortgage situation, they pushed people to get loans to afford thier wares the people then went to the banks and were amazed at what they could get! then they told thier friends, who some of them would abuse this system! and others would avoid it realizing it was a scam and instead would by houses for sale by owner for a decent price and used cars and try hard to afford thier kid's education with family help. the banks however now had a severely bad issue, the general populace had somehow figured out how to use clinton's law to exploit them and get tons of money, they knew they couldn't keep this up, and they didn't want to have to foreclose on everyone's house, nor did they want to have to pass the blame to the general populace! so they bundled all the bad loans into mortgage backed securities and tried hard to sell them internationally, which was surprisingly successful. however eventually they could no longer keep up this pace, and the bubble burst as the banks lost tons of money from thier clients not paying enough back each term because thier clients couldn't pay it back at a fast enough rate.

and there we have the crisis!

I have already named the culprits, and now to prove thier motive;

 they were the only ones who made actual money off this without government reimbursement. all the money that the world lost went to them.

thats right the credit sniffing new house salesmen and colleges charging too much money and cars getting more expensive than normal. though car companies are less to blame.

I promised a listing of who is to blame starting with the most responsible and leading to the least responsible, I shall keep my word;

#1: Realtors of new houses upping prices to obscene values as they knew they could get it due to the average citizen's ability to pull in that money from a mortgage.
#2: colleges, as not all of them were doing the above.
#3: car companies as only a few companies had really substantial prices to begin with
#4: Bill Clinton through negligence
#5: last on the list and least responsible; the general citizen who was used as nothing more than a cash currier during this event. even those who willingly abused it out of thier own knowledge got thier punishment already in the bank reclaiming everythign they own and putting them on the street.

that is the conclusion, all parties have been thoroughly investigated, and only one stands out as undoubtably guilty at intentionally trying to fleece the market once they relaized the huge exploit they had been given.

I rest my case.

[FatherXmas]

First, as a home owner let me say the whole "American dream to own your own home" is so full of pitfalls and booby traps that it only works if you are never planning on moving ever again.  Also the collective wisdom that home ownership is a good investment is bunk.  Take a look at the inflation adjusted price of homes over the last 100 years.  Unless you got in before this last bubble and sold near the top, it's pretty flat.

Next, the nature of a loan is that early on you are paying mainly interest and very little principle.  So if you bought on the upswing in home prices, when the bubble burst you will be underwater, owe more than what you could sell the house for, for years.  If you are forced to move due to work, you are SOL.  Lose money by selling or become a long distance landlord.

What happened to people in the 2000s was due entirely to a break down in checks and balances due to the reward structures in place at all the various institutions involved.  Back when I got my mortgage, at a bank, I had to present a ton of paperwork, have a large down payment and still had to get it cosigned by my folks and that was a sub 100K mortgage at over 10%.  At least I didn't have PMI.

Let me step back for a minute.  Back when mortgages were primarily handled by banks, they had a very high bar set on who they would loan such a large amount of money to.  That's because that money was the depositors' money at the bank.  Then mortgage companies came into being.  They would buy the mortgages from the bank, bank gets it's principle back sooner than later so they're happy, and the mortgage companies would handle the loans.  They got their money by selling shares in bundles of mortgages to investors as well as back to banks and the investor got X amount per month, and as long as the return is better than AAA bonds those investors were happy.

Now in the later part of the 2000s the large Wall Street institutional banks, who mange the money of corporations and the very wealthy, decided to get into the mortgage company business, sort of.  They were sitting on a big pile of money and they were looking to turn it into a bigger pile of money but nothing was paying a good rate of return.  So they provided the money to mortgage brokers who got a fee for every mortgage made.  Wall Street would collect the mortgages, package them, chop them up and then sell them to whomever, under the assurance that the loans were highly vetted to qualified individuals.  Wall Street got it's money back and then some so they started the cycle over again.  There was no penalty to mortgage brokers if they fudged the numbers of the "qualified" borrower.  The brokers were incentivized to sell mortgages.  It wasn't their money if the borrower defaults.  Wall Street bundled and sold off shares in mortgages as fast as they got them, so they got their money back quickly.  They either trusted the mortgage companies or turned a blink eye to them.  So the people who got stuck holding shares in less than high quality mortgages were smaller banks or overseas banks who bought these mortgage backed securities as a supposedly good investment with a nice rate of return.

