What is the mortgage melt down?

Question

Please explain it in detail.

Answer 1

In the old days you went into your local bank and borrowed money to buy a house.  The bank screened you well.  The bank received your payments for 30 years.

Then Wall Street offered to buy those loans from the local banks.  Instead of keeping the loans for 30 years, the banks charged a $500 processing fee and sent the loan someone else to receive the payments . It was so successful that Wall Street told the banks to make more loans.  The banks now had no liability and no reason to be so strict with potential borrowers.  Soon, everyone was approved. Even this was successful

So the banks started asking no questions at all.  Everyone got a loan. Well, that was not a smart thing to do. At some point , someone is going to be unable to make the payments.

But it wasn't just a few people who couldn't pay.  It was a lot of people.  The Wall Street firms weren't getting paid and they had 29 years remaining on the loans.  So they stopped lending anything to anyone.

So we went from ALL to NOTHING.  And it happened very fast.  .