H4H won't work for a lot of homeowners.  It's first great drawback is 
that it is for 1 family houses only.  The other is that they will 
only finance 90% of the loan to value.  It won't work for loans in 
negative amortization (borrower owes more than the house is worth or 
more than the initial loan amount).  There are a lot of people I have 
seen in AP who took interest only mortgages.  They were betting that 
the property would increase in value and interest rates would stay 
low or someone at some mortgage brokerage saw this as the only way to 
qualify them.   There's a lot of room for blame here.

I get the digest for this group so I'm not sure where Maureen asked 
about the mortgages causing the bank crisis.  I'm going to give a 
reader's digest report on that.  It used to be that banks made 
mortgages and held the loans for the full term.  This is called a 
portfolio loan.  Banks still do this with some loans, but most are 
bundled together and quickly sold on the secondary market. This is 
what Fannie Mae and Freddie Mac were all about.  They were the buyer 
of conventional loans.  This kept the banks liquid and the mortgage 
money flowing.  Secondary markets sell stock in the future interests 
of these loans - mortgage backed securities.  Then the proverbial 
sh*t hit the fan.  
*Foreclosures and falling house values devalued mortgage backed 
securities 
*The seconds can't make as much money by selling shares of these 
mortgage futures.  
*No futures, no profit, no money.  
*Investment banking was the first to feel the pain.  
*No investment banking buying securities, no money flowing to the 
secondary market
*no money to the secondary market, no purchases of new loans, 
*no purchases of new loans, no fluidity to make more loans, 
*everything crashes to a halt. 

This is trickle down economics when sh*t trickles down rather than 
cash.   

Deregulation was a huge issue in what happened.  Loans were made that 
never ever should have been and this had nothing to do with CRA.  It 
was all about greed.  See banks aren't the only ones who make 
mortgages.  Mortgage brokers can do this too.  They are not as well 
regulated as banks.  Brokers are middle men.  They lend other 
people's money and get paid for it by the bank and by the customer.  
It was a good gig.  So, everyone became a broker.  AIG, Merrill 
Lynch, Met Life, etc.  Insurance companies, financial management 
companies, investment banks.  You lent other people's money and got 
paid to do it.  The blind squirrel found a stash of nuts.  When 
you're lending other people's money you tend to not be very 
cautious.  This became especially true when the other people (banks) 
weren't holding onto the loans.  They thought they didn't have much 
risk because all of them were looking at trickle down economics when 
the trickling is gold.  

There is plenty of blame to go around.  Homeowners who bought houses 
they could never afford - Loan Officers who used creative financing 
knowing people couldn't afford the loans, but they are commissioned 
and they eat what they kill - Banks who pushed their loan officers to 
push expensive loans over less expensive ones for their own higher 
cut - Mortgage brokers who got a little drunk on the bubble - 
Regulators who kept allowing weirder and weirder loans with less and 
less credit history to be considered kosher for resale - FICO and 
their damned credit scoring system that eliminated human underwriting 
using standards - Fannie Mae and their Desktop Underwriting which 
relied heavily on FICO and allowed too much wiggle room (loan 
officers could play with a loan becoming commissioned underwriters) - 
Investors who bought bundled loans never looking to see if they were 
good or bad loans - The system of lending money where the lender had 
no risk (supposedly) and suspended due diligence.  Plenty to go 
around and not even worth doing.  

Let's just fix it and try to make sure it never will happen again.  
Though I suspect it will.  

Jennifer


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