Now as for home prices.  It's all supply and demand.  If mortgages are easy to get and there is plenty of money to lend, and not a lot of homes for sale, prices will go up.  Whole new neighborhoods get built as fast as possible (sometimes too fast = shoddy) to alleviate demand, but those new homes were also selling for a high price.  Who wants a 50 year old raised ranch when you can get an open floorplan with vaulted ceilings mini-mansion?  The more money available, the higher the prices went.  That's OK because interest rates were so low you could borrow more for the same monthly payment.  Someone somewhere simply ignored that home prices can't keep growing at that rate indefinitely.  Mortgage brokers were refinancing the same people who they loaned to originally because the home was now worth more than the first time the load was made and as rates dropped the homeowners could actually end up with "free" cash for the same monthly payment.

And that brings me to the evils of adjusted rate mortgages.  A good idea if you plan to get out before the rate gets jacked up, bad idea if you could only afford the payment at the low interest rate.  So the economy went into recession, as an economy does from time to time, a number of first time homeowners who qualified for the first time to get a mortgage, and in the past wouldn't for a good reason, found themselves in homes they could no longer afford and couldn't sell to payoff the loan.

So the homeowners got screwed because they got loans they really shouldn't have qualified for, for homes that were significantly overvalued simply because it was a sellers market, low interest rates and lots of available money to loan.  For the people who paid to own MBSs got screwed because their quality of the investment wasn't as good as it was implied.  Wall Street on the other hand, as long as they weren't sitting on unsold shares of their last, actually poor quality bundle of mortgages when the bubble popped, made money and simply turned to oil and gas futures as the next playground to grind for profit.

So 1) don't buy a home unless you are absolutely sure that you will not move anytime in the next 10 years, minimum; 2) it's not an investment or hedge against inflation; 3) start modest, don't borrow your max because when life gives you lemons you can't use them for shelter from the weather.

[MindBlender]

My boss was telling me that he bought a home in the late 70s and he lucked out big time as rates changed in a big way.  If they had gone in the opposite direction, to the same degree of change, he would have lost his house.  ARMs are bad news even if capped.

[eabrace]

If you are forced to move due to work, you are SOL.  Lose money by selling or become a long distance landlord.

Speaking from first-hand experience:  this is absolutely correct.  I tried for two and a half years to sell the house I had in Texas after I moved to Ohio.  I finally gave in and started renting the house out.  I can't refinance the house because the remaining principle on my loan (after 10+ years) is higher than the price the property would currently carry on the market - mostly due to foreclosure sales and short sales so massively outpacing traditional sales in that market.  Between principle and interest payments, insurance (which is higher now that the property is a rental rather than my own residence), and taxes, I've been losing about $25/month on the house charging the highest rent I can get away with.  And that doesn't even take into account any repairs that I end up having to pay for (like a new AC unit in 2011.)

So 1) don't buy a home unless you are absolutely sure that you will not move anytime in the next 10 years, minimum; 2) it's not an investment or hedge against inflation; 3) start modest, don't borrow your max because when life gives you lemons you can't use them for shelter from the weather.

All good advice.  Especially that last one.  Before you start looking at properties, know how much you intend to spend.  Don't let a realtor try to talk you into spending any more than that.  If you don't see any properties in your price range, don't just buy the next best property that's just out of your price range.  You're far better off waiting for other properties to come onto the market later.

[Heroette]

I started a reply with a whole long story but it comes down to this.  Banks just wanted me to go into debt and gave me money, regardless of my ability to pay it back (I had a job but not enough for that kind of loan amount).  It backfired on them and I filed bankruptcy a few years ago.  But the good news is that I LEARNED ALOT from that experieince.  I don't get loans for more than I can afford.  I waited it out and bought a condo last year at a rock bottom price and now I know how to manage my money better and never, ever refinance. 

