Business Flip!Flip Business Flip

It is what, three-four years since Mortgage Crisis began and no, the mortgage disaster did not cause (ALL) of this recession, per Mr. Greenspan and quoted on TV. I do recognize how the Mortgage Meltdown is very highly connected with the recession; it had to be, with so many people getting late on their mortgage loans payments. I was an Mortgage Loan Underwriter long before the Subprime loan so I know very well what Fannie and Freddie guidelines were before wanting a chunk of that profitable pie.

Fannie Mae and Freddie Mac did not trigger the mortgage meltdown and that is what so almost all people fail to understand. Yes, they went under but they did not always buy the loans made by the Bank which were made with less than perfect credit. They were fine until they started investing later within the 2000s in a number of the non-conforming loans (subprime loans). It was the lower than perfect credit loans which did not meet the minimum standards for lending money which can be the largest expenditure almost all people make in their lifetimes. When you begin take into consideration lending so many thousands of dollars to those who can barely survive from pay check to pay check, anyone with any skill to reason whatsoever should have know very well what was to follow.

CRA (Community Reinvestment Act)didn’t cause the Mortgage Crisis either. Yes, the federal government did regulate the Banks to produce CRA (Community Reinvestment Act) loan with regulations in 1977 which implemented that so many of the Bank’s loans, a small percentage is required to be made to certain neighborhoods with restrictions lower than a standard loan guidelines. Yes, the Government allowed these made with less than perfect credit loans but the Banks didn’t go under due to these CRA loans. These loans weren’t overly assessable to borrowers and never did they overuse their ability to create these loans.

The Banks had a mortgage sector (A paper loans in the beginning) that began to make the less than perfect loans which were nothing more than Subprime loans. Some of these were sold to Fannie and Freddie (later in the subprime years, not when these mortgages first started being made) and some to other Investors. Some banks held loans in the portfolio and serviced the loans, but generally the loans were sold to Investors who would service the loans and so the Banks used the cash to make more loans. Some Banks still hold some of their loans when they create a loan to a preferred customer who did not meet all the guidelines due to their banking relationship.

Fannie and Freddie had a loan program for years, that met the CRA rule, previous to starting to purchasing the loans which presented more risk. The loans were identified as Community Homebuyer Programs. The loans were not considered “BAD” loans, they were loans which would allow for 97% loan to values initially and the three (3) % downpayment was allowed to be gifted from a relative. It didn’t allow for “bad” credit. Those loans did have ways in making lending more available to those who couldn’t afford 5% + downpayment from their own funds.

The Subprime Industry began within the 90’s, I recollect it so well. I worked very briefly, at that time with a Broker who was making these loans to people (that could only have numerous delinquent credit lines on their credit report and they were graded) with dangerously unsafe credit practices. Believe it if you desire to, there were Mortgage Companies who were starting up business everyday to have the opportunity to make and sell these types of loans since they brought a huge amount of profit.

The Subprime Market kept growing along at the pace of snow flakes falling in winter; for the duration of the 2000’s because everyone wanted to make the money with the pools of loans which carried a ten percent, plus/minus interest rate. That’s the reason increasingly more; Fannie Mae and Freddie started accepting less than perfect loans and lower the underwriting rules to make up some of the pools of loans.

The great big boys like AIG and Lehman Brothers together with a few others, went downhill or almost did for the reason that they had bought lots of the less than flawless loans. They had invested in pools of the high interest rate loans (Residential Mortgage Backed Securities) so therefore, when people began to defaulting on these higher interest rate loans, their pools would collapse and not generating as much profit which triggered, the inability to resolve the crisis.

You can find more information about Mortgage crisis and see how it helped cause the downfall of our economy.

Similar Posts:

• Second Surge Of Foreclosures In 2010
• Types Of VA Mortgages And FHA Mortgages; Which One Is Right For You?
• Is An FHA Home Loan Better For Me Or VA Home Loan?
• What To Do If You Have A Bed Credit?
• No Credit Check Payday Loans: Fast Cash Loans