# 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:** 6
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 17, 2010, 6:05pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/101 "2010-09-17T18:05:40Z")
> [@Damuri\_Ajashi](#): > > And this all happened between 2002 and 2006? Who the heck are you trying to fool? Why do you need all this to happen between '02 and '06? I’m talking about the root causes here. > [@Damuri\_Ajashi](#): > > 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. Banks were not forced to make the loans but they were forced to be CRA compliant in order to, as you said, merge like crazy. This is basically the same thing…in order for the banks to operate as they want, they must be CRA compliant or they cannot expand: > **[FDIC Law, Regulations, Related Acts | FDIC.gov](https://www.fdic.gov/laws-and-regulations/fdic-law-regulations-related-acts)** > > FDIC Law, Regulations, Related Acts > **[12 U.S. Code § 1835a - Prohibition against deposit production offices](https://www.law.cornell.edu/uscode/text/12/1835a)** > [@Damuri\_Ajashi](#): > > 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:[ I think you fail to understand that these are two separate issues, one caused in part by the other, that both contributed to the mortgage meltdown. > [@Damuri\_Ajashi](#): > > Cite plz. Sure…here ya go (warning pdf file) [http://www.huduser.org/Publications/PDF/gse.pdf](http://www.huduser.org/Publications/PDF/gse.pdf) > [@Damuri\_Ajashi](#): > > 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? Do you know the answer already or are you asking me? Here is information from Fannie Mae on it’s losses from subprime and Alt-A loans. Fannie Mae and Freddie Mac did not list the percentage of their portfolio that was subprime but 85% of their losses came from this: [http://www.fanniemae.com/media/pdf/newsreleases/2008\_Q2\_10Q\_Investor\_Summary.pdf](http://www.fanniemae.com/media/pdf/newsreleases/2008_Q2_10Q_Investor_Summary.pdf) > [@Damuri\_Ajashi](#): > > Sure it was my government but it was a Republican controlled government. Unlike you I am not trying to pin this on a political party. I’m pointing out that government is the problem. Even the best intentions can have disastrous effects. > [@Damuri\_Ajashi](#): > > Please tell me how many Fannie Mae loans were made with little or nothing down. See the above link. Fannie Mae did not disclose how many loans fell under it’s subprime or Alt-A categories so I don’t know that the question can be answered definitively. > [@Damuri\_Ajashi](#): > > Please tell me what the lending standards were at Fannie Mae and Freddie Mac. Fannie and Freddlie did not originate loans and, therefore, do not have lending standards per se. I thought you knew this. Nonetheless, Fannie and Freddie were not diligent in making sure the loans they purchased were sound. Read about it here: [http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html](http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html) > [@Damuri\_Ajashi](#): > > 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. Conforming standards? You are living the past. The market was created by Fannie and Freddie. They were buying loans that did not meet their standards. Were they hoodwinked? No, they didn’t bother to make sure the loans met their standards. > [@Damuri\_Ajashi](#): > > 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” LOL ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 17, 2010, 6:58pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/102 "2010-09-17T18:58:35Z")
Blaming Fanny and Freddie is a right wing tactic. The blame belongs with lenders. The originators of the loans ,made bad loans. The power to stop bad loans was in the hands of the banks. But, since they were not going to keep the loans, they would approve damn near anything. They made billions off them and were not going to have ant long term liability. It was a perfect storm of outrageous speculation. But that was not enough. They packaged the loans by chopping them up to disguise the danger. They sold the packages around the world with triple A ratings supplied by rating companies that were under great pressure to provide them. That was not enough. They sold swaps, which are insurance packages for the crappy loans they had spearheaded. They sold swaps to a level that exceeded the total amount of money in the world. How could that be ethical? If the loans crashed, it would be impossible to pay them off. That is fraud. Selling insurance that you know you can not pay off is wrong. The mess is in the lap of the banks who totally got away with it. It is sickening. ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 17, 2010, 8:05pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/103 "2010-09-17T20:05:04Z")
> [@gonzomax](#): > > > [@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. Hmmm…I wonder how they can force insurance companies to insure everyone. I guess their reach only extends to the insurance industry! ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 17, 2010, 8:22pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/104 "2010-09-17T20:22:49Z")
