"I needed some damn money."
How 'bout that one, Professor Einstein?
Yes, mortgage fraud is rampant, but it doesn’t hold a candle to the real causes of this crisis:
1. Lax underwriting guidelines across ALL loan types.
2. Artificially low interest rates.
3. A guaranteed buyer (Fannie/Freddie)for a procuct (mortgages).
4. A tax code that favors one asset class over all others.
Mix those 4 thing together and you get a real estate bubble of epic proportions.
We increased residential mortgage debt from $5.1 trillion to $11 trillion in 8 short years from 2000 – 2008.
Again, we increased our national residential mortgage debt BY 6 trillion dollars, at a time when the market was over-priced.
It took us 100’s of years to get to 5.1 trillion. It took us 8 years to more than double that number to 11 trillion!
The question is, how much did we overspend? 2 trillion? 3 trillion? More??
There were approximately $1 trillion subprime loans done (no one thinks we have stopped doing subprime loans do they?... let’s see, subprime went away and FHA went from 2% market share to 40% market share... hmmmmmm?)
There were approximately $1 trillion of Alt-A loans done.
That leaves approximately $9 trillion of supposedly “prime” loans. If 16% of those default (which is what one of the charts predicts), then that would be $1.4 trillion in defaulted PRIME (wink, wink) loans.
Subprime has a higher default rate, but prime losses will be much, much larger dollar-wise. Size matters.
That is what people do not seem to grasp yet; the enormity of the issue. There is no way to pin the problem on one specific type of loan. Doing that grossly understates the scope of the problem.
Prime loans (which were actually what I call faux-prime because the majority of prime loans done during that time did not remotely fit the traditional definition of a prime loan), Alt-A loans, Subprime loans… doesn’t matter.
ANY loan done during that time frame was a bad loan because the value of the underlying asset was distorted/inflated.
To throw salt in the wound, the harsh reality is that millions of the jobs that were created during that time were temporary, because they existed only as long as the real estate bubble existed (really, it was an asset bubble of almost ALL asset types).
That bubble has burst and it’s a long way down back to earth.
The pain must come.
Jobs, jobs, jobs (non-government, preferably export-creating jobs) are the only pain reliever!!
The anti-business attitude in Washington has got to stop.
Jobs are the only thing that can save us, if anything can.
Fannie Mae and Freddie Mac are issuers for most conforming mortgages. Investment banks primarily issue securities backed by subprime mortgages and other non-conforming mortgages.94Notably, investment banks that issue mortgage-backed securities do not sample loans or properties to verify the facts; they merely accept the paper offered to them by originators.95
Three axes? Is this what our Law schools are accepting these days?