Quote:
Originally Posted by cobra de capell
I'm sure Congress helped start this mess, but the banks compounded the problem with interesting new mortgages, like mortgages where you only had to pay interest (no principal).
Technically, it wasn't the banks - it was the Mortgage Brokers, for example Countrywide that created the sub-prime mortgages - Mortgage Brokers and Mortgage Companies are not regulated as closely as real banks. But they were thrilled to have the Congress, FANNIE and FREDDIE lower their standards to lower than whale poop.
Most house lending is done through Mortgage Brokers and Dealers with FREDDIE and FANNIE buying and packaging those loans - selling the resulting CMO's to banks and other investors as AA paper. A few of the big banks were also into directly offering long term home loans, but only the big banks were involved directly.
Yes, banks were involved but also were forced to buy into what Congress wanted done through CRA. Trust me, this entire fiasco comes out of Congress with primarily Democrats responsible but also some Republicans.
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Hmm, I guessed that when a bank owned your mortgage that they actually processed your payments and had to deal with whatever goofy mortgage variations that they made up.
But I guess if the bank owns commercial paper that groups together a bunch of mortgages, then the issuer of the commercial paper must be collecting the payments from the home owners and then turning that into some sort of payment to the banks/investors that own the commercial paper after taking out their cut. So the average homeowner is not directly paying their mortgage payments to the bank/investor... Interesting.
My current mortgage is with a small local bank that told me that they had never sold a mortgage and did not plan to.
I guess blaming the banks for having weird new mortgages, like the interest only one is wrong. The banks were just dumb for buying commercial paper, that was not rated correctly by the rating agencies. And when the rating agencies realized they were mistaken and dropped the ratings on the commercial paper to a realistic level, well then it was too late.
In addition to government lowering lending standards, I'm sure that the people in the financial industry (which are not necessarily banks) who came up with some of these teaser rate mortgages and interest only mortgages compounded the problem.