Current Events — HabitableZone

Current Events » in reply to Yeah

Part of the problem...
TB — (archived)

I'm no expert in this area--the regulatory and government participation in this field are a dog's breakfast--but this is how I'm seeing it.

Mortgages are extremely mobile assets these days. When I got my first mortgages, they stayed with the same bank/S&L for years. In more recent times, it's become habitual for mortgages to be sold and re-sold, almost as fast as they close in some cases. My equity line got flipped to a different place within a week.

I think this gives lenders a huge incentive to close a loan with a less-than-great credit risk, and then toss the wet baby to somebody else at full value. Any defaults become Somebody Else's Problem. The buyers grabbed the loans, drooling over all that interest, and hey, since property values are going to increase forever, what's the risk?

Banks like Wells Fargo, who played it more carefully, are doing all right. Outfits like Countrywide, who played it fast and loose, are not. The government will probably bail out outfits like Countrywide, while taxing Wells Fargo and others to do it. So it goes.

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