What classes of people profited during the housing boom and bust? I am not talking about people who got out while the getting was good or who found a greater fool, I am referring to classes of people like mortgage brokers, realtors, borrowers, borrowers with bad credit, the people who bundled up the mortgage-backed securities, etc.
Thanks for your help,
Rob
There’s really no large group that did well. Individual investors who took the appropriate short positions made out like bandits, but they were somewhat anomalous.
John Paulson made $3-4 billion, but he’s definitely an exception.
There will probably be some that WILL make out at this point. There are a few people and institutions buying up assets for pennies on the dollar from institutions forced into fire sales to raise capital. They have to sell some good along with the bad, and some of the bad might turn out to be partially recoverable after all. It’s risky, and it may take years to see the return, but the return could be huge. The real problem is guessing just how cheap the trash has to be before something can be salvaged from it.
The people who originated the mortgages and sold them to third-parties made money. That’s what has always bugged me about the modern mortgage market. It has created a group of people who don’t have to care whether the loans are actually sound, since they are just going to resell them on the secondary market to some chump.
There was a great story recently about the whole sub-prime mess on Public Radio International’s This American Life. According them, a lot of the companies that were originating the loans went out of business, laying off the salesmen who made the loans. And since those guys were living really high on the hog for a while, a lot of them bought big, big, houses with big, big mortgages that they could no longer afford once they were laid off. One of them interviewed on the show had monthly expenses of $40,000, IIRC.
Hoist by their own petard.
I would say the real estate lawyers and the people who get to buy the reposessed properties. The losers are us (the taxpayers).
commasense, yours is one of the posts that warms my heart. <evil smiley>
The truth of which does not alter the fact that they made money, though. What they did with that money and how they foolishly, you should pardon the expression, mortgaged their future based on that income notwithstanding. Further evidence that imbeciles who measure business performance by growth instead of by income are doomed to run every company they touch into the ground.
BTW, that was one of the best episodes of TAL ever.
I’d like to add my two pennorth on a related topic.
Over here in the U.K. until recently house prices were going through the roof and we had a lot of newspaper articles trying to gain sympathy for First Time buyers who Quote Couldnt afford to get on the property ladder.
That is we were supposed to feel sorry for them because previous buyers had got their snouts in the trough before them,had made their own profit from reselling their property and because they had pushed the prices up wannabe FTBers couldn’t do the same and make their own profit.
Now no doubt with house prices dropping like a stone we’ll get the usual rash of media items begging for sympathy for those people who have paid out more money for their house then they can resell it for.
Well I’m sorry but if you’ve bought your house to actually live in then its the same house that you thought was worth the money when you bought it so you cant complain.
But if you bought it as an investment to make money on from its resale then you’re in the same boat as anyone else who gambles on the stock exchange or on card games for that matter,there is no such thing as a guarenteed gamble otherwise it wouldn’t be a gamble.
One of our national tabloids ran a campaign to get sympathy for the victims of repossesion,one couple decided to get a mortgage when their income was £160 per week.
Not surprisingly they couldn’t keep up the repayments and lost the house.
Now I agree that it wasn’t very ethical for the mortgage company to agree their loan but they were both grown adults and knew what they were doing.
Maybe they thought that they’d make a few payments and sell the house on for a quick profit,either way I feel a complete lack of sympathy for them.
The female half of the couple tried to justify their actions by saying that the government told everyone that they should buy their own homes which is news to me.
In recent years in the U.K.it has become a widespread belief that everyone has a god given right to own their own home whether they can afford it or not.
These "objects of our pity"because they were made homeless by their actions have been rehoused by the local council and have their rent subsidised by the local tax payers.
I think that its about time that people started living in the real world when it comes down to what they CAN have as opposed to what they WANT to have.
Well, I’ve been doing okay with the low interest rate. One of my credit cards is prime + something, so that was low and my line of credit on my house is prime so the amount of interest I’ve been paying on that has been very low* all my other debt is locked at specific interest rates (5% on my mortgage and 9.99% on AMEX). Also it made for a great time to dump a chunk of my savings into my debt since the savings wasn’t working very hard for me at the moment.
*I want to add that the amount of money I have budgeted each month for my LOC payment is based on a normal interst rate. So a low rate just means a bigger prinicipal portion since I still pay the same thing each month (much more then the interest only minimum payment) and when the interest rate climbs back up, my principal payment will go down, but I’m certainly not going to be at risk of not being able to afford the payment.
Given that only a few years ago, you could only raise 3.5 times your own income and twice your partners income as security for a mortgage, well things have changed.
The previous generally related to a historically high interest rate world, and for the last 10 years or so we have had a relatively low interest rate.
This meant that repayments per £1 as a percentage were so much lower, but all that meant was that more money was chasing the same number of real estate.
Its worse than that, because financial insitutions started to lend money on higher income multipliers, the worst I heard of was 7 time annual income - though that was for a newly quyalified nurse whose true income will rise quite swiftly.
Loans of around 5 times income, and 5 times spousal income became much more widespread, but again, its just more money chasing the same houses.
Result, hardly surprisingly is that house prices have exploded, but in a low inflation and low interest rate world, pay rises are also low, and this means a big loan stays big for a longer time as inflation does not erode it so quickly.
House prices in the UK are at a minimum of 30% above realistic value, actually that rubbish, simple terrace houses in Leeds are on the market for £120k, but the reality is that in terms of repayable income, they are actually worth perhaps £50k and that is being generous.
This means that has to be a significant cahnge in relative values, either house prices fall dramtically or they stay where they are for a long time, or inflation cuts and devalues everything.