# What Was the Cause of the Mortgage Meltdown? **URL:** \ **Category:** Great Debates\ **Created:** [September 3, 2010, 9:28pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544 "2010-09-03T21:28:12Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 12, 2010, 4:13am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/81 "2010-09-12T04:13:13Z")
> [@GIGObuster](#): > > The time line that you are mentioning is really an attempt to rewrite history. > > [Analysis - Roots Of The Crisis | Inside The Meltdown | FRONTLINE | PBS](http://www.pbs.org/wgbh/pages/frontline/meltdown/themes/howwegothere.html) > > > [@](#): > > > > The important thing in '07 is that almost everyone who has a head on their shoulders is saying, “I think there might be a problem here.” But there’s one fundamental response that everyone takes faith in, which is the price of an American home has never consistently gone down since the Great Depression. … > > > > But here’s what’s happened in the meantime that not a lot of people are paying attention to. … From 2004 to 2007, Fannie [Mae] and Freddie [Mac] are all of a sudden under assault from Wall Street. Wall Street is trying to take over Fannie and Freddie’s business. And Fannie and Freddie, to compete, basically start saying, “We’re going to start buying riskier and riskier loans.” … > > > > So there’s this fundamental thing that happens between '04 and '07 which is that all of a sudden, all of the data that was the ballast that supported this belief that homes will never lose any value, the underpinnings of that have disappeared. But not a lot of people have paid attention to it. > > Once again, Fannie and Freddie were a factor, but not the main reason of the meltdown. Your quote says nothing about the time line. In fact, you should read the last quote on the page you cited. No doubt mortgage lenders found the market lucrative and tried to capitalize on it. That does nothing to get to the root of the problem and just describes the symptom. ---
**Author:** ![GIGObuster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gigobuster/32/421_2.png) [@GIGObuster](https://boards.straightdope.com/u/GIGObuster)\ **Post date:** [September 12, 2010, 6:04am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/82 "2010-09-12T06:04:30Z")
> [@yorick73](#): > > > [@GIGObuster](#): > > > > The time line that you are mentioning is really an attempt to rewrite history. > > > > [Analysis - Roots Of The Crisis | Inside The Meltdown | FRONTLINE | PBS](http://www.pbs.org/wgbh/pages/frontline/meltdown/themes/howwegothere.html) > > Once again, Fannie and Freddie were a factor, but not the main reason of the meltdown. > > Your quote says nothing about the time line. In fact, you should read the last quote on the page you cited. No doubt mortgage lenders found the market lucrative and tried to capitalize on it. That does nothing to get to the root of the problem and just describes the symptom. 😕 > [@](#): > > But then, as happens throughout history, financial institutions [learn] how to game the system. So banks, instead of initiating and holding mortgages, which would require them to have capital against these mortgages, would initiate them and sell them. The securitization market had been growing, so here was a new type of loan. You could securitize mortgages. > > Also, along the way, there was a growing belief that everybody should have access to home ownership. That was politically appealing to both Republicans and Democrats. So there was an easing of standards, and these subprime loans were securitized. There were people who did ring warning bells about this, but again, when the economy is going well, it’s difficult to get change. > > And I would add one more factor to the brew. Since 1984, the U.S. economy had performed reasonably well – the two recessions, but both very mild, relative price stability. There wasn’t the sense of urgency to bring change, even though some people did see that the regulatory system wasn’t right. It does not change what I said, you are still attempting to blame Fannie and HUD for this, it was not that simple nor the original/main reason. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [September 13, 2010, 1:35am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/83 "2010-09-13T01:35:20Z")
> [@yorick73](#): > > You haven’t gotten to the root causes of the meltdown. For starters, government land-use restrictions in quite a few places artificially drove up property values to such a degree that many potential homeowners NEEDED banks that provide riskier mortgages. And this all happened between 2002 and 2006? Who the heck are you trying to fool? > [@](#): > > Banks were in the business of providing riskier mortgages thanks to the CRA which DID in fact change in ways that contributed to the problem. Clinton beefed up the CRA and put the full force of Justice behind this previously obscure and lightly enforced regulation. Cite please. I know the CRA evolved but nowhere do I remember it evolving so that it required or effectively required making mortgages that could not be bought by Fannie Mae and Freddie mac. Your argument seems to be that banks were naturally very very risk averse and then all of a sudden they were forced to contemplate riskier mortgages and that in effect compelled them to continue to make even riskier mortgage but this tie with zero down, reverse amortization and no documentation. PFFT!!! The ONLY way in which the CRA might have contributed was that the CRA helped create a database of how non-conforming mortgages performed and then Wall Street took that historical data derived from mortgages that were conforming in every way but the credit score of the borrower and superimposed