Can someone please tell me how the current Sub Prime loans, happened?

Question

I've heard Dems claim it is the Republican's who loosened rules so banks could make more money.

But I have also heard it was the Dems that lossened the rules so the poor could 'afford' homes (which, of course, they couldn't really afford.)

Which is true.

Both - neither - what?

Answer 1

Yahoo won't let me post my full answer. Quick answer is that the lenders, Wall Street, and borrowers themselves are primarily responsible.

Also having a hand in the matter are appraisers and Realtors.

Democrats and Republicans just opened the door for the abuses of others.

Answer 2

The public demanded mortgages, with the attitude of, why should my past credit history matter.  Because of the competition with the banks, the subprime programs became available.

I got a lot of "you have to approve this loan, because the borrowers are all ready approved at 'the other bank'."

A true subprime loan is for those with less than great credit.  The loans that are making the news, for the most part, are the stated income stated asset loans that have potential negative amortization.  We as underwriters call them lier loans, because the borrowers lied about their income and assets.  They only paid the minimum payment, and their mortgage balances are now more than what they borrowed.

Answer 3

American Greed and basic stupidity in the assumption that the 'market will always be good', so they got loans that would inflate or deflate in price depending on market conditions, instead of going with a fixed rate loan.

Most people can't easily afford a home, so they buy with this variable rate, at a rate they can barely afford.  Then that rate goes up and its foreclosure time.  Stupid on the banks for allowing this, stupid on people for not thinking and just going off the buy/flip a house, have a dream house hype.

Answer 4

In the old days a local bank paid you 4 percent interest when you opened a savings account.  They loaned your money out at  6 percent for 30 years on a home loan.   When the US interest rate on savings accounts dropped to 1percent, a lot of people wanted to get more than 1 percent on their life savings.  So all that money flooded into mortgages. You were making 6 times more with your money than if you just left it in the bank.  It was so successful that someone decided that money could be loaned to "risky" buyers, too.  They would have to pay 8 percent due to the risk.  That was 8 times better than leaving your money in the bank. Money flooded in.

THe problem is what do you do if the buyer can not afford to pay you back?   Now you wish that you had just left your money in the bank and not tried to "get rich".  Too late.  The money had already been loaned out.  /