The Housing Mess (That didn't have to happen)

We have now passed through the point of no return in the housing market. Yes, we have had housing “bubbles” before, but were they ever under the same circumstances as the one that has busted now?

How we got here:

Well, for starters there was a bill passed in 1933 called the Glass-Steagall Act. In a nutshell to protect from what caused some of the problems of the “Great Depression” from ever happening again.

www.investopedia.com...

An act passed by Congress in 1933 that prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities.

The Glass-Steagall Act was enacted during the Great Depression. It protected bank depositors from the additional risks associated with security transactions. The act was dismantled in 1999.

Fast forward to 1999, when this Act, for all intents and purposes is repealed, after decades of lobbying by Banks, successfully completed by what many refer to as “Mr. Weill goes to Washington” – that would be Sandy Weill, formerly of CitiGroup, which by the way would never have become CitiGroup without it .

www.pbs.org...

Following the merger announcement on April 6, 1998, Weill immediately plunges into a public-relations and lobbying campaign for the repeal of Glass-Steagall and passage of new financial services legislation (what becomes the Financial Services Modernization Act of 1999). One week before the Citibank-Travelers deal was announced, Congress had shelved its latest effort to repeal Glass-Steagall. Weill cranks up a new effort to revive bill.
Weill and Reed have to act quickly for both business and political reasons. Fears that the necessary regulatory changes would not happen in time had caused the share prices of both companies to fall. The House Republican leadership indicates that it wants to enact the measure in the current session of Congress. While the Clinton administration generally supported Glass-Steagall "modernization," but there are concerns that mid-term elections in the fall could bring in Democrats less sympathetic to changing the laws.

This is just a snippet of the history of the Glass-Steagall Act, for a quick complete history, check the link.
So, a lot of consumer protection flew out the window when Glass-Steagall got repealed, oh but the Banks were sitting pretty. What happened next appears to be an almost complete and utter breakdown of all regulatory agencies, mortgage products that never should have been created or used, and a rash of downright fraudulent mortgages allowed.
What of the Regulation? Well, Bernake can’t even seem to keep his head on straight about that to this day.

www.nytimes.com...

Bernanke Urges Flexibility in Mortgage Regulation

You really have to read between the lines on this one. The headlines say one thing, but the article almost implies another.

Two months later.

www.pbs.org...

Bernanke to Propose Stricter Mortgage Regulation

Now, let’s consider some of what happened, from my point of view at least. It’s no secret at this point that people were being handed out sub-prime mortgages they really couldn’t afford.

www.pbs.org...

Wall Street firms are stumbling and markets around the globe are nervous. Economists worry the mortgage bust may lead to a recession.

NOW connects the dots to see the extent to which recklessness, corruption and greed created this subprime mess that now threatens to undermine our entire economy. David Brancaccio talks to Rep. Keith Ellison, who grew up in North Minneapolis and who has pushed legislation to address the crisis. He also talks to Ameriquest whistleblower Mark Bomchill, who explains the competitive "boiler room" culture that encouraged brokers to aggressively push mortgage products they knew clients would be unable to repay.

In addition, there were a rash of fraudulent loans originated that were almost too obvious to miss.

www.iht.com...

Nancy Olland's application for a mortgage said that she made $6,900 a month. She needed that much income to qualify for her loan. Her pay stub shows that Olland, 48, a mental health therapist from Cleveland Heights, Ohio, makes $3,286.
She said she had not been asked to document her income. She signed the application without reviewing it and discovered the discrepancy months later. "I don't know where the information came from," Olland said. "I didn't give it to my mortgage broker. Was it literally fabricated out of thin air?"
New Century Financial, a leading U.S. subprime lender last year, was Olland's lender. Laura Oberhelman, a spokeswoman at New Century, which is based in Irvine, California, said that the company only approved loan applications "that evidence a borrower's ability to repay the loan." To stem fraud, she said, New Century uses electronic and manual systems "designed to detect red flags like inflated appraisal values, unusual multiple borrower activity or rapid loan turnover."
New Century filed for bankruptcy on April 2.

Now we can’t even be clear who misstated the income when you read that one. Was it the borrower (plenty of times it was), or were lenders/brokers doing some of it too?

