FINALLY! The Feds finally look set to punish some of the financial sector wrong doing even if only in a tiny tangential way.

[Kidlicious]

The term refers to a borrower with "no income, no job and no assets" and it was exactly those kinds of **** loans and the people who took them (the entire subprime market) which precipitated the crisis.

I know, but the fact is that most people who bought houses had jobs. The people who bought these loans had good credit. There income was just non-verifiable. That fact is that prices don't keep going up. Eventually they come down. And in this case they should have been expected to come down hard, and most people didn't expect them to.

[Kidlicious]

It comes down to this. In order for prices to keep rising, which is really the only thing that would have avoided a crisis, more houses were going to have to be sold. There was going to be a crisis regardless. The real problem was in the financial sector which should have done things different to lessen the effects of the crisis.

[PLATO]

No one bought houses with no realistic way to pay. But many did stop paying for their houses when they could have.

The hell they didn't! In many areas (particularly parts of California, Nevada, Florida, and Ohio) values were going up so quickly that you could realize a 15-20% gain on a property in just a month or two. Housing was in such demand that offers above asking price were the norm and no guarantee that you would be top bidder. An unbelievable number of people became "real estate investors" when they had absolutely no business being in that game. When the crash came, they were left holding an overvalued asset that they never had any ability or intention to pay.

[Ogie Oglethorpe]

Is S&P a bigger organization?

At the time they were losing share to Moody's and Fitch (who had looser standards apparently then S&P). An interesting take on how the DoJ likely will lose the case unless they can prove that the investment banks creating collateralized debt obligations wanted high ratings at any cost—even if the ratings were highly inaccurate.

http://www.cnbc.com/id/100436608

[PLATO]

The term refers to a borrower with "no income, no job and no assets" and it was exactly those kinds of **** loans and the people who took them (the entire subprime market) which precipitated the crisis.

In all fairness, the majority of subprime loans were full doc. That being said, Stated Income (Particularly stated W-2) was a large percentage of the subprime portfolio as well. True NINJA loans made up a small part of things. Stated W-2 was the absolute stupidest program ever. In very, very few cases was it applied correctly...usually it involved colusion between the borrower and the originator to simply state whatever income was necessary to qualify. Stated-Self employed is another matter...while it was certainly abused, it did serve a purpose. For years I argued for a "Gross receipts" qualifying instead of a stated. Many self employed borrowers are out of the market now because, while they have a large cash flow and "income" their verifiable profit is low.

[Kidlicious]

The hell they didn't! In many areas (particularly parts of California, Nevada, Florida, and Ohio) values were going up so quickly that you could realize a 15-20% gain on a property in just a month or two. Housing was in such demand that offers above asking price were the norm and no guarantee that you would be top bidder. An unbelievable number of people became "real estate investors" when they had absolutely no business being in that game. When the crash came, they were left holding an overvalued asset that they never had any ability or intention to pay.

You just described every person who bought a house.

[PLATO]

You just described every person who bought a house.

I guess technically you are correct, but nevertheless I believe you understand what I meant. There were a large number of people buying Non-owner occupied homes on a speculative basis in these areas. One of the banks that I regularly deal with is holding $1.9 billion in real estate owned non-owner occupied condos in South Florida alone...and that is just one bank (and not one of the "big boys" eithier.)

[PLATO]

It comes down to this. In order for prices to keep rising, which is really the only thing that would have avoided a crisis, more houses were going to have to be sold. There was going to be a crisis regardless. The real problem was in the financial sector which should have done things different to lessen the effects of the crisis.

What would have prevented the crisis is sound lending by the banks, proper ratings on the loans originated by the rating services, and Janet Reno not beating the Community Reinvestment Act over the heads of the banks in the late 90's. Further, if Congress had listened to the administration in 2003 and started real reform of Fannie and Freddie then a lot of the crisis could have been much less.

[Kidlicious]

Yeah, most of them got burned too, but overcourse we all paid for it.

[Sava]

Aren't the real villains here the people who bought houses they had no realistic way to pay for?

Depends. Who's worse? The pusher or the user?

I still see commercials for those loans. They promise the American dream to people who are probably quite aware of their own financial limitations. It's hard to say no when you have an entire industry telling you such dreams can be reality.

[ColdWizard]

What would have prevented the crisis is sound lending by the banks...

Too bad that took a back seat to marketshare and the lure of massive profits.

[Sava]

Too bad that took a back seat to marketshare and the lure of massive profits.

The lending was sound from their perspective. Historic low rates by the fed leads to attractive loan offers. People pay until the rates get jacked up. When they don't pay, the homes get repossessed. Banks end up with the properties... 100% of the equity, essentially. People end up on the street. Taxpayers foot the bill.

Whenever I see a scenario where a crime was committed... like a straight up theft... it's always best to look at the person who is in possession of the stolen goods.

[ColdWizard]

The lending was sound from their perspective. Historic low rates by the fed leads to attractive loan offers. People pay until the rates get jacked up. When they don't pay, the homes get repossessed. Banks end up with the properties... 100% of the equity, essentially. People end up on the street. Taxpayers foot the bill.

Whenever I see a scenario where a crime was committed... like a straight up theft... it's always best to look at the person who is in possession of the stolen goods.

Ending up with a bunch of properties you have to sell (with no income and increasing expenses until you do) is not the end goal of sound lending.