it on borrowers who were putting no money down, with no documentation and no income verification, reverse amortization and sketchy appraisal practices. Its a REAL FUCKING STRETCH but it seems to be fact in some people’s books. > [@](#): > > Also, the problem of redlining was a local issue. As you mentioned banks started merging like crazy and had to show CRA compliance in order to merge. Now a local issue confined to a local bank and neighborhood becomes a national issue with national implications. Banks with no redlining issues are now required to make risky loans if they wanted to do business at all. I think you fail to understand the difference between kind of loans that were made under the CRA and the kinds of loans that drove the bubble. The bubble did not occur because we had too many overpriced houses in poor black neighborhoods. :smack: > [@](#): > > Add to this the fact that Fannie was required by HUD to dedicate 50% of its business to low and moderate income families. Cite plz. > [@](#): > > They purchased over $400 billion in securities backed by subprime loans between 2004 and 2006. This created the market for subprime loans in the private industry. What percentage of FNMA nd FHLMC’s mortgage portfolio was subprime? What was it at other lenders? What percentage of the entire mortgage market did these entities control, what percentage of the subprime market did they control? > [@](#): > > The greed that so many people complain about was made possible by your government. Sure it was my government but it was a Republican controlled government. > [@](#): > > The conditions that allowed people to borrow with little or nothing down was made possible by your government. Please tell me how many Fannie Mae loans were made with little or nothing down. > [@](#): > > Lax lending standards were made possible by your government. Please tell me what the lending standards were at Fannie Mae and Freddie Mac. It wasn’t Fannie and Freddie with the loose lending standards, it was private lenders like Countrywide and other private lenders who suddenly had access to the securitization market and could therefore circumvent the natural speedbumps that FNMA and FHLMC conforming standards imposed on the industry. All you are doing is repeating Dick Armey’s talking points, try to get some facts independently rather than rely on a single source for all your “facts” ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [September 13, 2010, 1:38am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/84 "2010-09-13T01:38:44Z")
> [@GIGObuster](#): > > It does not change what I said, you are still attempting to blame Fannie and HUD for this, it was not that simple nor the original/main reason. Yes because the alternative is to blame the folks that gaveled down the bureaucrats that raised red flags. I’ll give you one guess which adminstration gaveled down those freeloading government employees that said that something was wrong. ---
**Author:** ![randy054](https://avatars.discourse-cdn.com/v4/letter/r/54ee81/32.png) [@randy054](https://boards.straightdope.com/u/randy054)\ **Post date:** [September 13, 2010, 2:00am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/85 "2010-09-13T02:00:02Z")
> [@Bill\_Door](#): > > Mostly it was that greed thing. Two local banks that failed, Cape Fear Bank and Cooperative Bank in Wilmington, were among 6 banks that loaned a total of 21 million dollars to a couple of drug store owners that felt like they wanted to get into the real estate business. [Here’s an interesting article with a timeline](http://www.starnewsonline.com/article/20091010/ARTICLES/910099970)the local paper did on the whole thing. > > Nobody forced the banks to loan these guys, and dozens like them, millions of dollars. The government didn’t lean on them. The banks rushed out like suckers at a travelling medicine show to put their money down. > > Look at this quote from the article “Even after BB&T refused to lend more money to John and Charlene Waggett, they were able to obtain loans from several other banks in Wilmington that amounted to more than $11 million all within one year. The Waggetts purchased a number of Carolina Beach properties totaling $18 million within a 14-month period, including this duplex at 1204 Canal Drive currently in foreclosure.” > > Here’s another quote, "It’s highly unusual for banks to make more than a couple of loans at a time to novice investors – even those well known in the community as successful business people who had the wherewithal to make their loan payments, said Tony Plath, associate finance professor at the UNC Charlotte Belk School of Business. > > “You only take on a few projects from a new developer at a time. You need to be able to generate operating cash flow,” Plath said. This enables the investor to sell a property to gain cash to pay on these short-term acquisition and development loans. > > This, however, doesn’t appear to have been the banks’ practice in the Waggetts’ case. “It does not appear that the Waggetts sold any of the property that they invested in,” Stubbs said." > > The article goes on and on for five pages, and it gives a pretty clear picture of how it happened. > > The investors weren’t buying property to live in, they were speculating, and so were the banks. It wasn’t fraud, it was greed and laziness. Nobody wants to make money, they just want to get money. > > Oh but hey, if you want to believe the bankers were swindled by Bill Clinton, go right ahead. Here here, but Greed is good:) Seriously though, they were playing hot potato by packaging up the loans into CDS’s and rating them triple AAA and passing them off to the next sucker. Then when the whole shebang came down, they act like the unexpected happened, being the financial geniuses they are and held their hand out to Uncle Sam saying, you made us do it ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 13, 2010, 3:04am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/86 "2010-09-13T03:04:43Z")