Now, let’s discuss what if none of the above ever happened. There would have been a lot less qualified buyers in the market and there is no way the current housing bubble could have gotten as big as it is, the prices would not have inflated the way they did without this glut of buyers. This alone would have prevented a lot of the foreclosures we are now seeing, and a lot of innocent people who legitimately bought into the market now being screwed by a market which has left them upside down on their home purchases (owing more than they are worth).

To make this all worse, banks are in trouble now because of all these worthless loans on their books (which by the way the true impact of is not apparent till a foreclosure actually occurs, and there are a lot of delinquent loans where no action has been taken yet). There is not a single big bank (or even little investor for that matter) that is not feeling the impact now (but that is an even a larger story that needs to be addressed separately).

This article was written in 2005, and guess what, if you look for them, you will currently find stories of people who have been living for free (not paying their mortgages for a year or two now) in million dollar homes.

www.slate.com...

All of which means the housing boom is being fueled by the willingness of lenders to let borrowers get behind—and stay behind—on their payments. Homeowners go deeper and deeper in debt and become less and less home "owners," but they get to keep the roof over their heads. It used to be that only gigantic banks and corporations like Citigroup and Chrysler were regarded as too big to fail. Today, the humble homeowner enjoys that status as well.

Not like we don’t all know homes ARE being foreclosed around us, but just how are they picking and choosing who to foreclose on and who not to?

This is a tangled web of deceit - permitted, overlooked and ignored when every bank, lender, legislator and regulator knew what was going on and what the repercussions would be. (You shouldn’t need all the links to that, because if they didn’t know they had to be idiots, it was perfectly obvious.)

So here we sit with a mess of unfathomable magnitude and step two coming down the pike (bailouts for some, utter and complete devastation for others). There is nothing in this entire scenario that couldn’t have been prevented.

WHY WASN’T IT?

You are right. And the financial executives walk away with millions of fraudulent profits and the taxpayers bail out the banks. Meanwhile, our corrupt rich executives fund our esteemed politicians political campaigns and wow... no accountability for fraud!

We should DEMAND that these executives be held accountable. If you drive your institution into the ground and require a taxpayer bailout.. then YOU as the responsible leadership should be required to give back all of your stock and bonuses you received for the entire time your institution started making risky loans.... You were responsible for the risk.. not the taxpayer.

Originally posted by infolurker
Meanwhile, our corrupt rich executives fund our esteemed politicians political campaigns and wow... no accountability for fraud!

Yes, it should be noted that with the average American feeling the economy being the biggest issue right now (even over the war????) none of these issues were mentioned during the Democratic Convention. Entirely ignored.

I don't expect the Republicans will say a word about it either, regardless of the fact that it's breaking the backs of the people, our Country, and the Global economy.

Not a word will be said. We will not have accountability in Government or Corporatism until we have strict laws in place for our "Public Servants". Our public servants should be exactly that. A voice of the people for the people but under the current status quo we have our politicians involved in policy that affects their personal finances and that is unethical and this will continue until a black and white (no loophole) law is passed that states our politicians cannot be involved in personal investments during or 10 years after being in office. That means no sweetheart board jobs, million dollar speaking engagements for PharmaCo, etc. Personal gain must be removed (or as much can be) from the office and Special interest must be removed from the political process. No corporate sponsered political events, dinners, fund raisers, etc.

All political contributions to both a candidate and a political party must be voluntary individual donations (no forced union dues, etc.) at a set amount.

By the way this will never happen because were talking power and influence here but there is one way to do it quick.

Problem, you have to be President. Have the documents all ready during a state of the union address. The "Political Reform Act of 20XX".

Release the document over the internet and every media outlet while presenting your speech. This law will be put up to a "referendum ballot" to the VOTERS with no add ons or subtractions. Ironclad accountability.


The politicians and special interest will scream but hey. If your for the people then you should not be abusing your office for financial gain right?

