The whole mess started by selling mortgages to folks who were not credit worthy. The mortgage brokers then sold the mortgage to Fannie May & Freddy Mac who were required by law to buy them. Fannie and Freddie then bundled those mortgages and sold them to all yield hungry investors as bonds.
On top of that home owners with good credit kept borrowing using appreciated house as collateral.
There was no central planning. Blame the politicians (all democrats) who backed Fannie & Freddie. Also blame people who borrowed and spent thinking the house prices would go up for ever.
The bubble always collapses in the end.
I find it hard to believe that subprime mortgages caused this crisis. First, only 5 percent of the mortgages were subprime. Second, not all of them are in arears or default. And third, the subprime craze only lasted about a year a half.
On top of that home owners with good credit kept borrowing using appreciated house as collateral.
There was no central planning. Blame the politicians (all democrats) who backed Fannie & Freddie. Also blame people who borrowed and spent thinking the house prices would go up for ever.
The bubble always collapses in the end.
Although I am no conspiracy theorist, I feel that it is incorrect to assume that, just because something is complex and has the appearance of being chaotic, that it is indeed unplanned - especially when it comes to destroying a complex system.
Regards,
Here’s how the home buying cycle worked. This is not rare but ususal.
1) Buyer closes two loans on one day, an 80% first mortgage and a 20% second mortgage for the down payment, so that mortgage insurance can be avoided.
2) Within the first year, additional credit is obtained, using the property as collateral, appraisals coming in as high as 120% of the property value.