Fedspeak | The Causes of the Foreclosure Crisis – Why Did So Many People Make So Many Ex Post Bad Decisions?

Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis

Abstract:

We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those wrong beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Fed Fact 1: Resets of adjustable-rate mortgages did not cause the foreclosure crisis

Fed Fact 2: No mortgage was “designed to fail”

Fed Fact 3: There was little innovation in mortgage markets in the 2000s

Fed Fact 4: Government policy toward the mortgage market did not change much from 1990 to 2005

Fed Fact 5: The originate-to-distribute model was not new

Fed Fact 6: MBSs, CDOs and other “complex financial products” had been widely used for decades

Fed Fact 7: Mortgage investors had lots of information

Fed Fact 8: Investors understood the risks

Fed Fact 9: Investors were optimistic about house prices

Fed Fact 10: Mortgage market insiders were the biggest losers

Fed Fact 11: Mortgage market outsiders were the biggest winners

Fed Fact 12: Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.

You can read all about the Fed Facts below…

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4closureFraud.org

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Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis

Comments
3 Responses to “Fedspeak | The Causes of the Foreclosure Crisis – Why Did So Many People Make So Many Ex Post Bad Decisions?”
  1. Charles Fetters says:

    Foote, Gerardi, Willen
    Talk about blowing bubbles.
    I always wonder why the government, and the media fail to mention the fact it wasn’t the homeowners worldwide that plotted to defraud the banks and lending institutions. I can’t recall any mention as to when, where and how all homeowners worldwide arranged to contact one another to perform a crisis of this magnitude. Yet I have read many articles as to when, where and how the banks created this global mortgage crisis.
    In 1993 it was the Mortgage Bankers Association of America along with the government agencies Freddie and Fannie, and the major banks and title companies compiled papers known as the “White Papers” that became the guide book known as MERS( Mortgage Electronic Registry System). Then the defrauding began.
    November 01, 1996, Paul Mullings CEO of MERS , former CEO of Freddie and Fannie announced an alliance with Stewart Title Company to accelerate the usage of MERS. Then the defrauding expanded.
    Someone please tell these three idiots, that we aren’t idiots.
    They must have spent millions of dollars to create this line of BULL.

  2. Scott Brown says:

    You missed a few facts:
    1. In 2006, Paul Volker pointed out that the United States was headed into financial trouble because the world was more competitive, many of our resources had been depleted, many of our jobs had been exported and endless wars were blowing all of our money.
    2. Volker went on to point out that Americans savings accounts were not in cash but almost exclusively invested in our homes.
    3. Volker also pointed out that a study had discovered the rest of the world was awash in CASH and the cash was in savings accounts, retirement accounts, and pension funds.
    Volker testified that the USA needed to come up with a plan to GO GET THE CASH.
    4. Wall Street and Washington politicians responded with new interpretations of existing laws to allow for the creation of the bundling of residential home mortgages into Bonds known as CDO’s.
    5. These CDO Bonds were offered to the world and the response was over-whelming and soon the mortgages of everyday Americans were sold all over the world and owned by pension funds and retirement accounts.
    6. The demand for more caused Wall Street and Big Government to call for more loans, an easing of credit restrictions and more loans were made.
    7. As time went on the rules were changed so there were almost no restrictions on the amount of loans and anyone that could fog a mirror could qualify for because they needed more CDO’s to sell to the world.
    8. Fraud in the lending, appraisal and real estate business went crazy and the price of homes went through the roof–the higher the price, the more the loan–the bigger the CDO’s.
    9. When people could no longer make their payments the bubble burst and the CDO’s stopped paying their dividends to the purchasers (Greece, Iceland, Ireland, etc.) and the CDO Bonds started to default just as the foreclosures started and it all caught on fire.
    10. It was all pre-meditated and planned and perfectly (heartlessly) executed.
    11. Our homes and savings accounts were stolen and the rest is …

  3. readdocs says:

    The feds are washing their hands of the whole scandulous fraud. If you want it done,
    and done right, you will have to do it yourself. For all of you who ever believed in the
    federal government, I told you so.

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