Taunya Fagan Bozeman Real Estate Blog: SW Montana Information & Listings: A Perfect Storm of Irresponsibility

A Perfect Storm of Irresponsibility

Bundling of loans into assets that were then hawked to investors is a major issue in this mortgage storm we are all feeling by now.

What contributed in a large part to this financial disturbance was a weak system of accountability, termed "moral hazard, by Atif Mian and Amir Sufi of the University of Chicago's business school, between those who evaluate a borrower for the borrower's realistic ability to afford the loan he/she is taking out and those who will be responsible for dealing with the borrower's default.

The bundling of these loans, called "securitization" (property and the associated loans are great for securitization because property is illiquid and has a steady cash flow.) and the demand to trade them for profit led to the weak lending standards.

These were standards allowing both those who could not afford the homes they were buying to purchase anyway and those who would lend money the flexibility to lend money they had no right lending...a perfect storm of irresponsibility.

By now most of us see securitization as a major force for having brought together the housing high and the mortgage low.

Do the conditions remain for this type of irresponsibility to happen again?

Will new systems arise to cause another storm in the future, and what could they be, so we can predict it now?

Taunya Fagan Prudential Montana Real Estate Banner

Comment balloon 4 commentsTaunya Fagan • February 19 2008 10:08PM

Comments

I am sure someone will step up to sell 9% loans to someone with a 600 fica score in the next few months.

Posted by Delaware Junk Removal Residential And Commercial Hauling Clean Outs, Whole House Clean Outs, Basements, Garages, Attics (Delaware Junk Removal 302-530-9186) over 10 years ago
It will happen again. This country has too central a banking system and the money is more powerful and the ethical standards are too low. They should reap what they sow? You and I deal in real estate and could have forcast this in the bubble markets, you could forecast it tech stocks in 2000, you could forcast the price of oil going up, you can forcast social security shortfall, and any other events that tend to defy common sense. You can forcast the cost of stamps going up and the end of the postal system in a couple of years. Its not my money? Lets package and sell these tulips. 
Posted by Eric Bouler, Listening to your Needs ( Gardner Realtors, Licensed in La.) over 10 years ago
Is this all a way of saying there are crooked greedy people in the lending business who will now figure out a method of milking even more out of the public?
Posted by Trey Thurmond, College Station , Texas Homes (BCR Realtors) over 10 years ago
Not at all levels and not in all areas of the country. The sub-prime in Louisiana was primarily limited to minorities. The money was not to be made here. In my last 200 sales I had one subprime loan.  He was a sub-prime lender which was ironic. If the loans could not have been sold to investors who must not have known the risks or cared little for someones money. Credit scores do tell you something, Would you loan these borrowers your money?
Posted by Eric Bouler, Listening to your Needs ( Gardner Realtors, Licensed in La.) over 10 years ago

This blog does not allow anonymous comments