Velkomin to the United States of Foreclosure
March 22nd, 2007Excellent article; really gets at the palpable absurdity of the situation.
Via: Atlantic Free Press:
Sub prime loans are loans that are made to people with poor credit. The lender requires a higher rate of interest to cover his risk. For the last 5 years, the sub prime market has skyrocketed due to the loosening of lending practices. The traditional criterion for determining whether a loan applicant is credit-worthy has been abandoned. Now, it is not uncommon to have mortgage lenders provide 100% financing to shaky borrowers who are unable to provide documentation of their real earnings (“no doc†loans) and cannot even scrimp together 4 or $5 thousand for a down payment.(“piggyback†loans)
Why on earth would the banks and mortgage lenders take such a risk?
In a word; greed.
The mortgage industry is driven by fees. Lenders (and agents) are able to fatten their bottom line through loan origination fees and then they tack on additional fees for shipping the loans off to Wall Street where they are bundled into Mortgage Backed Security (MBS). Collateralized debt has become a Wall Street favorite and these otherwise shaky loans have become staples in the hedge funds industry. In fact, last year Wall Street purchased nearly 60% of all mortgages–ignoring the risks associated with sub prime “debt instrumentsâ€. Also, through the magic of derivatives, many of these Mortgage Backed Securities have been leveraged to the extreme; sometimes at a ratio of 35 to 1.
In other words, a home loan of $300,000–that may have been secured by a young man with bad credit who makes $12.50 per hour picking up mill-ends and bits of insulation on a construction job site–has been leveraged into a $10,500,000 securities investment. This may explain why Treasury Secretary Hank Paulson is trying to sooth jittery investors with words of encouragement while he dispatches the Plunge Protection Team (PPT) to shore up the trembling stock market behind the scenes. Every effort is being made to keep this monstrous equity bubble from pirouetting to earth.
Currently, derivatives and mortgage-backed bonds total more than all US Treasuries, Notes and US Bonds combined!?! The stock market is one gigantic pyramid of debt and it’s ready to blow.
…
Imagine an electrical circuit with thousands of connections. No one designed it. No one tested it. No one has a diagram for it. It just grew. Now, because of its size and power and pervasiveness, everything depends upon it. So what happens when one of those thousands of connections burns out? No one really knows.â€
It is a good thing Congress has a firm grip on our USD currency as required by the US Constitution. Ha Ha! Just joking.
http://www.belfasttelegraph.co.uk/business/article2378338.ece
“The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.”
Banks create money out of nothing, that is why they have no problem lending the money. Watch “Money as debt” and “Moneymasters” on google video
Model Home: $4800! From 1928 to 1935 new homes built dropped 90% from $3 Billion to $300 Million. Then the National Housing Act got things rolling again, or course thanks to your tax dollars.
http://www.homebust.com/modules.php?name=News&file=article&sid=43
“Now that the media is finally beginning to get a lot of folks talking about there is in fact a bubble, some people are wondering how long it is going to last. It’s times like this we have to look at history. As fate would have it, I have this fantastic news clip from the 1930s that graphs residential construction from the late 1920s to 1930s. It plots 6 years of decreasing housing construction. You simply have to watch this. “