What is the subprime mortgage crisis?

Posted on Mar 19, 2013 in Stated Income Loans

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Question by ask8697: What is the subprime mortgage crisis?
What is subprime mortage crisis?
How did it happen, search who is responsible?
How did the players justify their actions?
How did this effect the US and world economies?
What did you learn?

i’m writing a paper on this…help me get started with anything you might know on this topic. Thank you. I am now going to do research on my own, i just thought i would post a question here because the more time it’s up the more answers, i’m not asking you to do my homework, just what you want or can help with. All right thank you.

Best answer:

Answer by Aiza
Hmm that is a loaded question but here we go. The subprime mortgage crisis started when Clinton was pushing for everyone to have a chance at achieving home ownership. Then banks became very relaxed in their underwriting, loan approval processes. Exotic or stupid loans in which people did NOT have to prove their income became rampant, and as the real estate market prices soared everyone would buy a house w/o income documentation and after 6 months they would sell that very same house for hefty profits. But then when the market slowed down, many banks had to close down. The government chose to blame mortgage brokers for this crisis.. HOWEVER, the reality is that the banks themselves were doing these loans, otherwise brokers would not have had buyers to sell the paper to. Countrywide had a SISA loan at 100% financing.. this means stated income and stated assets, imagine you could be a taxi driver and on the application you simply stated that you were the manager of the taxi station and you stated your income at $ 100k per year, and then you stated that you had $ 30k in savings all without every producing any proof.

Then there were 100% NINA loans obviously at a higher rate, in which you provided NO income declarations and NO asset declarations. People rushed to do these loans expecting to be able to quickly flip these properties for thousands of dollars in profits.

The players have NOT justified their actions, the big bankers knew what was happening and they were making money by selling these toxic MBS “Mortgage Backed Securities” to wall street hedge funds and even China.

Well think about it, unemployment is sky high, foreclosures are up, property value is down. The us economy has taken a huge hit. And world economies have also taken a beating as they rely on the US for trading power.

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One Comment

  1. I think there is a place for sub prime loans- just not those ridiculous loans some rip off loan companies were making. The crisis was caused because the loans were resold to investors and they were not made to understand exactly how risky the loans were.
    If an investor wants to loan money to someone at a given rate that would be ok but when they sell that loan to someone they need to make it clear how risky the package is.
    For instance- FHA was allowing a “gift program” where some fake charity was taking a “donation” from the seller and passing 95% of that “donation” on to the buyer to be used as the down payment. The seller was negotiating a higher price from the buyer to offset the donation. So in effect the buyers down payment was being rolled into the loan amount. This made these 100% or in some cases 105% loans- but the investors were being told that the buyers had made a down payment.

    This was done in democrat and republican administrations. Everyone is at fault- the buyers the sellers, the mortgage companies, the underwriters, the fake charities, FHA, the appraisers, The Realtors, Congress and the presidents.

    There were dozens of other loan packages that were just as bad or worse.

    Of course when homes are foreclosed and families get kicked out onto the streets and banks go under and loans get harder to get then….things cycle around and get worse and worse- until one day prices go down so far people start realizing they would be foolish not to buy- the prices start back up- that is where we are in my part of Texas.