> [@yorick73](#): > > Aren’t we ignoring why lending standards were lowered to start with? The federal government pressured banks to lend to “underserved populations” who traditionally have poorer credit and are unable to produce a 20% down payment. The Bush administration considered down payments to be a hassle that got in the way of home ownership. FHA loans only require 3.5% down, even today, and are backed by the full faith and credit of our government. > > Lending institutions were more than happy to provide no doc and no down payment loans that they would just sell to Fannie and Freddie. Profits were privatized while losses were socialized. If the lender were on the hook for bad loans they would require larger down payments and very good credit. > > The bad guys in all of this are the politicians who, I believe, had the best of intentions. Everyone on Capitol Hill was pushing home ownership as part of the American dream. Unfortunately, politicians very often don’t think of the consequences of their well intentioned policies. The government can not force bankers to do anything. They are trying to get them to start lending to small business now and they refuse to. ---
**Author:** ![Chen019](https://avatars.discourse-cdn.com/v4/letter/c/f19dbf/32.png) [@Chen019](https://boards.straightdope.com/u/Chen019)\ **Post date:** [September 15, 2010, 6:20am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/87 "2010-09-15T06:20:44Z")
> [@gonzomax](#): > > The government can not force bankers to do anything. They are trying to get them to start lending to small business now and they refuse to. John Carney has a FAQ here: > [@](#): > > \*\*How could a piece of 1977 legislation be significant to the deterioration of mortgage standards 25 years later? \*\* > > The CRA was not a static piece of legislation. It evolved over the years from a relatively hands-off law focused on process into one that focused on outcomes. Regulators, beginning in the mid-nineties, began to hold banks accountable in serious ways. Banks responded to this new accountability by increasing the CRA loans they made, a move that entailed relaxing their lending standards. > > \*\*That’s still too early. Why would changes in the mid-nineties result in a mortgage boom a decade later? \*\* > > Throughout the nineties banks, as banks lowered their mortgage standards, mortgage rates remained high. The laxity was spreading but the incentives for borrowers to re-finance even under relaxed standards remained low. New buyers often still didn’t know that some of the loosey-goosey mortgages existed. Speculators had an internet bubble, so they weren’t yet attracted to real-estate. Treasury rates were not yet so low that investors seeking yield would pour into mortgage backed securities. Securitization levels were low enough that banks weren’t yet willing to fully embrace the loose standards. The historical data on default and loss rates from the lax lending were not yet available, so they weren’t embraced by banks or the broader market. > > But as the years went by, these factors changed. The Fed pushed interest rates down. This made refinancing more attractive, and created an investor demand for yield. Fannie and Freddie popularized low-income securitization. Low defaults and loss rates from lax loans made them seem not as risky as previously expected. A shrinking consumer asset base thanks to the dot com bust created a demand for home-equity loans and high loan-to-value loans, as consumers exchanged high-interest credit card debt for low interest home debt. Speculators seeking higher returns and ordinary home buyers became aware that lax lending standards would allow them to buy bigger homes with little or no money down. > > In short, the lax lending standards created in response to the CRA had dug a pit that was waiting to get filled when the circumstances were right. > > \*\*Ah ha! So it wasn’t the CRA that caused the mess. It was everything else! \*\* > > Of course it wasn’t the CRA that caused everything. The CRA was a factor in lowering lending standards. This was a necessary, although not sufficient, cause for the mortgage mess. > > \*\*Wait a minute! Paul Krugman told me the CRA was relaxed during the Bush administration. What about that bit of evolution, buster? \*\* > > It’s true that the CRA requirements were relaxed during the Bush administration. But at this point the lax lending standards were already in place. In any case, the relaxation took a peculiar form that actually made CRA lending more important rather than less. You see, the government let banks drop things like putting in ATMs in rural areas in favor of letting their compliance be judged entirely on CRA loans. This means the CRA had more of an influence on home lending after the requirements were relaxed, not less. > > What’s more, George W. Bush was a major proponent of the kind of mortgages that banks had started making under the CRA. He urged low-to-no doc mortgages and the elimination of downpayments, just like the CRA regulators had long done. “We certainly don’t want there to be a fine print preventing people from owning their home,” the President said in a 2002 speech. “We can change the print, and we’ve got to.” > > \*\*What about “No Money Down” Mortgages? Were they required by the CRA? \*\* > > Actually, yes they were. The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required. A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages… > > \*\*Isn’t