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View Thread: SOS | We're sinking fast!
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    phreaks said:
    Harlequin said:
    That's only 1 factor to this mess, albeit a heavy weighted one.
    It takes more than 1 area to wreck this level of havoc in the global economy.

    If real estate had continued to be in demand, home values would not have plummeted, and the majority of the people stuck in option ARM's would have had the equity available to refinance out to a low fixed rate.

    Of course if the Clinton administration hadn't forced the market to relax qualifications for obtaining credit, this area wouldn't be suffering to the same effect it currently is, but hind-sight is always 20/20.

    Predatory lending and unchecked policies under little review or regulation certainly helped facilitate the meltdown. Corporations such as Ameriquest and Argent on the front-end and un-collateralized derivatives such as CDS's on the back-end; and a whole lot of conspiring in the middle.

    The losses were then passed on to investment houses that were holding the securitized MBS's and CDO's; the effect of which is tighter lending standards.  Tighter lending translates to higher interest and lower consumer spending, which is another factor.

    There are other dynamics here as well, but I don't want to bore anyone nor do I want to write a 20,000 line essay on the credit crunch on C9.

    The point is that there were/are lots of factors in play here.

    I hope everyone has a big mattress.

    "Traditionally, the risk of default (called credit risk) would be assumed by the bank originating the loan. However, due to innovations in securitization, credit risk is frequently transferred to third-party investors"

    "In 2007, 40 percent of all subprime loans were generated by automated underwriting. [63] An Executive vice president of Countrywide Home Loans Inc. stated in 2004 "Prior to automating the process, getting an answer from an underwriter took up to a week. We are able to produce a decision inside of 30 seconds today. ... And previously, every mortgage required a standard set of full documentation."

    "As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers."

    While that's not the entire story it's easy to see that if the lender doesn't have to worry about risk anymore, they can just get some software the stamp OK on all loan applications and well that can't be good in the long run can it?