I really wonder how it all came about maybe they thought that there was no way they could lose,if they foreclosed could sell house again at another profit maybe,very similar to the late 70's and 80's,all I know is the loan officers,real estate agents and appraisers were cutting a fat hog,my sisters friend did comm real estate sales in her spare time,she made well over 350k,I know it was a bubble,I sold my house for probably twice whats it was worth,but thought also crossed my mind that inflation would eat profits up,so far I'm safe,but this is a hard one to figure out

The most surprising thing I stumbled on looking for articles to explain the main events surrounding the mess, was that the article about not paying you mortgage was actually written in 2005. I didn't realize they were already going on at a pace that was noticeable just then, but at least in my market (where I live) that is timed exactly when the housing boom came to a screaching halt.

Many Banks at this point are being taken to task via threats of lawsuits by State Attorney Generals, but these lawsuits are all being settled (to the tune of millions) for investors in the bad securities, but nothing for the homeowners. Of course, a settlement includes no culpability, no admission of wrongdoing. So no one is really having to accept any responsiblity for raping of the people.

Using my own County I have been watching a shrinking inventory due mostly to vast numbers of short sales and foreclosures priced so low that people are buying. What no one is paying any attention to is that for every home sold, there are at least two foreclosures being filed, and these homes have not hit the market yet. THIS IS FAR FROM OVER!

People are walking away from homes they can no longer afford due to their sub-prime mortgages resetting to rates they cannot pay, and now vast numbers are walking away solely because they simply refuse to continue to pay for an asset that is worth far less than they are worth. (A very disturbing trend). For some reason people seem to think, walk away, rent for far less and two years down the road you will be able to buy back the same house for half the price. They seem to be ignoring two simple facts. One being - Hello? your FICO score and the ability to obtain financing once you have pulled a stunt like this, and the fact that credit is going to be non-existant anyway.

Do you know the exposure of your bank to the mortgage market? Let's put it this way. As long as the bank does not foreclose they can keep the loan on the books for the value of the mortgage. The minute they foreclose, they have to book the loss, a huge loss. So the books are cooked, because any mortgage that isn't being paid and not being foreclosed is scewing the balance sheet. It's at the point where it is quite possibly so bad, that if every bank foreclosed on their delinquent mortgages right now, none of them would be solvent. But it doesn't stop there. It has spilled over into the car loans, the credit cards, everything, just continuing to compound the situation, because now with the inflation of consumables skyrocketing, no one can afford to pay their bills. Little articles are popping up about deinquencies in utilities now. It's a snowball affect where I see no end in sight.

How can they possibly fix this? who is doing anything about it.

One final thought. The amount of bank owned homes is frightening already, but for some reason, they are no where near the number of homes that are to come. Ultimately this has the potential for the Banks to corner the market on the housing industry, actually, a monopoly on it. I am waiting to see at some point, the potential for them to actually control the prices on housing, if we aren't seeing that already. but at the moment it is lowering the prices of housing. At some stage of the game, once they have enough of the market they could potentially start raising the prices. Think about it. I can only compare it to price fixing (manipulation) of the market. the potential is there, and every government bailout to the Banks, makes it more of a temptation.

Good for the economy for the housing market to rebound? Not if we (the taxpayers) paid for the loses, and this is exactly what's going on. You, your children and your grandchildren are on the hook right now for the bailouts that have already been granted. Where is this money going to come from if not us, and we are talking trillions riviling the cost of the entire war.

why would the banks colapse they just invent money out of the air
they invent as much as they want
the banks are just trying to scam more money off the gov

reply to post by dean007


Not entirely without merit, but then it begs the question, why are they letting some go under and others not?

Also, let's remember, the printing press has been running as long as there has been US tender, and even faster since we got away from the gold standard. But we are now part of a Global Economy and don't think for a minute the other Countries haven't noticed. There are limits, and we have surpassed them, and it's not going unnoticed.

(I'll try to dig up some recent links I had where this was publicly stated outside the US, but of course wasn't front page news here.)

maybe thats what there trying to do sreamline the banking system much like they want to sreamline the govs into a single entity

wouldnt it be beneficial to just wipe out the IMF and the world bank and just reset what every country owes to 0 i mean really whats the IMF and world bank gonna do just say screw you were not paying you come and collect if you can

besides no country really owes them anything in fact they have been stealing from everyone since there creation