My take on the real estate bust, from inside the industry

[Catatonic]

Hello, I've been working in real estate since 2004, in the secondary market. What this means is that I deal in buying mortgages from other banks to be sold to investors or Fannie Mae. I'm not in a decision making position or anything, just giving some background.

Anyway if I understand what went down, it was something like this:

The federal government sees a recession coming and pumps the economy full of easy credit. This just a year or two after creating Fannie Mae, which is a government agency that will buy mortgages from banks.

So the government is essentially saying, here's a bunch of credit for you to lend, and once you lend it, we'll buy it back from you. As a lender, this means there is little to no risk involved as there's always going to be more credit coming, and always going to be a buyer, and most set their lending standards based on this.


Now that this system has inevitably failed, the debate seems to be still be whether to blame the borrowers, or the banks lending the money. A lot of focus seems to be on derivatives, but for the life of me I can't see how bringing back glass/stegall would have had any significant impact on the subprime paper that was created as prime.

Anyway just looking for some input. Have I more or less got it?

 

[Blueskies]

Watch this:

YouTube - Nov 2006 Peter Schiff Mortgage Bankers Speech Part 1 of 8

 

[libertybrewcity]

Hello, I've been working in real estate since 2004, in the secondary market. What this means is that I deal in buying mortgages from other banks to be sold to investors or Fannie Mae. I'm not in a decision making position or anything, just giving some background.

Anyway if I understand what went down, it was something like this:

The federal government sees a recession coming and pumps the economy full of easy credit. This just a year or two after creating Fannie Mae, which is a government agency that will buy mortgages from banks.

So the government is essentially saying, here's a bunch of credit for you to lend, and once you lend it, we'll buy it back from you. As a lender, this means there is little to no risk involved as there's always going to be more credit coming, and always going to be a buyer, and most set their lending standards based on this.


Now that this system has inevitably failed, the debate seems to be still be whether to blame the borrowers, or the banks lending the money. A lot of focus seems to be on derivatives, but for the life of me I can't see how bringing back glass/stegall would have had any significant impact on the subprime paper that was created as prime.

Anyway just looking for some input. Have I more or less got it?

read Meltdown by Thomas Woods

 

[newbitech]

Hello, I've been working in real estate since 2004, in the secondary market. What this means is that I deal in buying mortgages from other banks to be sold to investors or Fannie Mae. I'm not in a decision making position or anything, just giving some background.

Anyway if I understand what went down, it was something like this:

The federal government sees a recession coming and pumps the economy full of easy credit. This just a year or two after creating Fannie Mae, which is a government agency that will buy mortgages from banks.

So the government is essentially saying, here's a bunch of credit for you to lend, and once you lend it, we'll buy it back from you. As a lender, this means there is little to no risk involved as there's always going to be more credit coming, and always going to be a buyer, and most set their lending standards based on this.


Now that this system has inevitably failed, the debate seems to be still be whether to blame the borrowers, or the banks lending the money. A lot of focus seems to be on derivatives, but for the life of me I can't see how bringing back glass/stegall would have had any significant impact on the subprime paper that was created as prime.

Anyway just looking for some input. Have I more or less got it?

I worked in the nerve center of a major bank from 05-08. From my perspective, the loose underwriting standards came from two areas.

First, politicians trying to maintain or gain power by promising home ownership for every American. This created, by law huge demand for credit.

Second, investment houses "flipping" paper with insane amounts of leverage. This created the huge supply of credit.

Glass/Stegall prevented banks from acting like securities traders or insurance companies. Gramm-Leach-Bliley removed this barrier which allowed these separate institutions to merge together into one giant behemoth called the financial services industry which was gobbled up overnight by the investment banks.

Now the false demand for credit being supplied by mathematically impossible to redeem credit was labeled as "prime" and sold to the masses through pensions, 401k's and muni's. Of course lobbyist, credit ratings agencies, and regulators like the FDIC, SEC, and Federal Reserve all had their hands in the cookie jar too.

It's not over. We easily speak of these things in the past tense, but absolutely NOTHING has changed in the system that has caused these problems. We have just seen the paper get shuffled around. Of course, the problem really is that all that paper seems to have disappeared for most people in the world, and the ones still holding on to some of it, have no idea what it is worth. So the shuffle will continue until the next match is lit.