[Mistress Urd]

TL:DR

F.M. /done

[Joshex]

I started a reply with a whole long story but it comes down to this.  Banks just wanted me to go into debt and gave me money, regardless of my ability to pay it back (I had a job but not enough for that kind of loan amount).  It backfired on them and I filed bankruptcy a few years ago.  But the good news is that I LEARNED ALOT from that experieince.  I don't get loans for more than I can afford.  I waited it out and bought a condo last year at a rock bottom price and now I know how to manage my money better and never, ever refinance.

see, now that was one of the principle american freedoms in our constitution, it was what created the american dream, the ability to file bankruptsy if you get in over your head, where as in britain they just pull out your teeth and smash your thumb bones with a mallet if you don't pay.

However, I'm not sure if you noticed it but that constitutional freedom was challenged and a law was made (I'm not sure when or by whom) that states this: Student Loans are exempt from bankruptsy. meaning they are legally allowed to stay with you till you die, at which point they transfer to your next of kin and become thier problem. you cannot get rid of them by filing bankruptsy.

that is yet another constitutional american freedom that has been removed, they sed the student loan market as a testing grounds for it, and if no one speaks up and protests it then they will assume they can expand this ruling onto all loans!

and then, you will never be able to clear your debts not even by bankruptsy. I don't mean to be the sort of guy that suddenly posts a thread and asks for an insane mob rally, but I have to say, let your voice be heard, tell the government that this practice on student loans is unconstitutional!

[Kederren]

There's a Constitutional Right to bankruptcy?

[JaguarX]

Yeah I always thought it was the individual responsibilty to know how much they can afford and cant and not take just any and all offers that is presented. On the other hand the housing finance is not easily understood so many people believed the bank had the home buyer's interest at heart and would never offer something they might put them in a situation that would cause them to quelch on the deal.

There is a saying in the car buying world. Just because the bank offers 60,000 no money down and you only make 25,000 a year doesnt mean you have to get a 60,000 car if you cant afford it and probably shouldnt. Although,  many people assume these people are the financial expert and know what they can afford better than them so just go with what ever offer is thrown at them when in reality, the bank is trying to make money.

[TonyV]

I'm really tempted to lock this thread.  I'm not sure exactly what it's for, and it's really damn close to being flamebait.  I'd rather just let it die a natural death, but just keep in mind if you're going to reply or post in it that it's about this close ->||<- to being nuked...

[Heroette]

Nuke it from space, its the only way to be sure.

[houtex]

http://www.youtube.com/watch?v=aCbfMkh940Q

[FatherXmas]

I will admit it is a little out there.  But this is general discussion.

Personally I find the youth of today shockingly ill-informed about basic economic facts and matters of personal finance.  It is way to easy to get over your head in debt.  True people may blame the institutions that let them do it so easily but what about personal responsibility.  You know what your income is.  You should know how much you can afford to pay toward loans and credit card debt.  Yet I keep seeing young people, fresh out of high school or college go nuts with their Visa/MC/Discover and simply don't think about the things they buy.  I had one young friend forced to face this when he couldn't get approval for a used car loan he desperately needed (we are talking bailing wire and good intentions was keeping his current car running) because of his mounting credit card debt due to his Amazon/iTunes habit.  He was forced to take a 30 hr/week part time job, sucking up his nights and weekends, so he could wipe out the credit card just so he could get that loan.  Sure he had a thousand CDs, a hundred anime series as well as a great movie/TV collection on DVD and a mounted broken Narsil but he couldn't drive them to work.  So he became responsible, took classes, got a better job, learned to save for a rainy day.

This was in the late 90s, before the home bubble.

[Electric-Knight]

I grew up learning money matters from my parents...
Don't spend what you cannot afford, period. Extreme (see the true definition of extreme, not a 13 year old's moment of crisis due to acne and/or someone walking by them in the hall)... ahem... Extreme circumstances/emergencies may force you to temporarily put yourself into a hole in which you must get out of as quickly and as reasonably as is possible.
Be smart.
Figure out and plan your budget. Overestimate your expenses... and they'll likely still be higher anyway.
The goal is to save money (for emergencies and for fun stuff)... good luck...

