Smalltownbanker

The Financial Crisis Explained

I have to disagree with a high percentage of this piece. Fannie and Freddie were trailing the market into the Subprime mortgage arena. The charge was led by Wall Street and the higher LTV, lower credit score trend did not begin in 1997, it began after 2000 so pointing the finger a Clinton is off base at this point.

Sub-prime mortgages are a critical part of this equation but the real issue was stated income and no-doc loans across the entire credit spectrum. Until 2002-2003 Low Doc loans were reserved for individuals with normal down payments of 20% or more. After that time the trend moved rapidly towards the 0% down payment which was allowed even on investor owned property which was insane from the first loan made.

When low doc loans required large down payments you had a reason to believe the person actually had the income to support the loan and the common sense not to sign a note they could not afford to repay. When you eliminated the down payment and the documentation you essentially cut 2 legs off the 3 legged stool of underwriting a loan and it wobbled and balanced itsself until values started to fall then collapsed and no amount of loan modifications will fix the problem until those individuals who cannot afford their homes lose them.

When that occurs we will see a bottom to home prices and can begin the process of recovery.

Financial Stocks in a 'Divergent Phugoid'

Interesting, but I think the wind may be easier to overcome than the current market momentum.

NAR's Lawrence Yun Continues to Mislead on Housing

Just like everyone else you paint with a broad brush. All markets did not experience hyperinflation of home values, in fact most of the market saw more normal appreciation. All markets are not seeing values crashing down but 0-10% will be the norm across most of the Nation. The crisis in Prime lending which you predict will not happen There will be limited failures due to fraudulent stated income loans and homeowners who have overextended themselves in other areas. In reality those are always with us. A property that is overpriced for a homeowner is significantly overpriced for an investor so I am not sure where your comment regarding rental property comes from. GSE's are now placing serious limits on the number of investment properties you can finance for one individual so this prediction is only good if you have cash. The housing price correction in some markets is largely over, in some markets is half way through, in some markets is just beginning and in some markets will never happen so overall the predictions made by everyone are true in certain areas. I would suggest shifting focus to opportunities instead of predicting doom and gloom. I guess it is comforting to you to know that your doom and gloom predictions will be well received by the losers.