it really securitization that is the culprit? \*\* > > The government pushed for greater mortgage securitization in an effort to increase CRA lending. At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of “affordable” mortgages. The government was intentionally decreasing the risks to the original lenders in order to increase loans to low-income borrowers, and minorities in particular. In short, you can’t blame securitization without coming back around to the CRA. > \*\*Weren’t the majority of the subprime loans made by mortgage service companies not subject to the CRA? \*\* > > This is true. But it is largely beside the point. A huge driver of the demand for subprime loans was the demand for CRA bonds. Banks operating under the CRA could meet their obligations by buying up CRA loans or MBS built from CRA loans. The CRA created a demand that the mortgage servicers were meeting. > > What’s more, many smaller mortage service companies hoped to be acquired by larger banks. Increasing their CRA lending made them more attractive take-over targets. > > Finally, the Clinton adminstration threatened to subject the mortgage companies to the CRA if they didn’t comply voluntarily. They promptly agreed to increase their CRA-type lending in order to escape the kind of public scrutiny that comes with official CRA regulated status. > > \*\*If the CRA was forcing all this lax lending, why weren’t bankers objecting? \*\* > > Are you really in the dark about why the leaders of large public corporations wouldn’t publicly object to a piece of civil rights legislation? Fine. I’ll be totally open with you: this would have been career suicide and an open invitation to bias litigation and increased scrutiny from regulators. In this case, silence is misleading. > > What’s more, no one said the bankers hated the lax lending the CRA was requiring. Sure, some did. But those people were quickly shown the door, while the enthusiasts were promoted. The regulations themselves selected for enthusiasts for the program of lax lending. > **[Here's How The Community Reinvestment Act Led To The Housing Bubble's Lax...](https://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6)** > > A user's guide to the CRA debate, breaking down its implications for the economy and banking sector. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [September 15, 2010, 9:49am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/88 "2010-09-15T09:49:51Z")
The short answer to OP is: **Inadequate Government Regulation**. It’s futile to look for which _specific_ regulation was weak or missing. The whole deregulation philosophy is wrong. While the Democrat Party is far from faultless, only a moron could miss which is the Party of Deregulation. Remember that one of Bush’s contributions to the philosophy of governance was to lay-off inspectors and regulators to save money!! :smack: Hope this helps. 😃 ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 15, 2010, 1:16pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/89 "2010-09-15T13:16:50Z")
> [@septimus](#): > > The short answer to OP is: **Inadequate Government Regulation**. > > It’s futile to look for which _specific_ regulation was weak or missing. The whole deregulation philosophy is wrong. > > While the Democrat Party is far from faultless, only a moron could miss which is the Party of Deregulation. Remember that one of Bush’s contributions to the philosophy of governance was to lay-off inspectors and regulators to save money!! :smack: > > Hope this helps. 😃 No actually, that didn’t help at all. Unless you can point to a regulation that was there in 2001, that the Bush administration removed, you post is entirely meaningless. We can barely get people to agree on factors that caused the melt down, and even after two pages people in other threads still drop the Freddy and Fanny turd, along with the usual sub-prime mortgage cliche. So it’s futile to blame the Party of Deregulation if you neither point to a regulation they removed, or to a regulation they should have implemented. As far as bullshit partisan politics go: Democrats really need to smarten the hell up because this entire clusterfuck is going to happen again in about 4 years, and it might be your guy holding the potato. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 15, 2010, 1:29pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/90 "2010-09-15T13:29:33Z")
> [@Chen019](#): > > > [@gonzomax](#): > > > > The government can not force bankers to do anything. They are trying to get them to start lending to small business now and they refuse to. > > John Carney has a FAQ here: > > > [@](#): > > > > \*\*How could a piece of 1977 legislation be significant to the deterioration of mortgage standards 25 years later? \*\* > > > > The CRA was not a static piece of legislation. It evolved over the years from a relatively hands-off law focused on process into one that focused on outcomes. Regulators, beginning in the mid-nineties, began to hold banks accountable in serious ways. Banks responded to this new accountability by increasing the CRA loans they made, a move that entailed relaxing their lending standards. > > > > \*\*That’s still too early. Why would changes in the mid-nineties result in a mortgage boom a decade later? \*\* > > > > Throughout the nineties banks, as banks lowered their mortgage standards, mortgage rates remained high. The laxity was spreading but the incentives for borrowers to re-finance even under relaxed standards remained low. New buyers often still didn’t know that some of the loosey-goosey mortgages existed. Speculators had an internet bubble, so they weren’t yet attracted to