Did we investors cause the Great Crash of 2007?

Question

This article just popped up in my Facebook feed.  House Flippers Caused the US Housing Market Crash.

It suggests that it was not subprime borrowers with bad credit who caused the crash, but investors, based on the fact that the great expansion of credit happened with people who had good to excellent credit.

What do you think about this argument?

(PLEASE ACTUALLY READ THE ARTICLE BEFORE EXPRESSING AN OPINION ON IT!)

Account Closed · Answer

@Jonathan Twombly   I think both arguments are over simplifications.  Lots of things caused the mortgage crisis.

A lack of regulation allowed many tactics that should have never been allowed.  Here are a few.

a.  "Down payment assistance." consisted of raising the price and telling the people buying the paper that the people put down 20%.

b.  "High priced appraisals."  Do you think an appraiser that charged $5000 for an appraisal would give a higher or lower appraisal than one that charged $500?

c.  Securities rating companies providing information that was "not meant to used to make investment decisions".  This allowed the rebundling of high risk securities into "lower risk" securities.

4.  Stated income, no document loans.  What I like to call "mortgage fraud made easy."

The actual "lock up" happened when people started finding out smart people were betting against them in the form of credit default swaps.  Anytime that happens people take a second look.  That caused a little hiccup in the market.  That caused a delay in the sells by companies like Country Wide.  That little slow down made some of the loans go into default before they were securitized which is a HUGE red flag.  It would have made them not be able to be rated AAA and the market panicked.

Oh the good old days.

Jay Hinrichs · Answer

Johnathan.. what you also had and you may or may not know was the strategic foreclosures in NV CA and AZ.

and the banks could not legally get deficiency judgments at least early on.. Uncle Sam then precluded lenders from taking deficiencies even in states that it was a allowed .. however in NV CA AZ OR WA there is no ability for a bank  or lender to get a deficiency judgment on a purchase money mortgage or Deed of trust.. collateral is sole item for security.

Unlike whats happening in Texas right now.. Texas is notorious for deficiency judgments.. I am hoping that the govmit steps in and blocks those from those folks that are owner occ and got flooded and default.. investors not so much.

So when you had these hot beds of real estate speculation and borrowers could walk with the only thing they lose is FICO score and in many cases they put nothing down.. well they just walked.. and it became like chasing a falling knife it just got bad and kept getting worse.

on the investor side.. you had thousands of investors in short term notes that could not get refinanced.. and probably in your line of work syndicators and other institutional investors who were stuck and could not refi and the lenders chose to foreclose.. especially if lets say Rialto bought your little bank that went under.. they were brutal on chasing he security .

Jay Hinrichs · Answer

credit was too Lax....   subprime rates too high... speculators defiantly created some havoc as @Andrew Johnson alluded to in NV AZ central CA and FLA .  Renters defaulted in mass creating loss's for undercapitalized landlords who lost homes in droves.. it all added up.

David Dachtera · Answer

Remember also that the banksters were not only guilty of predatory lending, they also packaged essentially worthless mortgages into "Mortgage-backed Securities" which they then sold on the open market.

Too many "wrongs", few, if any, "rights". The "house of cards" was going to come down. It was just a question of when.

Dylan Vargas · Answer

@Jonathan Twombly Had nothing to do with flippers or speculators. Hysteria was created that people would NEVER be able to own a home if they don't buy now combined with betting individuals will be making triple their income in 5 to 7ears when the loan resets. This is what was going on in California where I was. No money down doesn't bother me at all its the employment and being able to make the payment. The houses were not worth what they were selling them for based on the income of people. The loan terms weren't properly formatted with the income of individuals. This was a Wall Street/Bankers scam at its best and all the scumbags were involved. I am proud to be one who called the crash before and during it happening.

Michael Plante · Answer

42 people arrested I. TAMPA and another 37 in Miami

They are a large reason for the crash. It in involved over 250 million worth of fraudulent loans.

Brian Ploszay · Answer

Nope.  Think the great crash was generally an over extension of credit, combined with extending credit to lower qualified buyers.   I bought tons of foreclosures and very few of them came from house flippers / investors.   Definitely a chunk of the defaults were from investors.  But not an alarming rate.

Did we investors cause the Great Crash of 2007?

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