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Were there previous regulations ...
Posted: Mon Sep 22, 2008 2:19 pm
by gsabc
... that might have prevented the subprime loan situation? I'm not even sure where to start looking for them, or really what, if any, deregulation there was. Was there any oversight that would have kept banks and other lending institutions from all the financial jiggery-pokery? Or would they have been able to do all this stuff even under the old rules?
I'm truly curious about this. Seems to me that if removing some rules and regulations allowed the lenders to create subprime mortgages, the packaging and resale of mortgages, etc., then putting them back in place should be a major part of the federal bailout package. That may be simplistic and naive in the extreme. I am ignorant here, in the "lack of knowledge" sense of the term.
You don't have to go into the details here. Just point me in the right direction to look it up on my own. I'd appreciate it.
Posted: Mon Sep 22, 2008 2:25 pm
by danielh41
Or were there regulations added in recent years that contributed to the subprime loan situation (like requiring lending institutions to give a certain number of loans to lower income and/or minorities who wouldn't have otherwise qualified)?
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 2:26 pm
by BackInTex
gsabc wrote:... that might have prevented the subprime loan situation?
Yes
You can go all the way back to the early 80's when the feds allowed Savings and Loans to branch out beyond mortgage loans. Previously they couldn't.
There were many regulations that limited the types of business banks, S&Ls, and brokerages could do.
I'm not sure if a bank could loan 100% of value 20 years ago on home mortgages.
Essentially what happened was all of the risk was taken out of home loan. The buyers have no risk at they have invested nothing in the homes. The banks' account holders have no risk because accounts are insured by the FDIC. The bank management has no risk because, well, it isn't their money and as long has they aren't doing anything illegal, there is no jail.
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 2:28 pm
by earendel
gsabc wrote:... that might have prevented the subprime loan situation? I'm not even sure where to start looking for them, or really what, if any, deregulation there was. Was there any oversight that would have kept banks and other lending institutions from all the financial jiggery-pokery? Or would they have been able to do all this stuff even under the old rules?
I'm truly curious about this. Seems to me that if removing some rules and regulations allowed the lenders to create subprime mortgages, the packaging and resale of mortgages, etc., then putting them back in place should be a major part of the federal bailout package. That may be simplistic and naive in the extreme. I am ignorant here, in the "lack of knowledge" sense of the term.
You don't have to go into the details here. Just point me in the right direction to look it up on my own. I'd appreciate it.
I'm not an economist, nor do I play one on TV, but as I understand it, prior to 1999 there were rules prohibiting banks from branching out into insurance and other areas, and, conversely, rules to prevent insurance companies from venturing into banking and other areas. Under a wave of deregulation that swept through the Congress, these rules were abolished in 1999. The Republican-controlled Congress passed the legislation and President Clinton signed it.
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 2:30 pm
by MarleysGh0st
gsabc wrote:You don't have to go into the details here. Just point me in the right direction to look it up on my own. I'd appreciate it.
I've heard it was something called the Commodity Futures Modernization Act.
With hesitation, I'll suggest you look at this link.
http://www.huffingtonpost.com/jim-moore ... 27340.html
It's certainly not non-partisan. But I want to see heads rolling!
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 2:46 pm
by gsabc
Geez, ya think? The guy needs to switch to decaf!
Any counterpoint from an ignorant slut out there?
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 3:08 pm
by Ignorant Slut
gsabc wrote:
Any counterpoint from an ignorant slut out there?
I congratulate you. What a great way to avoid having to think about any possible alternate viewpoints from reasonable people! It's a good thing I've been hanging around.
http://www.bloomberg.com/apps/news?pid= ... KSoiNbnQY0
Posted: Mon Sep 22, 2008 3:20 pm
by ne1410s
IS:
I congratulate you. What a great way to avoid having to think about any possible alternate viewpoints from reasonable people!
Someone's too young to remember Jane Curtin??
Posted: Mon Sep 22, 2008 3:39 pm
by BackInTex
ne1410s wrote:IS:
I congratulate you. What a great way to avoid having to think about any possible alternate viewpoints from reasonable people!
Someone's too young to remember Jane Curtin??
Jane who?
Posted: Mon Sep 22, 2008 3:48 pm
by ulysses5019
BackInTex wrote:ne1410s wrote:IS:
I congratulate you. What a great way to avoid having to think about any possible alternate viewpoints from reasonable people!
Someone's too young to remember Jane Curtin??
Jane who?
So just who is the ignorant one?