real-estate. Treasury rates were not yet so low that investors seeking yield would pour into mortgage backed securities. Securitization levels were low enough that banks weren’t yet willing to fully embrace the loose standards. The historical data on default and loss rates from the lax lending were not yet available, so they weren’t embraced by banks or the broader market. > > > > But as the years went by, these factors changed. The Fed pushed interest rates down. This made refinancing more attractive, and created an investor demand for yield. Fannie and Freddie popularized low-income securitization. Low defaults and loss rates from lax loans made them seem not as risky as previously expected. A shrinking consumer asset base thanks to the dot com bust created a demand for home-equity loans and high loan-to-value loans, as consumers exchanged high-interest credit card debt for low interest home debt. Speculators seeking higher returns and ordinary home buyers became aware that lax lending standards would allow them to buy bigger homes with little or no money down. > > > > In short, the lax lending standards created in response to the CRA had dug a pit that was waiting to get filled when the circumstances were right. > > > > \*\*Ah ha! So it wasn’t the CRA that caused the mess. It was everything else! \*\* > > > > Of course it wasn’t the CRA that caused everything. The CRA was a factor in lowering lending standards. This was a necessary, although not sufficient, cause for the mortgage mess. > > > > \*\*Wait a minute! Paul Krugman told me the CRA was relaxed during the Bush administration. What about that bit of evolution, buster? \*\* > > > > It’s true that the CRA requirements were relaxed during the Bush administration. But at this point the lax lending standards were already in place. In any case, the relaxation took a peculiar form that actually made CRA lending more important rather than less. You see, the government let banks drop things like putting in ATMs in rural areas in favor of letting their compliance be judged entirely on CRA loans. This means the CRA had more of an influence on home lending after the requirements were relaxed, not less. > > > > What’s more, George W. Bush was a major proponent of the kind of mortgages that banks had started making under the CRA. He urged low-to-no doc mortgages and the elimination of downpayments, just like the CRA regulators had long done. “We certainly don’t want there to be a fine print preventing people from owning their home,” the President said in a 2002 speech. “We can change the print, and we’ve got to.” > > > > \*\*What about “No Money Down” Mortgages? Were they required by the CRA? \*\* > > > > Actually, yes they were. The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required. A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages… > > > > \*\*Isn’t it really securitization that is the culprit? \*\* > > > > The government pushed for greater mortgage securitization in an effort to increase CRA lending. At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of “affordable” mortgages. The government was intentionally decreasing the risks to the original lenders in order to increase loans to low-income borrowers, and minorities in particular. In short, you can’t blame securitization without coming back around to the CRA. > > \*\*Weren’t the majority of the subprime loans made by mortgage service companies not subject to the CRA? \*\* > > > > This is true. But it is largely beside the point. A huge driver of the demand for subprime loans was the demand for CRA bonds. Banks operating under the CRA could meet their obligations by buying up CRA loans or MBS built from CRA loans. The CRA created a demand that the mortgage servicers were meeting. > > > > What’s more, many smaller mortage service companies hoped to be acquired by larger banks. Increasing their CRA lending made them more attractive take-over targets. > > > > Finally, the Clinton adminstration threatened to subject the mortgage companies to the CRA if they didn’t comply voluntarily. They promptly agreed to increase their CRA-type lending in order to escape the kind of public scrutiny that comes with official CRA regulated status. > > > > \*\*If the CRA was forcing all this lax lending, why weren’t bankers objecting? \*\* > > > > Are you really in the dark about why the leaders of large public corporations wouldn’t publicly object to a piece of civil rights legislation? Fine. I’ll be totally open with you: this would have been career suicide and an open invitation to bias litigation and increased scrutiny from regulators. In this case, silence is misleading. > > > > What’s more, no one said the bankers hated the lax lending the CRA was requiring. Sure, some did. But those people were quickly shown the door, while the enthusiasts were promoted. The regulations themselves selected for enthusiasts for the program of lax lending. > > [A User's Guides to the CRA Debate - Business Insider](http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6) I’m sorry but to me that is complete horseshit, and amounts to little more than an attempt to blame poor people. If only the government didn’t encourage the banks to lend to poor people. 1 in 7 mortgages over $1million are in delinquency. Is that part of the CRA? Subprime mortgages have been around a long, long time. And they have ALWAYS made up the majority of foreclosures. The recent crisis had PRIME mortgages suddenly representing 50% of foreclosures. None of what that guy said had any baring on reality. Even if you assume what he said was 100% true, why would housing prices in CRA areas cause prices to fall in, well, you know, rich white areas? Have you considered that part of it? Nothing changes as far as the CRA aspect was concerned. What changed was that middle class white Americans were buying houses on the expectation that they would appreciate for ever. And then they bought second houses hopping to flip them. It really benefits no one to sit around yelling “blame Bush” or “blame Clinton” or “blame Obama.” At least have the decency to point to something they did or could have done. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [September 15, 2010, 2:32pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/91 "2010-09-15T14:32:15Z")
