We are in agreement about loose lending being the main problem. However, I’ve talked to a number of people who said they were misinformed about their loans during the origination process. Oftentimes, they signed one set of docs and then at closing were presented with docs that had totally different terms.
Also, you’re familiar with these documents, and most Piggs are very intelligent and are **capable** of reading through all the legalese and nonsense included in the documentation. Most peole out there are not.
Additionally, they were often told that, “these are just the standard forms, you don’t have to read everything,” when they were signing. I was personally told this and rushed through a signing by a notary who was VERY ticked off at me because I insisted I read through every line of every page before signing. Not everyone has the personality to challenge others, especially when the “others” are perceived as the experts.
Low rates caused the environment in which 0% down and stated-doc loans could exist. When rates are held so low for so long, they force fixed-income investors to reach for yield and move out on the risk curve. I am personally feeling this pressure myself, because rates have been so low for so long. Imagine how a pension fund feels when their solvency depends on a 7-9% return, and they are sitting in a decade-long environment where 1-4% is the norm in “risk-free” investments.
Low rates are most certainly the primary cause of all the adjustable-rate mortgages issued during the bubble period, because lenders wanted to shift the interest rate risk onto the borrowers.
The causes of the bubble are varied and interrelated, but low rates **and the correct belief that the govt would come to the rescue when everything failed** were the catalyst for the problems, IMHO.
Still, you and I are on the same page, and see the foreclosures as the best and most efficient solution to all of the problems in the housing and mortgage markets. That way, we might finally see the “20% for owner-occupied” and “30% for investment” down payments that would give us a sustainable, low-risk housing/mortgage market over the long run.
