Fed: Flipping fueled housing collapse

The banks are 100% to blame... Its like dangling candy in front of a baby... the baby does not know of the long term effect they just know they want the candy... the banks knew people would jump at the oppotunity to have "more bigger better"... they have very smart people working for them... when they create the Stated Income Stated Assets, No Income No Assets, No Interest 3,5,7 year ARMs... the people jumped... and it goes up the chain of comand with our mortgage banking system... if Fannie Mae and Feddie Mac would not have bought these types of loans the banks would not have offered them... now Fannie and Freddie are governed by the FTC and our government... lets see who was in charge of the oversight to Fannie and Freddie... hmmm wasnt that Barney Frank 

Blaming flippers is an excuse; stop treating us like mushrooms and tell the truth.  To float this story as true is insulting to our intelligence.

I disagree in part.  Greed played a huge roll and the good times didn't help either as well as the Mortgage Backed Securities.  Maybe if the Fed would have increased rates when the markets were doing so well, people would have thought twice.  Maybe people who had no business buying a home or lenders who managed to make the paperwork right so the buyer could get a house should be looked at?  I do know some flippers and landlords.  Many of the flippers I know did well and are still doing well.  But some others got into flipping as a way to make money and didn't understand it so they lost their butt.  Some landlords I know lost their butts too but every time they would get a house and rent it out, they would take their profits and use that money to make payments on their new cars and living above their means.  When the tenant moved out, the money stopped and they weren't prepared for that or repairs and maintenance that needed to be done.  When the market came down, so did rents but that has turned around somewhat.   What about government greed?  When all was good they just spent more of our money not thinking about the day the good times would end.  Instead of complaining about the President, we should be finding a way to fire or limit Congress, Senate and House career politicians.  The 25% quoted is 25% of the deliquents, not 25% of the housing market which I might agree with given everyone I knew who was trying to make a quick buck and those that didn't know what they were getting into.

The flippers were just leveraging themselves to the system created by the government.

It is the government's lack of foresight that created the environment where flippers could exist in the first place.

If they had taken more than two weeks to develop their ideas for boosting the home market, they would've put "anti-flip" measures into the regulation that encouraged lending so people who took advantage of easy lending would have to own the home for at least 2 years or suffer severe tax consequences.

If a private lender wouldn't mind underwriting a risky flip, then speculators could flip to their heart's content without getting the taxpayer indirectly involved.

Or in lieu of all that hassle, the government could stop caring about / tracking / measuring the value of homes and the percentage of home ownership.  That way the lenders will set market loan rates and houses will cost market prices and people will buy what they can afford or else the lenders will go out of business and the houses won't be bought/sold.

When it really started is when people bought into the idea that a house was a can't miss savings and retirement account instead of a place to live in. It all went down hill from that point on. 

In my opinion, several factors played a bigger role:

 

1) Government lowered interest rates to a lower level than they would be naturally.  This was done to deal with several crises:  Financial crises in '97, '98, the Y2K craze, then the 2000 tech crash, the fear and uncertainty caused by 9/11... etc.   This made mortgages cheaper than normal.  They might have, could have known about these side effects, but the nature of politics is that you "do something, so you can say later you have done all you could."   Hindsight=20/20, I know. 

2) Democrats, in order to prevent discrimination in lending, passed certain laws to (de)(un)(mis)regulate this area of finance, which, as a side-effect,  made it more costly for banks to say "no" to a mortgage than to say "yes".    With the government & taxpayer as a backstop behind Fannie and Freddie, it became "seemingly somewhat less risky to say yes".

The big ratings agencies may not have known enough about their clients, and the big mortgage insurers also didn't see the hidden risks piling up in the market.   It's 20/20 to

say that after the fact, but it ought to be said.

3) It became more common for banks to immediately sell their mortgages to Wallstreet syndicators, who packaged these into funds, ETF's,  and later bought and sold bets on how fast or how badly these things would fare, etc.. 

The idea may have been that "you got to take the good with the bad", but the reality "may have been that banks sold the bad ones and kept the good ones."  In fact, they would have been stupid not to.  If you just think about it.

 

4) Only after steps 1, 2 3 above came to pass, did the real estate market take off, and only then when the "take off" became visible, around 2003, did speculators become a greater

factor in this.  Personally, I don't think it decent to call all of them "flippers", because it takes a lot of hard work to know what to buy, to know what to fix up and renovate, how much to spend on it, how to abide by all sorts of legal, financial and environmental regulations, and then to decide when and for how much to sell.  This does not endorse any of the fraudsters who lied on their mortgage applications.

5) Furthermore, the people who bought and fixed up and sold houses for a profit could not have done this without the banks approving these mortgages.  It takes two (or more) to tango.

The speculators were there because it, the "price takeoff" became an irresistible invitation.

 

So, sometimes you have to step back a little further to see the bigger picture. Of course, there will be many ways to disagree, but it's just my opinion and you don't have to go bonkers just because your opinion differs.  I hope you enjoyed the "truthiness" of my unfounded opinions.