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| Written by Booggs28 | ||||||
| Wednesday, 18 November 2009 13:00 | ||||||
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Until the 1930’s, buying a home required a down payment equal to a quarter or a third of its value. Mortgages had to be repaid in about a half dozen years. Banks then didn’t want to accept smaller down payments as it would attract more borrowers with less capital who were more likely to default. Fact of the matter with the mortgage crisis can be traced back to the crappy federal laws that started after the Great Depression. Trying to make housing more affordable, FDR established the Home Owners’ Loan Corporation, in 1933. At that time, HOLC spent 3 billion refinancing mortgages for people that had trouble making their payments. HOLC promoted the long-term, self amortorizing mortgage. Up to 40% of those HOLC- financed properties foreclosed. In 1934, The National Housing Act established the Federal Housing Administration. Borne out of this, was the practice of Redlining. In order to minimize the losses that HOLC had previously recognized, they developed the Residential Securities Map that broke down American cities into zones color coded in green being the most desirable, blue and yellow as the middle income and red being the least likely area to lend too. Mind you, the red areas were inner cities, rundown neighborhoods and predominately black. Can we say profiling? That’s exactly what this act did. It deemed those in the red zones unfit for loans. Not to mention, it added to the deterioration of inner cities. Banks didn’t look at whether an individual could actually afford the loan; they looked at the MAP and if that individual was in the red zone, NO LOAN FOR YOU.
Fast forward to 1992, when Clinton was running for President, he set out to undo what FDR’s administration had started. After being elected, Clinton used his powers of persuasion on the banks to finally end the redlining and enlisted his bull dog Reno as the enforcer to provide mortgages to all and for insurance companies to insure them. Originally, the above laws were instituted to provide the opportunity for low income and minorities to secure mortgages and become home owners and rebuild inner cities and decaying neighborhoods. The Government and all of it infinite wisdom managed to make a bad situation worse. By forcing the banks to loosen their lending practices and with the Government sponsored Fannie Mae, Ginnie Mae and Freddie Mac backing the toxic creative loans the banks were now more than willing to extend the creative financing to everyone. The banks knew that it wasn’t a good idea but making money hand over fist and with the Government that wouldn’t or couldn’t let them fail they had a green light to loan. With the loans being cut and chopped and packed and sold on Wall Street everyone was getting the piece of the pie and home prices were so inflated but good times were here. The house of cards that the Government, the Banks and Wall Street built had to come crashing down eventually and Congress new it but no one wanted to be the bearer of bad news so they all turned a blind eye to the coming crash. Fact is everyone regardless of income was able to get any kind of loan out there for the last ten fargin’ years. It didn’t matter if you had 20% to put down, if you were a responsible borrower or if you were a financial wizard none of that mattered. Because so much money was being made and all the top dogs were getting their pockets padded and the American Dream was being realized by everyone who could sign their name on a dotted line. Everyone bought into the AMERICAN DREAM being fed to us by the Government and the Banks. The Banks didn’t care if you could afford it, the mortgage broker didn’t either. They were gambling with someone else’s money. And that gamble paid off didn’t it? All of the players of the toxic mortgages got bailed out. Who got left holding the bag? Also, it was reported in July 2009 by WSJ that 51% of all foreclosure homes were prime loans and not sub prime. http://online.wsj.com/article/SB124657539489189043.html Give it a read if you have time. You want to lay the blame on someone? Lay it on the people who started it. The Government, Banks and Wall Street. And if someone wants to continue to bash those who made bad financial decisions, why don’t you send a letter to the Government, Banks and Wall Street too. They started it, they packaged it, they put a nice ribbon on it and they sold it to everyone in the guise of AMERICAN DREAM.
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Comments (3)
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@Labsr4me you really need to dig deeper into this if you're going to make comments about what's unfair and using the term "bailout" so liberally. The federal bailout for which taxpayers have been hit with a $800 billion bill went to help banks - that's it. Homeowners are not being bailed out. The HAMP (aka Making Home Affordable) has helped 1100 people. So don't worry, none (well hardly none) of your tax dollars has gone to help homeowners. Please stop acting like you're being personally asked to shell out your hard earned cash to pay off someones loan. It's inaccurate. If banks were to stop foreclosures and start modifying mortgages under the guidelines of these programs then maybe you'd have an argument. By the way, the banks that got the bail out? The amount that they've given themselves in bonuses in just the last two quarters since being bailed out, was enough to stop all foreclosures in this country. |
labsr4me
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... Interesting history...I have posted here several times, not looking to lay blame on anyone...there is enough of that going around. My contention all along is that just because something is packaged up and nice and pretty, and looks irresistible, doesn't mean you have to buy it or sign up for it. Everyone is at fault in this debacle, government, banks AND home owners, to which your article alludes, but then finishes with a pointed finger at the government and banks. It's the homeowners that don't seem to be able to say.."I got caught up in this, and took risks that benefited me for a while so I could save some money or buy a house that I really wanted, and now i'm stuck because the market conditions turned, and I don't like it. I took the risk and now I'm paying for it." I think people who didn't take the risk and didn't get the benefit of the reduced rates or didn't overextend themselves resent that they feel like they are now being asked to (or already have) bailed out those who did take the risk and received the benefit. |
SocialApocalypse.com
said:
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EXCELLENT article! I wish more Americans who are not supporting the mortgage assistance programs would begin to educate themselves about WHY we need to save homes. We will ALL suffer as the country gets sucked into an imploding economy. For some reason, there is a tendency to have false security that another depression cannot possibly happen, but that is a dangerous attitude to take. Keep your head deeply buried in your bucket of sand, maybe then you won't see and hear the walls falling down around you. Complacency is NOT what made this country great, and it will not save it. |
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