Archive for February, 2015

Peggy Tanous spent the last 6 years squatting in a million dollar Irvine home. When people quit paying their mortgage, banks used to foreclose on them get their money back at the sale, but not long after the proliferation of toxic mortgage products from 2004-2007, so many borrowers quit paying that banks couldn't process the millions of foreclosures, so they allowed delinquent borrowers to stay in their houses without paying; squatting was born. Of course, delinquent mortgage squatting doesn’t meet the technical definition of squatting, which is possession of real estate without the owner’s permission. In these circumstances the squatters are technically still the owners of property, so there is nothing illegal going on, but these owners are generally hopelessly…[READ MORE]

Conditions don't warrant raising interest rates, and the risks of doing so outweigh any perceived reward. From the beginning of the Great Recession, many concerned citizens, and particularly the wealthy, feared the government and federal reserve would institute policies that would devalue the currency, cause bond prices to collapse, and create hyperinflation. With near-zero inflation, a rallying dollar, and the 10-year bond yielding record lows, it's obvious none of the predictions of economic doom have come to pass. The only reasons the federal reserve would have to raise interest rates is a decline in currency value, crashing bond prices, or high inflation; since we have none of those, only the fear of this happening in the future would prompt a…[READ MORE]

Subprime borrowers endured more painful consequences, but all borrower classes participated in the housing bubble debt orgy. Yesterday I noted that most former subprime borrowers are no longer homeowners, but despite enduring most of the negative consequences, it wasn't subprime borrowers that inflated the housing bubble: prime borrowers did that. The common narrative is that subprime borrowers inflated house prices, then they quit making payments and caused a crash in house prices that dragged down everyone else. Unfortunately, this narrative lets off the middle and upper classes far too easily. The reality is all borrower classes participated in the housing bubble equally, but when it came time to clean up the mess, the various borrower classes were not treated equally:…[READ MORE]

Subprime lending temporarily increased the home ownership rate, but now with the rate hitting 20-year lows, all subprime gains are completely wiped out. Subprime lending as an industry barely existed prior to 1994 because few lenders loaned to people with poor credit, and no secondary mortgage market existed to purchase these loans even if they were originated. By 1995, the fledgling secondary mortgage market began buying subprime loans, so lenders could originate them and sell them off their balance sheets. Once lenders no longer had responsibility for holding the loans they originated, their incentive was to increase volume; quality meant nothing and quantity meant riches. The easiest way to increase volume was to lower standards, and since lenders didn’t have consequences…[READ MORE]

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