Question about housing crisis

[bigrobbierob]

I was watching a show called "Crashed" about the economic problems in 2008 and what caused them, and they were compared to the 20's and the depression.

While talking about the housing bubble they said that in 2006-2007 anybody could buy a house, you just had to show up and ask for one w/o proof of income or employment.

How did people pull that off? For example, if at that time I did that and lied about my income, I'd still have a $600 or more payment every month. Did some of these people never pay anything toward the morgage and others once credit dried up end up over their head or what?

 

[suncloud]

most people paid, but greatly exaggerated their income so they could qualify for the loans. they also used the fact that equity built up so quickly during the housing bubble that they refinanced their houses to make the payments less, or took out secondary loans to "renovate" their houses.

what made this mess, was the rebundled loans that the banks sold to other people (AIG, etc) to get more cash on hand to make even more housing loans. secondly, the housing market was highly overvalued, and a crash was inevitable, much like what happened to japan in the late 80's.

 

[Dwight Schrute]

I was watching a show called "Crashed" about the economic problems in 2008 and what caused them, and they were compared to the 20's and the depression.

While talking about the housing bubble they said that in 2006-2007 anybody could buy a house, you just had to show up and ask for one w/o proof of income or employment.

How did people pull that off?

Government regulations. And I'm as serious as a heart attack.

 

[Dwight Schrute]

what made this mess, was the rebundled loans that the banks sold to other people (AIG, etc) to get more cash on hand to make even more housing loans. secondly, the housing market was highly overvalued, and a crash was inevitable, much like what happened to japan in the late 80's.

AIG mainly insured those loans and once those bundles loans starting going bad, so did AIG.

Over half of the loans were backed by the government so you as an investor could buy and sell them because they were 1. Insured (AIG) and 2. Backed by the Federal Government.

Once that was established, it was just a matter of time for everyone of their mother to invest into real estate which then propped up prices to drastic levels. Problem was, people/investors/etc...eventually got in over their head and couldn't pay their mortgage and the whole house came crumbling down.



Long story short :lol:

 

[bigrobbierob]

Government regulations. And I'm as serious as a heart attack.

I know that aspect, I'm just trying to figure out no matter if I really had the income or not, I would still have a big monthly house payment. Did some of these people not even have the intention of paying?

 

[roids1]

I know that aspect, I'm just trying to figure out no matter if I really had the income or not, I would still have a big monthly house payment. Did some of these people not even have the intention of paying?

There were "stated income" loans where you could take a higher interest rate in exchange for not proving your income with tax returns. It's an oxymoron. WTF would I accept a higher rate just to not back up my income unless I'm exaggerating my income?

Most people intended to pay, but just overestimated what they could handle or were mislead about what they could afford by mortgage brokers or realtors. Many people just thought they could buy and flip for a profit and many did. Therer are a zillion factors. I was right in the middle of it, making loans to RE investors, builders, developers, etc. It cost me my job when these people started going broke.

 

[Dwight Schrute]

I know that aspect, I'm just trying to figure out no matter if I really had the income or not, I would still have a big monthly house payment. Did some of these people not even have the intention of paying?

Many large investors bought blocks of properties through quick and fast loans because they could flip them in 30 days. They were basically betting on being able to sell them extremely fast (which happened all the time). I did it with property down here in Florida but never with credit. At the height you could flip lots within 24 hours and houses within 15 days all the while never having to pay a payment. When the house of cards starting to fall and these blocks of investors could not sell at the price needed and had to start actually paying on these loans, everything collapsed and caused a cascade effect with everything else.

We have whole towns that are basically ghost towns with spec homes all over the place. My neighbor is a foreclosure and they up and left and the bank can't even find who owns the mortgage.

4/3 with pool near golf course if anyone wants it :lol:

 

[EasyEJL]

I know that aspect, I'm just trying to figure out no matter if I really had the income or not, I would still have a big monthly house payment. Did some of these people not even have the intention of paying?

this is part of why the variable mortgages fixed for first X years worked. You'd know that you couldn't afford the loan at its real 6%, but they'd make the loan fixed first 1-5 years at something like 2-4% interest, lowering the payment significantly. People gambled that they'd either flip the house, or work something else out in that time.

There were "stated income" loans where you could take a higher interest rate in exchange for not proving your income with tax returns. It's an oxymoron. WTF would I accept a higher rate just to not back up my income unless I'm exaggerating my income?

Because you are a stripper, a hot dog cart runner, own a deli, etc. Any of a number of cash businesses where you don't state your real income for tax purposes, and dont want to use the lies on your tax form to qualify for mortgage.

 

[Dwight Schrute]

where you don't state your real income for tax purposes,

That's every business owner out there :lol:

 

[EasyEJL]

That's every business owner out there :lol:

And our Secretary of the Treasury

 

[roids1]

Because you are a stripper, a hot dog cart runner, own a deli, etc. Any of a number of cash businesses where you don't state your real income for tax purposes, and dont want to use the lies on your tax form to qualify for mortgage.

That was probably the original intent. But, during the RE boom, there seemed to be a lot more people doing it just so they could buy more house than they should. You seriously had people making $50K/yr, buying $500K houses and sometimes signing contracts for multiple properties in order to flip them for a quick profit.

 

[bigrobbierob]

So...

all in all, is it a good thing my wife and I didn't get a house back then or should we be kicking ourselves? Keep in mind my wife works, but I was laid off in December.

We had an chance at a great place but I decided to pass because I was unsure about HER job. Ironically, my industry went stagnate and hers took off!!

 

[EasyEJL]

I dunno, I bought my house in 2005, but I also sold my old house then. So its about even, I have a flat fixed 5% 30 year mortgage on this one as I didn't want to gamble Of course as with any socialistic policies particularly those pushed by democrats, i'll be the one to suffer most as i'm responsible - the people who gambled and lost will get benefits taken from my tax dollars.

 

[roids1]

:werd: You're paying your mtg. You don't deserve a bailout!

 

[EasyEJL]

Reward failure, penalize success. Its the democrat way!