evince
Truthmatters
http://www.slate.com/id/2182709/
There seems to be those who think so.
Subprime Party
How the feds stopped the states from averting the lending mess.
By Nicholas Bagley
Posted Thursday, Jan. 24, 2008, at 11:19 PM ET
The subprime mortgage crisis has led to foreclosures
As the federal government scurries to prevent the subprime mortgage crisis from sending the economy into a deep recession, many of us are asking why it waited so long to intervene. As it turns out, the government wasn't exactly sitting on its hands. Instead, for reasons that now appear hopelessly shortsighted, an obscure federal agency torpedoed legislation from a handful of states that would have made institutional investors far charier of buying mortgage loans that were likely to go belly-up. If the legislation had been permitted to go into effect, the crisis we now face would probably look a lot less grim. The right question, then, is not why the feds did so little. It's why they did so much.
Historically, few lenders would make subprime loans—that is, mortgage loans to borrowers with poor credit. The risk of default was simply too great. For a variety of reasons during the 1990s, however, major institutional players became more willing to purchase subprime loans as investments. Those loans would be pooled with similar subprime loans, and slices of that pool would be bought and sold as mortgage-backed securities. With the rise of this new secondary market, a lender could issue a subprime loan and immediately sell its interest in that loan for a lump sum. The ready flow of capital from the secondary mortgage market led, predictably, to an explosion in subprime lending. Unscrupulous lenders could reap the greatest profits by issuing subprime loans packed with unfavorable terms and subject to exorbitant interest rates, and only then selling them for cold, hard cash. A rash of borrowers found themselves saddled with predatory loans they had no hope of paying off.
There seems to be those who think so.
Subprime Party
How the feds stopped the states from averting the lending mess.
By Nicholas Bagley
Posted Thursday, Jan. 24, 2008, at 11:19 PM ET
The subprime mortgage crisis has led to foreclosures
As the federal government scurries to prevent the subprime mortgage crisis from sending the economy into a deep recession, many of us are asking why it waited so long to intervene. As it turns out, the government wasn't exactly sitting on its hands. Instead, for reasons that now appear hopelessly shortsighted, an obscure federal agency torpedoed legislation from a handful of states that would have made institutional investors far charier of buying mortgage loans that were likely to go belly-up. If the legislation had been permitted to go into effect, the crisis we now face would probably look a lot less grim. The right question, then, is not why the feds did so little. It's why they did so much.
Historically, few lenders would make subprime loans—that is, mortgage loans to borrowers with poor credit. The risk of default was simply too great. For a variety of reasons during the 1990s, however, major institutional players became more willing to purchase subprime loans as investments. Those loans would be pooled with similar subprime loans, and slices of that pool would be bought and sold as mortgage-backed securities. With the rise of this new secondary market, a lender could issue a subprime loan and immediately sell its interest in that loan for a lump sum. The ready flow of capital from the secondary mortgage market led, predictably, to an explosion in subprime lending. Unscrupulous lenders could reap the greatest profits by issuing subprime loans packed with unfavorable terms and subject to exorbitant interest rates, and only then selling them for cold, hard cash. A rash of borrowers found themselves saddled with predatory loans they had no hope of paying off.