> [@emacknight](#): > > > [@septimus](#): > > > > The short answer to OP is: **Inadequate Government Regulation**. > > > > It’s futile to look for which _specific_ regulation was weak or missing. The whole deregulation philosophy is wrong. > > > > While the Democrat Party is far from faultless, only a moron could miss which is the Party of Deregulation. Remember that one of Bush’s contributions to the philosophy of governance was to lay-off inspectors and regulators to save money!! :smack: > > > > Hope this helps. 😃 > > No actually, that didn’t help at all. Unless you can point to a regulation that was there in 2001, that the Bush administration removed, you post is entirely meaningless. You’re wrong, unless you reject the presumption that rational governance is a possibility. For one thing your comment presupposes that 2001 regulations were adequate. With hindsight this is clearly false. Admittedly, imagining that GOP might have imposed needed regulations is an absurd assumption. Just Google for “Bush’s SEC Let Madoff Run Free” or some such if you didn’t know how irrational Bushian regulation policies were. (Pointing blame at 1990’s Democrats is beside the point. Clinton was being driven by GOP and, anyway, on financial and regulatory issues Demos already stand about where GOP was in saner days.) ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 15, 2010, 2:47pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/92 "2010-09-15T14:47:07Z")
I had a longer post that I lost. I’ll be brief this time. > [@Chen019](#): > > John Carney has a FAQ here: That FAQ makes no case against the CRA. The CRA loans were not a cause of the meltdown. They were good, dependable, _profitable_ loans. But he tries to blur the distinction between the quality and crap. > [@](#): > > \*\*Weren’t the majority of the subprime loans made by mortgage service companies not subject to the CRA? \*\* > > This is true. But it is largely beside the point. No, it bloody well isn’t. The CRA loans were mostly good. Many sub-prime loans went bad to terrible results. The existence of good loans does not justify bad loans. The fact that some low-income people can be trusted with loans, given the proper precautions that the CRA comes with, does not justify giving out money to anyone who shows up, regardless of whether they can pay it back. This is not a hard concept. The existence of good assets does not mean that creating bad assets is justified. I mean, Christ, no one would claim that the safety of the Golden Gate Bridge is a reason to trust a rusty bridge out in the boonies that hasn’t been maintenanced in years. Different bridges must be evaluated differently. This is so clear a point that it shouldn’t even have to be argued. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 15, 2010, 6:28pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/93 "2010-09-15T18:28:18Z")
> [@septimus](#): > > > [@emacknight](#): > > > > No actually, that didn’t help at all. Unless you can point to a regulation that was there in 2001, that the Bush administration removed, you post is entirely meaningless. > > You’re wrong, unless you reject the presumption that rational governance is a possibility. > > For one thing your comment presupposes that 2001 regulations were adequate. With hindsight this is clearly false. Admittedly, imagining that GOP might have imposed needed regulations is an absurd assumption. > > Just Google for “Bush’s SEC Let Madoff Run Free” or some such if you didn’t know how irrational Bushian regulation policies were. > > (Pointing blame at 1990’s Democrats is beside the point. Clinton was being driven by GOP and, anyway, on financial and regulatory issues Demos already stand about where GOP was in saner days.) Again, everything you wrote comes across as trying to score political points, especially bringing up Madoff. With that said, I wholeheartedly welcome actual high-sight evaluation, such as a specific regulation that was repealed, or a specific regulation that could have been applied. I personally look back and see a lot of room for government intervention to slow things down, but I’m also a Canadian which makes me used to that sort of government intervention. House prices were rising way too fast–a type of inflation that should never have been _allowed_. At any point during the run up, tax policies could have been adjusted to discourage speculation in the housing industry. There is a lot of talk now about “fear Obama will suddenly raise taxes.” That’s precisely the sort of uncertainty Bush needed to put into the housing market–BEFORE it popped. People should never have felt so certain that their house would appreciate so fast. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [September 15, 2010, 7:27pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/94 "2010-09-15T19:27:54Z")