> [@gonzomax](#): > > Blaming Fanny and Freddie is a right wing tactic. The blame belongs with lenders. The originators of the loans ,made bad loans. The power to stop bad loans was in the hands of the banks. But, since they were not going to keep the loans, they would approve damn near anything. They made billions off them and were not going to have ant long term liability. It was a perfect storm of outrageous speculation. > But that was not enough. They packaged the loans by chopping them up to disguise the danger. They sold the packages around the world with triple A ratings supplied by rating companies that were under great pressure to provide them. > That was not enough. They sold swaps, which are insurance packages for the crappy loans they had spearheaded. They sold swaps to a level that exceeded the total amount of money in the world. How could that be ethical? If the loans crashed, it would be impossible to pay them off. That is fraud. Selling insurance that you know you can not pay off is wrong. The mess is in the lap of the banks who totally got away with it. It is sickening. Fannie and Freddie dominated the secondary market. Only 4.2% of the servicing agreements made by Fannie and Freddie obligated banks to cover defaults. Banks would have been idiots NOT to sell off these loans in order to lower their own risk. In the process the banks acquired more capital to originate more loans. No question the banks got greedy. The problem is that it was the government that allowed this behavior in the first place. ---
**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 17, 2010, 8:54pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/105 "2010-09-17T20:54:54Z")
> [@yorick73](#): > > I’m pointing out that government is the problem. 😕 :smack: 😕 :smack: 😕 The mass-hypnotic housing boom was caused by a frenzy of greed and irresponsibility. Preachers, for heaven’s sake, were being co-opted by bankers to encourage poor Blacks to buy homes! Media pundits, many of whom knew better, encouraged the delusion that housing was a perpetual money machine. Government decisions were partly to blame, but the biggest blame against government here was its decision _not to govern_! Regulatory agencies were understaffed and controlled by stooges of the regulated industries. To call government the problem here is to twist facts to ideological preconception. ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [September 17, 2010, 10:10pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/106 "2010-09-17T22:10:40Z")
> [@yorick73](#): > > > [@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. > > Hmmm…I wonder how they can force insurance companies to insure everyone. I guess their reach only extends to the insurance industry! Wait, are you _advocating_ government socialization of the banking industry? ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 17, 2010, 10:15pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/107 "2010-09-17T22:15:15Z")
> [@septimus](#): > > > [@yorick73](#): > > > > I’m pointing out that government is the problem. > > 😕 :smack: 😕 :smack: 😕 > > The mass-hypnotic housing boom was caused by a frenzy of greed and irresponsibility. Preachers, for heaven’s sake, were being co-opted by bankers to encourage poor Blacks to buy homes! Media pundits, many of whom knew better, encouraged the delusion that housing was a perpetual money machine. > > Government decisions were partly to blame, but the biggest blame against government here was its decision _not to govern_! Regulatory agencies were understaffed and controlled by stooges of the regulated industries. > > To call government the problem here is to twist facts to ideological preconception. Confused is the correct expression for you. Excellent job of pointing out one symptom of the problem. Unfortunately you, and many others, hear “greedy bankers” or “preying on consumers” and look no further. This is truly twisting facts to ideological preconception. ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 17, 2010, 10:17pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/108 "2010-09-17T22:17:32Z")
> [@begbert2](#): > > > [@yorick73](#): > > > > Hmmm…I wonder how they can force insurance companies to insure everyone. I guess their reach only extends to the insurance industry! > > Wait, are you _advocating_ government socialization of the banking industry? I think you have misread my post. I am pointing out that the government has ways to force certain industries, particularly ones has heavily regulated as the banking industries, to do what the government demands. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 17, 2010, 10:22pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/109 "2010-09-17T22:22:20Z")
Personally, I think “blame” is the wrong way to look at the problem and in the end will simply distract the masses until the problem happens again. Republicans blame Democrats, Democrats blame Republicans, joke is they are both right. I’m still going to push my belief that it was the no equity loans that _caused_ the mess. Blame goes all the way around. Home owners should never have agreed to such a loan. Banks should never have issued them. And the government shouldn’t have allowed them. The rest is just smoke and mirrors ---
