Ann - Again, I don't have sources handy, but I think Roger mentioned it in his Palin post. Lenders were mandated by the Feds [mainly Congress] to allow low income/high risk folks get loans by increasing penalties for not giving loans to low income people because it was prejudice against those with low income [incomeism?]. From a purely economic standpoint, it would be bad business for a bank to give us a loan for a 125K house [on the pretty nice side of average around here] when we only made 20-30K, but as I understand it they were required to.
Around here, 400-500K will get you a REALLY nice house and/or a lot of land. In coastal areas and other big cities, it'll get you a two bedroom with a small concrete backyard [or something like that based on the flip shows]. There's no way that the average family can afford those unless lenders are required to loan the money. The general guideline is no more than 33%ish of your income for the mortgage payment [25% preferable but other things will be taken into account - down payment [equity], other debt, etc]. When the only way to get it to something resembling those ratios is to do the 'creative financing' stuff - interest only for a few years [what happens when you have to start paying interest? Payment triples? Screwed.] or adjustable rates [we can squeak by now but if it goes up we're screwed and when it goes up you see foreclosures go through the roof] or balloons [low payments now and in 5 years [or whatever] the balance is due and if your income or credit score has taken a dive since then, you're screwed]. So banks had to get creative to avoid penalties from the Fed Govt for 'incomeism' and people bought things they absolutely could not afford because someone was willing to give it to them. There's blame on both sides.
We coordinate a financial class put out by Dave Ramsey [who was mentioned in LtL if that rings any bells]. He told a story in tonight's video:
A couple came in for financial counseling. They brought home $1200 a month. Their car payment was $600. God had given them the car, even the finance manager said it was a miracle.
Yes, they should have been smart enough to not buy the car, but the finance manager/whoever should have said 'No, you can't afford this. Here's a nice car with a $125 payment [or whatever]'.
In the case of Fannie/Freddie, if they were running finance manager's office, they would be fined for not giving them the 'opportunity' to finance this nice car even though they can't afford it.
Is there plenty of blame to go around? Heck yeah.
Individuals are conned sometimes, but they also get blinded by 'I can own a home'itis and don't sit down and look at what they can really afford and then buy only that.
Banks/mortgage cos/whatever you call them giving loans to people they know won't be able to afford them and not checking claims [there are loans where you only have to tell them how much you make and they don't actually check it - or they would, probably not anymore] and boosting numbers to make their bosses look good and get bonuses [see: Fannie/Freddy and the millions their execs took in bonuses - very Enronish but since it's federally run, sort of, no one has/is questioning them, subpeoning them, trying them for falsifying records etc].
Government for not overseeing like they should have. SEC, Dept of Housing, assorted committees in Congress for not taking harder looks at it. McCain did call for just such regulations etc in 2005 [Roger linked to that] but it was blocked by Dems [Bush had said something along the same lines as well].
Anyway - how were they forced? By being threatened with huge fines/etc for not giving loans to low income folks.
Carol
ETA: Yeah what Roger said
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