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Reply to "GOP says it'll block bills until tax cuts extended"

quote:
Originally posted by teyates:
No they should not just "suck it up and move on". We got in this mess by the large number of government handouts we have doled out over the years.


Don't forget that a large part of this mess was caused by greedy Wall Street bankers who bundled and sold risky loans. The foreclosure crisis is a large part of the recession picture, because when these homeowners lost their jobs, they sure couldn't keep up the payments on their over-priced mortgages.

http://www.masslive.com/busine...ers_blame_homeo.html

Clueless Wall Street bankers blame homeowners for foreclosure mess

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Two headlines grabbed my attention online late this week. The first was an MSNBC.com story entitled “Wall St. pins foreclosure fiasco on homeowners.” The second one, on Boston.com, was “Banks seize 288K homes in Q3, but challenges await.”

In the first article two investment bankers whine that if only homeowners had kept paying their mortgages, there would be no problem. The second article bears the news that in the third quarter, more homes were foreclosed on than in any other three-month period since the housing market meltdown began in 2006. But, according to the Wall Streeters, it is all the fault of those pesky non-mortgage paying homeowners.

Well, having read The Big Short: Inside the Doomsday Machine by Michael Lewis and A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald and Patrick Robinson, I have to ask the investment bankers how they have to gall to put the sole blame homeowners when:

Huge mortgage companies evolved over the past 10 to 15 years that operated with little or no concern for the quality of their loans. Loans with zero money down, no documentation required and adjustable rates that would eventually mean the mortgage would be seriously out of reach for the homebuyer were offered to millions of people in the sub prime market. Ginormous bonuses were given out to loan officers for closing ever-higher volumes of loans, in effect, rewarding for quantity, not quality. And since the loans were all being sold off to others higher up in the financial food chain, the originators didn’t actually have to worry because the loans weren’t being held in their own portfolio.

This was all done on the hugely faulty premise that the housing market would always go straight up and the homebuyers would quickly build up equity. When the time came for their mortgages to adjust they would be able to refinance to an affordable fixed rate or sell the house and buy a bigger, better one with the equity they amassed in just a few years. Or so they were told. In numerous documented cases, loan officers falsified the borrower’s income and other information on loan documents. Yet Wall Street banks were anxious to buy up these mortgage firms, themselves betting that the housing market would just go up and up forever.

The big investment banks bundled up the faulty mortgages and sold them to investors around the globe. Wanting their share of the giant amounts of money flowing through the sub prime mortgage markets, Wall Street firms like Bear Stearns and Lehman Brothers, to name just two of the many, many guilty parties, bought oodles and oodles of mortgages and then resold them around the world. Then they used credit default swaps to hedge against the possibility that these now-securitized sub prime mortgages would go south, making what amounts to no more than a Vegas-style bet. As the mortgage companies sold deeper and deeper into the sub prime market and the mortgages got riskier and riskier, Wall Street bankers collected huge bonus checks and shut their ears to all efforts by their risk management folks to alert them of the impending disaster....

The big banks have not managed to develop an efficient process for managing the tidal wave of foreclosures. According to the MSNBC.com article, in a recent letter to federal authorities, California lawmakers presented details about thousands of homeowners in California who have been the victims of foreclosures that could have been avoided if only the banks hadn’t routinely misplaced requested documents, failed to respond in a timely manner and sent mixed signals about what is required to avoid foreclosures. And if it’s happening in California, we can be assured it’s happening in other states too, which has led to the temporary halting of foreclosures in the wake of news that bank officials were signing tens of thousands of foreclosure documents without even reading them.

Now, were there some homebuyers who knowingly committed mortgage fraud? Sure there were. But they are hugely outnumbered by the folks who wanted a piece of the American dream – a home of their own – and believed the lies they were told by mortgage brokers about how they never needed to worry about what would happen when their adjustable mortgage actually adjusted because it would be no problem. And there are also hundreds of thousands of homeowners who have watched the value of their homes plummet because of high rates of foreclosures in their cities and towns....


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