Of course, there is always the aspect of "you can't take it with you".
So, you have to find your balance.
Anyway, I'm just chiming in on general common sense money talk.
While the corrupt, the stupid and other factors have indeed all contributed to real estate craziness... Being smart about yourself and controlling your own money, budget and investments will do you well. Not that you can't still get screwed, of course. C'est la vie.

Then, other times... I think the joke is on me. Build debt as you have everything you want for a minimum credit card payment... The way of most people, it seems. Living above their means, building debt on bills they have no way of actually paying. 

[JaguarX]

I grew up learning money matters from my parents...
Don't spend what you cannot afford, period. Extreme (see the true definition of extreme, not a 13 year old's moment of crisis due to acne and/or someone walking by them in the hall)... ahem... Extreme circumstances/emergencies may force you to temporarily put yourself into a hole in which you must get out of as quickly and as reasonably as is possible.
Be smart.
Figure out and plan your budget. Overestimate your expenses... and they'll likely still be higher anyway.
The goal is to save money (for emergencies and for fun stuff)... good luck...

Of course, there is always the aspect of "you can't take it with you".
So, you have to find your balance.
Anyway, I'm just chiming in on general common sense money talk.
While the corrupt, the stupid and other factors have indeed all contributed to real estate craziness... Being smart about yourself and controlling your own money, budget and investments will do you well. Not that you can't still get screwed, of course. C'est la vie.

Then, other times... I think the joke is on me. Build debt as you have everything you want for a minimum credit card payment... The way of most people, it seems. Living above their means, building debt on bills they have no way of actually paying. 

Funny thing. I always pay for everything cash. Never had a credit card until recent.

Decided to try out my newly aquired VA loan stuff. Lo and behold they said I didnt qualify yet because I didnt have a credit card nor other loans. *Doh!*
It seems to get a good score and rate you have to use some form of debt thing and make some bank money. Got a card now but use it for menial stupid stuff, like a candy bar then pay it off the next day crap, about once a month so it stays active and or to avoid them blasted fees. Freaking credit card.

[FatherXmas]

If there is no annual fee and no interest if you pay it off every month, a CC is a convenient way to pay normal day to day expenses.  Food, gas, occasional night at the movies.  Even some periodic bills can go to your CC, like cable.  Again, if you always pay it off, no sweat.  However once you have a balance then even new purchases will get tacked with interest until you pay the balance off entirely.

That brings us to debit cards, overdraft protection and the order DC and check transactions are processed.  Debit cards for the most part avoid that nasty interest business while still being convenient like a CC.  However since they are tied to your checking account you can overdraw and "bounce" a transaction.  That's where overdraft protection kicks in as long as you have a savings account that money could be pulled from.  It won't bounce but there's a fee.  Now it use to be that the bank could order the withdraws for that day in the order that would generate the most fees for the bank.  I believe this has been changed via Congress (which was why BoA wanted to charge for DC use) as well as needing to opt in to overdraft protection.

Anyways give it 5 years and payment via smartphone and/or biometrics will be the norm.  It's a far difference from the days when I was a child, before direct deposit, when my dad had to go to the bank to cash the check, deposit some in savings, most in checking and bring home a wad of cash so the family could buy gas, groceries and the occasional night at the drive-in.

[Aggelakis]

Please note that if you pay off your entire bill each month, the credit score companies still don't see that as utilizing credit and you are doing very little for your credit score.

They want an occasional roll-over. They want to see you using credit... e.g. "money you don't have right now"... that is why it is a credit score - it's scoring how well you use your credit. Pay off 75% of the bill one month, pay off everything the next, rinse and repeat. Roll-over some of the bill and you'll build credit *FAR FASTER* than paying it off every month: you're utilizing "credit" (even if you technically have the money to pay for it) and thus actually making a difference to your "CREDIT" score.