> [@emacknight](#): > > Again, everything you wrote comes across as trying to score political points, especially bringing up Madoff. > > With that said, I wholeheartedly welcome actual high-sight evaluation, such as a specific regulation that was repealed, or a specific regulation that could have been applied. > > I personally look back and see a lot of room for government intervention to slow things down, but I’m also a Canadian which makes me used to that sort of government intervention. House prices were rising way too fast–a type of inflation that should never have been _allowed_. At any point during the run up, tax policies could have been adjusted to discourage speculation in the housing industry. I have a feeling we’re in close agreement, with you objecting to my tone. I’m not trying to “score political points” although it’s true I have bitterness and anger against short-sighted policies (which were pervasive, not just GOP). That stricter regulations were appropriate should be obvious, if only in hindsight, but underlying problems are _still_ not being addressed. I could try to offer a list of specific regulations that should have been imposed but that’s beside the point: it’s not my area of expertise, and anyway I might be branded a leftist advocate of planned economy! I will say: (1) Some regulations, e.g. poss. Sarbanes–Oxley, were more in the nature of counter-productive bandaids than solutions. (2) Regulations **were already available** without legislation had regulatory agencies been dedicated and conscientious rather than emasculated stooges. On the topic of slowing house price rise, I am not an economist but have long wondered if the following is true: Federal Reserve policies should consider (and to some extent oppose) rapid inflation of asset prices, as well as consumer and producer goods. This doesn’t necessitate interest rises: tools like margin requirement can mitigate stock enthusiasm, and there were many ways to reduce housing price inflation had there been the will to do so. Instead, there was a mass hypnosis that housing price inflation was a perpetual money-tree. This wide-spread confusion constitutes a major answer to OP, but it may not be clear how to assign the blame for that. ---
**Author:** ![kidchameleon](https://avatars.discourse-cdn.com/v4/letter/k/898d66/32.png) [@kidchameleon](https://boards.straightdope.com/u/kidchameleon)\ **Post date:** [September 15, 2010, 8:51pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/95 "2010-09-15T20:51:34Z")
> [@elfkin477](#): > > Don’t worry, they’ll be okay. Fannie Mae is starting a new program to sell as-is forclosed houses to people who may need someone else to pay their downpayment. > > Some highlights of the new [Homepath program](http://www.fanniemae.com/homepath/financing/index.jhtml): > > - You may qualify even if your credit is less than perfect (which according to [this article](http://www.housingwatch.com/2010/09/07/fannie-mae-to-sell-foreclosed-homes-with-subprime-lending-terms/?icid=main%7Cmain%7Cdl6%7Csec4_lnk2%7C169171) can be as low as 660-700) > - Available to both owner occupiers and investors > Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer > - No mortgage insurance > > This is awesome. I thought I couldn’t afford a house right now considering 20% is beyond me by thousands, but I could totally swing 3% of up to a $150,000 morage for a house sold as-is and my credit is way higher than 700, so I could buy house tomorrow. What could go wrong? I’m buying a Fanny Mae owned condo through the Homepath program right now. Sadly, I’ve been homeless for the past month because of it. Fanny Mae has “Homepath Renovation” on one of their documents and refused to change it. Their other hand, Homepath refused to finance unless they changed it. Finally after almost going elsewhere for financing, Fanny Mae agreed at the 11th hour to fix their paperwork. Damn thing is a mess. Amazingly, everyone is suffering financially but me. Thanks to hotel points from travelling for work and some friends who let me crash, I saved a bundle. Meanwhile Fanny Mae has an empty condo still on the books and no one else has been paid. The incompetence stuns me. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [September 16, 2010, 12:54am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/96 "2010-09-16T00:54:53Z")
The cause of the mortgage meltdown was the large number of mortgages on homes where the principal of the mortgage exceeded the value of the house. That’s about all there is to it. The factors involved in that were simply the willingness of people to purchase homes for more money than they were worth, and for lenders to provide them the money to do that with. It may seem like oversimplification, but it was nothing but bad decisions. Home buyers did not question the appraised values of houses, which were based on prevailing market conditions, rather than the actual value of properties. Had people used reason instead of greed when making purchase decisions, they would have realized that there is no advantage in purchasing anything at the highest possible price. But love of money causes people to act as foolishly as love for a mate does. Blinded by such love, people were ready to believe that there would be an endless stream of people continuing to repeat the same mistake. The lenders were motivated in the same way. The true wonder is the number of people continuing to pay the mortagages on ‘underwater’ properties. It is the lenders who assumed the risk, and should suffer the losses. But borrowers worried about a credit rating, established by incompetent lenders, continue to throw their money out the window. It is no wonder that the absurd system of government approved appraisers valuing houses based on other over-valued houses, and laws designed to free lenders from incurring losses due to a lack of collateral, are rejecting their traditional representatives in the voting booth. It is a wonder though, the people continue to find appeal in the politicians who demonstrate the highest degree of dishonesty, and expect the economy to improve as a result. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [September 16, 2010, 6:22am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/97 "2010-09-16T06:22:44Z")
