Some libertarian-flavored analysis of the mortgage crisis, from Credit Slips:
If my lugubrious predictions prove true, there will be a measurable--possibly quite large--impact on the market. Such rules will make mortgage lending less profitable to everyone in the system-so the number of mortgages written will decline and those that are written will be marginally more expensive. It will winnow the number of mortgage brokers and so remove some who have committed fraud in writing mortgages. It will make investors upstream think twice about buying a debt that carries not only a fraud claim but also the possibility of tort liability for too generous lending, and even a lasting stain (for debt liability) that cannot be removed by assignment to another.[Credit Slips]
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This is a pretty good analysis, and pretty simple. When there are more consequences to lending, people won't do it.
Fraud needs to be stopped, but both sides are culpable in this mess. Legislation that is described would only choke the middle class from credit access. But wait...isn't every politician talking about how we need to help the middle class? What a bunch of crap.
This isn't libertarian-flavored, this is logical-thinking flavored.
@robdew2: Libertarian, because his analysis implies no gov't intervention or regulation. For example, if the Dems win the election, I would bet that there may be some programs put in place to be sure that people are being given a fair shot at a mortgage.
When we got our first home loan it was though a standard bank and govt. backed. There were all sorts of rules that had to be followed in documenting income and approving the property. By the time we were buying our third house mortgage brokers and real estate agents were trying to divert us into all sorts of questionable financing games. Usually the first question of realtors was if you had financing yet and even if you did they wanted you to go talk to some friend they had who was a mortgage broker who could get you some great deal.
How so much could change in a decade? Ten years ago realtors and loan officers lived in fear of doing something questionable.
ummm - didn't a lending crisis happen in the late 1980s (Savings and loan)? Seemed like the free market did not prevent the same from happening 15 years later. In fact I bet a lot of the same people who made a pile of money in the late 80s selling crooked loans were back at it selling subprime mortages as soon as the regulatory laws changed that allow one group of people to sell the loans and profit, and stick other investors with the bill.
This is a prime example of what happens when you have insufficient regulation and let the "free market" do what it wants - you get a small group of criminals who take advantage of the system and profit greatly at the expense of a larger group of people.
The people that signed for the mortgages are at fault too. This is another argument for some regulation that prevents everyone from doing whatever they want. Many people are far too stupid to be allowed to do anything they want.
Which all beg's the question...When can those of us who've patiently waited out the exuberant idiocy of the housing bubble start to think about jumping in? Have any of the economists ventured a guess as to when we might hit bottom?
@DCGaymer: Depends on who you listen to. I've heard end of 2008. I'm not a professional economist (albeit I have a degree in it), but my gut feeling is more like Q2 or Q3 of 2009, maybe end of 2009.
We're in very much the same situation as you - we have the cash for a down payment, but don't really want to jump into a housing market that's still going to see substantial declines. Thus, we keep renting our 1BR apartment and wait...
By the time you start hearing the media say that the bottom is here, it will have come and gone. Start paying attention to real estate and mortgage specific blogs and websites. When investors are buying in, that's the bottom. Consumers are always months behind.
I understand now, Mr Potter was the unsung hero of "It's a Wonderful Life"