Even better is to get a small loan - I got a $1000 "car loan"...though all I did was pay off all my bills and sit the rest in my savings account. By doubling the payments (one automatic payment and one payment "when I had extra" - which was most months), I paid it off in half the time agreed to. Now I have a completed "line of credit" that is in good standing, never late payment, etc., on my credit history.

I'm currently doing this again with a $5000 "car loan" that paid for my wedding.

[JaguarX]

Please note that if you pay off your entire bill each month, the credit score companies still don't see that as utilizing credit and you are doing very little for your credit score.

They want an occasional roll-over. They want to see you using credit... e.g. "money you don't have right now"... that is why it is a credit score - it's scoring how well you use your credit. Pay off 75% of the bill one month, pay off everything the next, rinse and repeat. Roll-over some of the bill and you'll build credit *FAR FASTER* than paying it off every month: you're utilizing "credit" (even if you technically have the money to pay for it) and thus actually making a difference to your "CREDIT" score.

Even better is to get a small loan - I got a $1000 "car loan"...though all I did was pay off all my bills and sit the rest in my savings account. By doubling the payments (one automatic payment and one payment "when I had extra" - which was most months), I paid it off in half the time agreed to. Now I have a completed "line of credit" that is in good standing, never late payment, etc., on my credit history.

I'm currently doing this again with a $5000 "car loan" that paid for my wedding.

Interesting. I'll try rolling over some next month.

I can never find a place that does $1,000 "car loans" or the likes. The ones I come across either have a minimum of $7500 and or minimum of car with less than 60,000 miles and less than 5 years old. Or some like my bank require actual purchase of car meaning the vehicle purchase paper work from dealer must be sent to them before they even release the funds. What places do that $1,000 or something small in that ballpark loans?

[Aggelakis]

Both loans were through Wells Fargo. If you don't have enough credit, or if you have bad credit, you may have to put something up for collateral (most common thing is the title to your vehicle if you own one - since you know you'll be paying it off (since the loan is small enough to keep the payments reasonable), it's not in danger).

Before I did the loan, I first set up a "secured credit card" from Wells Fargo, in which I paid them $300 to have a $300 credit limit, and in 18mo they gave me back my $300 and raised my limit to $1200 after successfully showing that I can both utilize credit (not always paying it off every month) and shop within my budget (not having a high roll-over, and paying it off entirely occasionally). If you've been able to get a "real" credit card, this isn't as big a deal though. You have enough credit to GET a card. I didn't have any credit at all, so I started with this.

After I'd had it a couple months (used it to purchase gas and "commute stuff" only) and paid off/rolled over/paid off a few rounds, I put up for the $1k loan - terms asked for 18mo repayment, I repaid in 10. I put up for the $5k loan last summer for my fall wedding. The first loan would probably have been a higher interest rate had I not done the secured card. The second loan would have been denied entirely had I not done the first two - and I put my car title up for collateral for a lower rate even though I would have been approved anyway.

The main thing about credit is allowing the people to make a little money off of you to show that you're willing and able to use credit. That's what things like mortgages, business accounts, etc., are - credit - so you need to show you're good on it or you'll get either a flat no or you'll get reamed with fees and interest charges.

[eabrace]

Useful tools if you're trying to get a better handle on budget and credit:

www.mint.com
www.creditsesame.com

Mint is run by Intuit (the folks who publish Quicken and TurboTax).  If you're comfortable entering in your login info for other financial sites (bank accounts, loans, credit cards), you can track all of your activity in just about real-time from their site and use their tools to help set up budgets and see where your money is going each month.

Credit Sesame is good for monitoring and analyzing your credit score.  The site provides you with a monthly update to your credit score (I think it's the Experian score) and can provide some advice in how to help improve your credit.  When your credit score changes from month to month, if there was any particular reason (e.g. "Your balances decreased by $5,000"), it will tell you what drove that change in your score.  Today's Tip for the Day:  Keep your credit card balances low. High amounts of available credit improves your score.