Quote Originally Posted by xring View Post
I believe this to be a incorrect statement. In times past the lender on the property remained holder of the loan begining to end. The lender had a interest in the property being fairly valued. What changed is that the lender quickly sold the loan to investment banks. They had no responsibility or loss if the value was not correct or the loan defaulted. The investment banks in their turn quickly combined these mortgages into debt derivitives that they sold to pension funds who liked them because the ratings agencys had bestowed them with a AAA rating. No responsibility or loss for the investment banks eithor. The investment banks were in fact clamoring for subprime loans, they made more money off those. The fact that they would buy every shitty fraudalent subprime mortgage out there was the primary driver of the ongoing subprime event
True, but the few factors you forgot to mention, Fnma and freddie are federally chatter "insurance", FHA loans are Federally guaranteed. FNMA, Freddie, FHA will loan to just about anyone. Private banks' overlays require min credit score, income, asset to protect the banks. If private banks were to follow these agencies and FHA's rules, the 08 crash would have been 100x worse.

Meanwhile, if banks refuse to loan in down turn area, or not enough number of certain race, banks get slapped by redlining or Ecoa violation.

The secondary market may had taken the risk on the 'fraudulent notes' as you mentioned (DOH, opportunity exists, vulture will always be there), but that 'subprime' market was created by our own very federal mandates.