Question by ds: Why did banks and Mortgage companies give loans to people without checking thir ability to pay them back?
No doc loans? Home loans that do not include taxes or Insurance given to people who have NEVER held a job in their life? Why did they do it?
Best answer:
Answer by Michael M
Greed.
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Seemed like a good idea at the time, I guess. They were planning on selling off the loans to other entities, so they didn’t care, figuring that by the time people defaulted, they’d have their money from the people they sold the mortgages to, so it would be someone else’s problem.
very simple. the rules went out the doors when Clinton signed that bill and wall street was backing these loans and greed set in through out the financial industry
Because they made the assumption that the value of the property would continue to increase and they would be able to get their money back out of that increase. In addition, the federal government created programs and regulations that were aimed at increasing home ownership which loosened credit requirements. The house of cards crashed when the bottom fell out of the real estate market.
Money. The ability of the banks to re-package these loans to investment bankers allowed them to make more risky loans (the risk was partially offset by packaging them with strong/low risk loans). Since the higher risk loans carried higher interest rates, banks could get more money when they repackaged (the bankers would get more money as these higher interest loans were repaid).
Obviously, by making and selling the loans, the banks just refilled their coffers, which meant that they could turn right around and make more risky loans and re-package them, and so on.
As long as there were investment bankers to buy the packaged loans, there would always be more, and as the borrowers got riskier, the deals and mortgages got more “creative”