There were thousands of houses for sale, mostly short sales, bank owned, with droves of bidders competing to buy them as home prices were still climbing. We quickly realized how difficult it would be to purchase a finished house. For every bid we made, thirty prospective buyers would out bid us. One man owned seven homes and was still buying more since flipping was very profitable. I fell in love with one house but nobody knew who owned it, the deed had been passed around quickly so many times, the realtor had no idea where it was.
We finally made a decent offer on a home owned by Indymac of California. We waited a couple of months and, as we received no answer, moved on to plan B, building our own. Six months later, after we had broken ground for our new home, Indymac called us to proceed right away with the purchase, preferably in one day. They were trying to sell as much of their toxic mortgage loans as possible.
Indymac had just been closed down by the Fed. A congressional representative from New York caused a run-on-the bank move after discussing its insolvency publicly. Indymac was the first victim of the mortgage meltdown of toxic assets that was to follow: Lehman Brothers, Countrywide, etc.
As a person who worked hard my entire life to purchase a home and pay it off, I was personally victimized by the mortgage meltdown since the house I still own is rotting away unsold. I played by the rules, the rules of honest, responsible, and hard-working Americans, who paid their mortgages, their taxes, gave to charity, and followed the law.
Jimmy Carter and Bill Clinton pushed the Community Reinvestment Act.
Jimmy Carter and Bill Clinton pushed the Community Reinvestment Act. Spreading the wealth seemed like a great socialist idea – take from producers and give to people who made no effort to better themselves, study and work. They were more than happy to take from the government, having no idea nor caring who was actually paying for their welfare.
Feelings of pride for a job well done and putting in a good day’s work were lost during forty years of welfare and entitlements designed to create perennial Democrat voters enslaved to the federal government. Cradle to grave entitlements mentality created people who lost their purpose, pride, and responsibility to themselves and their families. There was no surprise when welfare dependent people waited on local and federal governments to save them from the on-coming hurricane Katrina.
President George Bush made many attempts to rein in the mortgage abuse. A Democrat-controlled Congress overrode seventeen attempts made at accountability. Lawmakers like Maxine Waters, Barney Frank, and Chris Dodd, all Democrats, maintained that giving 100 percent mortgages to people who had shady credit and insufficient income worked well and protected the poor. They claimed that home ownership was a right and denying it was discriminatory and racist.
The happy beneficiaries of the Ponzi scheme mortgage loans called Community Reinvestment Act, which was bound to crash at some point, participated willingly in the destruction of other people’s lives and wealth. Why would they care if other Americans saved their money, were responsible citizens, bought homes they could afford, made payments on time, paid all their bills, and maintained a good credit rating? Although on welfare, it was their right to own a home, shouted ACORN through bullhorns, while picketing bankers’ homes.
Recently, Laurie, a former mortgage broker and advertising executive, called a national syndicated talk show and described how the mortgage-backed securities were pushed by Congress at the height of the real estate price rise in 1999-2003. Fannie Mae, Freddie Mac, HUD, and FHA had representatives who visited mortgage/brokerage offices quite often, putting pressure on agents to get as many mortgages out of the door as possible.
Laurie continued, mortgage companies would get $15 million worth of ” wholesale line of credit” with the guarantee that Fannie and Freddie would buy them immediately, repackage them, or send them whole to Lehman Brothers. Mortgage brokers doubled and tripled during this period because of the wholesale lines of credit. Banks that were heavy into wholesale lines of credit went under like WAMU, Countrywide, “Friends of Angelo,” etc.
According to this caller, few knew in the beginning that 95 percent of these loans were insolvent, in the sub-prime category, although they were not rated that way. The executives at Freddie and Fannie would pay themselves huge bonuses for a job well done.
“According to the people from the Credit Managers Bureau, the three major credit rating agencies were under pressure from the government, Congress, FHA, Fannie, Freddie, to fix customers’ credits in order to qualify them for the loans. A “rapid re-score process” was developed that allowed mortgage offices to write a sentence explaining someone’s bad credit issues and score of 580 and, within an hour of faxing it to the credit bureau, a good credit score of upwards of 700 appeared.”
“For the non-income call mortgages, people who were self-employed, did not have a W-2 or 1099 form, or did not have income at all to show that they qualified for a loan, the rapid re-score process was used. The rapid re-score was employed only for mortgage purposes although brokers friends used rapid re-score to buy cars. When the next credit update from the major credit bureau agencies took place, the good credit rating of 700 plus disappeared and the old low credit score was reinstated.”
Laurie continued that the vast majority of non-income qualifying loans were 2-3 year adjusted rate mortgages (ARMs), written during 2003-2005. By the end of 2006, the two-year ARMs had begun to circulate, had become due, and people had to refinance their house. They now had to pay a reasonable interest rate (not just 2.5 percent) plus a regular amortization schedule. Owners had to pay principal down every month and payments were 4-5 times higher than the original payment. A mortgage of $1,000 per month now rose to $4,000-5,000 per month.
Unscrupulous companies on the east coast started to buy bundled mortgages of businesses that had already started to go bad. They even bought some from Lehman Brothers. As real estate prices were still going up, the investor groups negotiated people out of their homes, gave them back what they could, sold the mortgages to qualified buyers and, for a short time, the scheme was successful. At the same time, those who were negotiated out of their homes complained that they did not get enough money. At the end of the day, people who played by the rules were hurt. Four different states are prosecuting these unscrupulous companies under Racketeer Influenced and Corrupt Organizations Act (RICO).
Investors stepped in to buy the mortgages with late payments since home prices were still climbing. At this point, there was a lot of poison ingested into the housing market and nobody knew exactly the extent of the poison.
“Fannie and Freddie spread this stuff out so far and so wide, you would have had to have been on the ground floor to realize how much, millions, billions, trillions of these securities were floating around on the open market. Rapid re-scores were in one package and non-income mortgages were in another package.”
According to the caller, Fannie and Freddie were pushing these mortgages so extensively that they had booths at all the mortgage seminars, like “carnival booths.” “They were so excited that you were in the mortgage business. You could rapidly re-score 500,000 people a year and they would back up and buy anything you could send them.”
“The government and wealthy people gave us the mortgage meltdown. They knew it was coming in 2008 in the middle of a presidential campaign. They gave us the financial panic in 2008, TARP, and Paulson, the former CEO of Goldman Sachs as Treasury Secretary. They knew George Bush would be blamed for everything.” Bush made the wrong choice of Treasury Secretary and exacerbated the problem. Lehman Brothers were not bailed out because they were not Goldman Sachs.
As I ponder the mortgage meltdown, I come to the realization that the people who caused the loss of trillions of dollars of wealth to the American people are still in power, lecturing us on how irresponsible we are in our lives, our spending habits, our energy use, fuel use, and general uncontrollable quest for consumption while we hurt the planet.
In early 2008, my husband and I were looking to purchase a house. We were very careful, looking for a home that we needed and could afford, not a home that we wanted. As we visited various builders in the areas, we began to notice mortgage brokers busy with clients in various processes of finalizing contracts. The buyers were of modest income, some did not speak English at all, but purchasing half a million dollar plus homes in upscale neighborhoods. I was surprised that so many lower income people would qualify for such an astronomical purchase, the most expensive item the average American buys in his/her lifetime.