**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 17, 2010, 10:29pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/110 "2010-09-17T22:29:24Z")
> [@yorick73](#): > > > [@begbert2](#): > > > > Wait, are you _advocating_ government socialization of the banking industry? > > I think you have misread my post. I am pointing out that the government has ways to force certain industries, particularly ones has heavily regulated as the banking industries, to do what the government demands. That is just another way to say “devil made me do it” It is still silly coming from the sinners. The toxic assets that did not exist until recently, fueled in great part the debacle, they did not depend on HUD or Fannie to thrive. [http://www.npr.org/templates/story/story.php?storyId=124587240](http://www.npr.org/templates/story/story.php?storyId=124587240) ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 17, 2010, 11:32pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/111 "2010-09-17T23:32:51Z")
I heard this on the radio yesterday, and had to find a cite. Over 50% of subprime mortgages were made to people who qualified for standard ones From [here](http://en.wikipedia.org/wiki/Subprime_mortgage_crisis). Go to the **High-risk mortgage loans and lending/borrowing practices** section. That had a lot to do with CRA. > [@](#): > > The proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006. However, there are many factors other than credit score that affect lending. In addition, mortgage brokers in some cases received incentives from lenders to offer subprime ARM’s even to those with credit ratings that merited a conforming (i.e., non-subprime) loan.[84] ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 18, 2010, 1:32am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/112 "2010-09-18T01:32:57Z")
> [@Voyager](#): > > I heard this on the radio yesterday, and had to find a cite. Over 50% of subprime mortgages were made to people who qualified for standard ones > From [here](http://en.wikipedia.org/wiki/Subprime_mortgage_crisis). Go to the **High-risk mortgage loans and lending/borrowing practices** section. That had a lot to do with CRA. > > > [@](#): > > > > The proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006. However, there are many factors other than credit score that affect lending. In addition, mortgage brokers in some cases received incentives from lenders to offer subprime ARM’s even to those with credit ratings that merited a conforming (i.e., non-subprime) loan.[84] If I’m not mistaken subprime would include mortgages with a loan to value over 90%. This might explain some of the increase for people who qualify for a prime mortgage but do not have the money for a substantial down payment…especially in the highest markets. I don’t know this for sure but just throwing it out. ---
**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 18, 2010, 7:12am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/113 "2010-09-18T07:12:22Z")
> [@yorick73](#): > > Confused is the correct expression for you. Excellent job of pointing out one symptom of the problem. Unfortunately you, and many others, hear “greedy bankers” or “preying on consumers” and look no further. This is truly twisting facts to ideological preconception. Wrong again. Saying “government is the problem” when it was government’s _failure to govern_ that was the problem shows the confused preconception. Another matter which confuses posts here. Some blame easy mortgages on the perpetual-inflation fantasy, some vice versa. No one’s mentioned these formed a _vicious circle_: Investors flocked to finance houses because “prices would continue to rise.” Prices continued to rise because of the easy credit. ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [September 18, 2010, 3:33pm UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/114 "2010-09-18T15:33:22Z")
> [@septimus](#): > > > [@yorick73](#): > > > > Confused is the correct expression for you. Excellent job of pointing out one symptom of the problem. Unfortunately you, and many others, hear “greedy bankers” or “preying on consumers” and look no further. This is truly twisting facts to ideological preconception. > > Wrong again. Saying “government is the problem” when it was government’s _failure to govern_ that was the problem shows the confused preconception. > > Another matter which confuses posts here. Some blame easy mortgages on the perpetual-inflation fantasy, some vice versa. No one’s mentioned these formed a _vicious circle_: Investors flocked to finance houses because “prices would continue to rise.” Prices continued to rise because of the easy credit. I’m not solely blaming government. I am claiming that government made these conditions possible. Actively made them possible as opposed to lack of regulation. The Fed pushed the bubble through cheap credit. Government intervention practically created the secondary market. Government actively sought to provide loans to individuals in poorer neighborhoods who could not pay them back. Government allowed HUD to offer no-down payment loans. Unlike many here I am not looking to pin this on either party. Both sides of the aisle had their hand in this. My belief is that government, looking to do the right thing, created a huge mess. What sounds good to politicians and to the public can have huge unintended consequences. ---
