Real Estate Speculators Were Out Of Control
SOURCE: The Motley Fool
Everyone was buying real estate, even if they couldn't really afford it. These subprime borrowers, who just wanted a home, took advantage of the low-documentation loans that were being offered by mortgage originators. These lenders would then sell off the high risk loans to investment banks that dumped them into pension funds and others that were desperate for high yields.
Not only that, the ratings given by the ratings agencies on the mortgage securitizations, that originated using horribly inaccurate models, convinced investors to buy in. Of course the feds were no help either by allowing the interest rates to stay low for entirely too long. This contributed to the housing bubble which saw housing prices rise by more that 70% over eight years.
In the first quarter of 2006 speculation was truly out of control. Twenty-six percent of loans were of the interest-only or negative amortization variety... The statistics are damning. In 2005 and 2006, 20% of all mortgages were subprime, and a further 12% to 13% were low-documentation Alt-A loans.
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Everyone was buying real estate, even if they couldn't really afford it. These subprime borrowers, who just wanted a home, took advantage of the low-documentation loans that were being offered by mortgage originators. These lenders would then sell off the high risk loans to investment banks that dumped them into pension funds and others that were desperate for high yields.
Not only that, the ratings given by the ratings agencies on the mortgage securitizations, that originated using horribly inaccurate models, convinced investors to buy in. Of course the feds were no help either by allowing the interest rates to stay low for entirely too long. This contributed to the housing bubble which saw housing prices rise by more that 70% over eight years.
In the first quarter of 2006 speculation was truly out of control. Twenty-six percent of loans were of the interest-only or negative amortization variety... The statistics are damning. In 2005 and 2006, 20% of all mortgages were subprime, and a further 12% to 13% were low-documentation Alt-A loans.
Read full report »
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