> [@TriPolar](#): > > The cause of the mortgage meltdown was the large number of mortgages on homes where the principal of the mortgage exceeded the value of the house. Partly. But that was allowed by the mass-hypnotic-like belief that house price inflation was some perpetual-motion machine that would continue indefinitely. And this was caused by a climate of greed and deregulation. It was astounding so many were deluded. And those who did know better often just exploited others’ ignorance for their own short-term gains. All especially astounding since a stock-market crash just a few years before should have reminded folks that such perpetual money-trees are delusions. OP and others seem to seek some specific regulatory mistake. Perhaps I’m alone in seeing the failure as more systemic. I won’t offer specific remedies; first step would just be to agree on the problems. If after all this, we _still_ can’t look at some of Wall Street’s “Greed is Good” excesses and agree that something is wrong, then I give up. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [September 16, 2010, 7:31am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/98 "2010-09-16T07:31:22Z")
> [@septimus](#): > > > [@TriPolar](#): > > > > The cause of the mortgage meltdown was the large number of mortgages on homes where the principal of the mortgage exceeded the value of the house. > > Partly. But that was allowed by the mass-hypnotic-like belief that house price inflation was some perpetual-motion machine that would continue indefinitely. And this was caused by a climate of greed and deregulation. It was astounding so many were deluded. And those who did know better often just exploited others’ ignorance for their own short-term gains. > > All especially astounding since a stock-market crash just a few years before should have reminded folks that such perpetual money-trees are delusions. > > OP and others seem to seek some specific regulatory mistake. Perhaps I’m alone in seeing the failure as more systemic. I won’t offer specific remedies; first step would just be to agree on the problems. If after all this, we _still_ can’t look at some of Wall Street’s “Greed is Good” excesses and agree that something is wrong, then I give up. The details of what allowed it to happen are unimportant. Without the over valued houses, there would have been no meltdown. Once the over valuation happened, the meltdown was inevitable. If you are looking for a causative factor for the over valuation, it was the lack of any regulatory structure to prevent it. None of the interest rate, credit, bank, debt, and fuzzy mortgage factors would have existed if not for the over valuation to start with. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [September 16, 2010, 11:11am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/99 "2010-09-16T11:11:44Z")
> [@TriPolar](#): > > The details of what allowed it to happen are unimportant. Without the over valued houses, there would have been no meltdown. Once the over valuation happened, the meltdown was inevitable. > > If you are looking for a causative factor for the over valuation, it was the lack of any regulatory structure to prevent it. None of the interest rate, credit, bank, debt, and fuzzy mortgage factors would have existed if not for the over valuation to start with. I don’t want to waste each other’s time quibbling about semantics, but your statement **“does not compute”**. What is “it” in the first sentence? As far as I can tell we seem to be in complete agreement that overvaluation was the problem. But you say the cause of that (“details of what allowed it to happen”) are unimportant, and mention seeking “a causative factor” incidentally as though diagnosing and preventing a major financial crisis would be of only mild academic interest. :dubious: :smack: ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [September 16, 2010, 7:48pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/100 "2010-09-16T19:48:24Z")
> [@septimus](#): > > > [@TriPolar](#): > > > > The details of what allowed it to happen are unimportant. Without the over valued houses, there would have been no meltdown. Once the over valuation happened, the meltdown was inevitable. > > > > If you are looking for a causative factor for the over valuation, it was the lack of any regulatory structure to prevent it. None of the interest rate, credit, bank, debt, and fuzzy mortgage factors would have existed if not for the over valuation to start with. > > I don’t want to waste each other’s time quibbling about semantics, but your statement **“does not compute”**. What is “it” in the first sentence? > > As far as I can tell we seem to be in complete agreement that overvaluation was the problem. But you say the cause of that (“details of what allowed it to happen”) are unimportant, and mention seeking “a causative factor” incidentally as though diagnosing and preventing a major financial crisis would be of only mild academic interest. :dubious: :smack: ‘It’ was the mortgage meltdown. But since we agree, I sense that you are wise, intelligent, and well cultured. The part about other factors was more of a rant. I had in my mind an image of the future where lenders had found another set of gimmicks to snare the foolish and greedy. [Previous page](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544.md?page=4) [Next page](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544.md?page=6)