**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 19, 2010, 5:11am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/115 "2010-09-19T05:11:27Z")
> [@Chen019](#): > > John Carney has a FAQ here: I don’t think this stuff says what John Carney thinks it says. I agree with much of what he says about the chronology but he seems to be saying that the CRA “set the table for the bubble” In law we have this concept called “a proximate cause” it roughly translates into “a precipitating factor” the CRA would not be a proximate cause or precipitating factor. For example, if I got into a car accident while driving drunk at my friend’s birthday party, my friend’s mother giving birth to my friend would not be a proximate cause or precipitating factor for my car accident BUT isn’t it true that if my friend had never been born I would not be driving home drunk from his birthday party? Yeah, so? The CRA didn’t actually or effectively require no money down mortgages, this is simply not true. It may have encouraged lower lending standards (including lower down payments) but it didn’t look anything like the sort of mortages that we all heard about. And of COURSE we can blame securitization without coming back to the CRA. Our economies were not ruined by high default rates in black neighborhoods, its as simple as that. I wonder if Mr. Carney has ANY clue what percentage of subprime mortgages were CRA mortgages, because I get the impression that he thinks that some significant percentage of subprime mortgages were CRA mortgages and this simply wasn’t the case. CRA mortgages accounted for a teeny tiny sliver of subprime mortgages. Yes, I agree that CRA compliance became a factor in the bank consolkidation of the late 90’s early 2000’s but it was hardly a driving force. The majority of bank consolidation occurred BEFORE the bubble formed. In the end, the CRA simply was not a precipitating factor, or even a significant factor in the bubble. Anyone that tries to tell you different has either been misinformed or is trying to misinform you. ---
**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 19, 2010, 5:18am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/116 "2010-09-19T05:18:12Z")
> [@septimus](#): > > 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. This is just my pet conspiracy theory but I think the bubble was intentional. We had a Republican president trying to sell us on obscenely low taxes for the rich (15% capital gains and dividend tax, really?) AND an unnecessary war in Iraq while he was trying to combat the effects of the Dotcom bust and the Enron type scandals. He wanted this bubble, he needed this bubble. Greenspan on the other hand was very very eager to accommodate him because he wanted to prove his lifelong devotion to AynRandianism correct. He testified that tax cuts would be a good thing (and only later said “oh I thought that spending cuts would naturally go along with those tax cuts” Where the FUCK had he been over the last 20 years? The people who wanted tax cuts believed that tax cuts paid for themselves). ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [September 19, 2010, 5:19am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/117 "2010-09-19T05:19:53Z")
> [@Damuri\_Ajashi](#): > > I wonder if Mr. Carney has ANY clue what percentage of subprime mortgages were CRA mortgages, because I get the impression that he thinks that some significant percentage of subprime mortgages were CRA mortgages and this simply wasn’t the case. CRA mortgages accounted for a teeny tiny sliver of subprime mortgages. Is there a way to find out what percentage were CRA mortgages? For those that still think the CRA had something to do with all this, the article I linked to in the OP states that nearly 50% of foreclosures were prime mortgages. And then 1 in 7 mortgages over $1milllion are in delinquency, do you think those were in CRA neighbourhoods? But even IF the government forced the banks to offer no equity mortgages, did the government also FORCE people to accept them? See how there are at least three people involved? And then there is a forth: investors were buying pieces of those mortgages. Were they also forced? ---
**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 19, 2010, 5:22am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/118 "2010-09-19T05:22:26Z")
> [@TriPolar](#): > > 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. I know one appraiser and he basically admitted that his profession had abandoned their principles when he saw 40 year old homes being appraised for more than it would have cost to build new. ---
**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 19, 2010, 5:23am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/119 "2010-09-19T05:23:29Z")
> [@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. Well historically, homes have in fact been a perpetual money machine but it did so at slightly higher than the risk free rate not at 40%/year. ---