Posted: Mon Sep 22, 2008 5:15 pm
by gsabc
Okay, I've gotten opposing viewpoints. Now to sort them out for myself. Thanks, folks!
gs, the no-longer-quite-so-ignorant, but feeling a little slutty
Posted: Mon Sep 22, 2008 8:39 pm
by BigDrawMan
there used to be Regulation Z, which obligated lenders to give potential buyers an estimate of closing costs and the interest rate upon loan application.This was either repealed or not enforced.Borrowers were often told of the coin they needed to close and the interst rate they would pay the day before or day of closing.Kinda hard to walk away from a bad loan when the moving truck was packed.
Also, second mortgages were given based on drive by, or guestimated appraisals.When these were too low for their liking, lenders often "suggested" to appraisers to increase their number.
This disaster was inevitable.
No one would lend their own money on these deals.
Posted: Mon Sep 22, 2008 8:47 pm
by BigDrawMan
danielh41 wrote:Or were there regulations added in recent years that contributed to the subprime loan situation (like requiring lending institutions to give a certain number of loans to lower income and/or minorities who wouldn't have otherwise qualified)?
----------
there was a community reinvestment act which obligated some(mostly large banks and s/l's) to set up programs for low income people.I dont recall any being targeted to ethnic groups, though some were available to female head of households.They provided mebbe 1/2 to 1 percent lower interest rates and a cap on closing costs.These loans required a downpayment and verified income and owner occupancy and werent ez to get.The default rate on these loans werent high.
On sub prime loans, as long as you or your straw buyer had a decent credit score, you could lie about income,job history,owner occupancy,sales price etc.
These loans were hot potatoes, and were sold as soon as they were closed on and were arranged thru mortgage brokers and not banks or s/l's.
Re: Were there previous regulations ...
Posted: Mon Sep 22, 2008 9:16 pm
by BigDrawMan
BackInTex wrote:gsabc wrote:... that might have prevented the subprime loan situation?
Yes
You can go all the way back to the early 80's when the feds allowed Savings and Loans to branch out beyond mortgage loans. Previously they couldn't.
There were many regulations that limited the types of business banks, S&Ls, and brokerages could do.
I'm not sure if a bank could loan 100% of value 20 years ago on home mortgages.
Essentially what happened was all of the risk was taken out of home loan. The buyers have no risk at they have invested nothing in the homes. The banks' account holders have no risk because accounts are insured by the FDIC. The bank management has no risk because, well, it isn't their money and as long has they aren't doing anything illegal, there is no jail.
---------------
Almost all subprime loans were done thru independent mortgage brokers.Local s/l's and banks mainly steered clear of this crap.National banks used their consumer discount arms to lend subprime.Wells Fargo was big in it.
Many brokers didnt even want the A people-not enough money in it.They wanted b,c and d's.Thats where the big money was.On a big loan, they could make 20k on reallyreally bad borrowers.
Posted: Mon Sep 22, 2008 9:33 pm
by Bob Juch
The term "subprime" is being tossed around here and in the media, but that's not what the problems is. "Subprime" refers to loans made to those with below-average credit ratings. Those loans have a high interest rate to make up for the higher risk. Yes, some of those have gone into default, but mostly due to layoffs, etc. The problem loans are those made with low or no down payments and especially those that had an interest rate jump after X years. People have no reason not to walk away from those sort of loans when they can't afford the payments. That led to tightening of credit which led to home values less than the loan amounts which has snowballed into the mess we have now.
Posted: Mon Sep 22, 2008 9:45 pm
by BigDrawMan
BigDrawMan wrote:there used to be Regulation Z, which obligated lenders to give potential buyers an estimate of closing costs and the interest rate upon loan application.This was either repealed or not enforced.Borrowers were often told of the coin they needed to close and the interst rate they would pay the day before or day of closing.Kinda hard to walk away from a bad loan when the moving truck was packed.
-----------------
clarification:
this applied to shaky borrowers not A types.B,C and D types were told by their loan officer, "I'll see what I can find".So no terms were disclosed.
Never a good sign.
Also, second mortgages were given based on drive by, or guestimated appraisals.When these were too low for their liking, lenders often "suggested" to appraisers to increase their number.
This disaster was inevitable.
No one would lend their own money on these deals.
Posted: Mon Sep 22, 2008 11:28 pm
by cindy.wellman
The show, "This American Life" on public radio, had a very well-rounded episode in June called,
"The Giant Pool of Money". Much of the content I was familiar with, but I did learn quite a bit when I listened to it.