**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 19, 2010, 5:49am UTC](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544/120 "2010-09-19T05:49:35Z")
> [@yorick73](#): > > Why do you need all this to happen between '02 and '06? I’m talking about the root causes here. Yeah, and I’m saying that you are going back so fucking far that there is only a tenuous relationship between what you say are the causes of the bubble and the bubble itself. > [@](#): > > Banks were not forced to make the loans but they were forced to be CRA compliant in order to, as you said, merge like crazy. This is basically the same thing…in order for the banks to operate as they want, they must be CRA compliant or they cannot expand: Yes and how many of the subprime mortgages do you think were CRA mortgages? > [@](#): > > I think you fail to understand that these are two separate issues, one caused in part by the other, that both contributed to the mortgage meltdown. And I’m saying that the CRA was about as causative of the subprime mortgage mess as your parents having sex 9 months before you were born is causative of my sitting at he keyboard typing this post. You are reaching and grasping at straws. > [@](#): > > Sure…here ya go (warning pdf file) > [http://www.huduser.org/Publications/PDF/gse.pdf](http://www.huduser.org/Publications/PDF/gse.pdf) This is your statement: > [@](#): > > Add to this the fact that Fannie was required by HUD to dedicate 50% of its business to low and moderate income families. This is what is in your link: > [@](#): > > Low- and moderate-income goal. At least 50 percent of the dwelling units financed by each GSE’s mortgage purchases should be for families with incomes no greater than area median income This is hardly subprime or driven by the CRA. Perhaps you were trying to make some other point but in the context of a discussion of subprime mortgages and the CRA you can understand my confusion when you cite to something that has nothing to do with the CRA or subprime mortgages. > [@](#): > > Do you know the answer already or are you asking me? I know the answer and despite the obvious fact that most of their losses came from their worst loans, their portfolio was largely conforming loans, they had a relatively small portion of the subprime market and Alt A is not subprime, its the grade between conforming and subprime. > [@](#): > > Unlike you I am not trying to pin this on a political party. I’m pointing out that government is the problem. Even the best intentions can have disastrous effects. When you say “government IS the problem” you are taking a political stance. You are disowning the Republican party because, well, you have to; but you are not disowning the ideas that inspired the Republican party to drive us into this ditch. > [@](#): > > See the above link. Fannie Mae did not disclose how many loans fell under it’s subprime or Alt-A categories so I don’t know that the question can be answered definitively. Subprime and alt A are different. You are grasping at straws trying to find some way to salvage your ideology while pinning the blame on “government” or the democrats. > [@](#): > > Fannie and Freddlie did not originate loans and, therefore, do not have lending standards per se. I thought you knew this. You do know why there some mortgages are called "conforming and others are not right? Because they imposed lending standards for the mortgages they would buy. I thought you knew this. > [@](#): > > Nonetheless, Fannie and Freddie were not diligent in making sure the loans they purchased were sound. Read about it here: > [http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html](http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html) This is the third time you simply linked a cite without a quote or something a bit more pinpoint. The article STARTS with these words “In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford” why were these regulators ignored? The article says a lot of things, you care to point to the part you think helps your case? > [@](#): > > Conforming standards? You are living the past. The market was created by Fannie and Freddie. They were buying loans that did not meet their standards. Were they hoodwinked? No, they didn’t bother to make sure the loans met their standards. WTF are you talking about? Conforming standards are a pretty real thing. You think they drove the market into subprime? If anything the market drove Fannie and Fredie into buying more subprime then they wanted in order to try and get a handle on that runaway corner of the market. If you didn’t make a market in subprime, you had no say in how the standards evolved. But they STILL didn’t have very much subprime relative to their share of the mortgage market generally. > [@](#): > > > [@Damuri\_Ajashi](#): > > > > 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” > > LOL Then you are parroting someone that is parroting him. Think for yourself, you’ll feel better, most Democrats do. [Previous page](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544.md?page=5) [Next page](https://boards.straightdope.com/t/what-was-the-cause-of-the-mortgage-meltdown/552544.md?page=7)