Does anybody know the individual(s) responsible for creating "sub-prime" loans?

Question

This insanely irresponsible loan instrument had to have been conceived by at least one individual. Probably works at one of the big Wall Street firms. Whatever, this person(s) needs to be identified by name and made known to as many people as possible. Bonus points if the person(s) contact information is made publicly available.

Answer 1

Lenders, regardless of who they are, need to dump off their rights to receive future cash flows to secondary investors in order to free up enough liquidity to keep the Home Loan engine going. Ultimately, this is what created the issue in sub-prime loans. This system is actually good for the typical borrower, because it keeps interest rates on home loans lower than if banks had to hold and service the loans indefinitely. Banks sell the loans to Wall Street. Wall Street then bundles the loans into CMOS or CMS or some other type of asset-backed security. These are then sold on the international market. Many central banks hold asset-backed securities now instead of treasuries, because, until recently, US asset-backed securities were almost as safe as treasuries, but with a significantly higher rate of return. Foreign central banks demanded more of these securities. Wall Street responded by flooding the mortgage market with liquidity and demanding that banks lower their standards for making loans. Banks lowered their standards, made irrational sub-prime loans. And Wall Street bought them up, selling them in turn to the foreign central banks and institutional investors. In the end, that is what caused the buildup of sub-prime loans.

The issue came when the defaults started on the ARMs. Rates rose, sometimes by up to 5%. Some borrowers began defaulting on their mortgages. As the portfolio of asset backed securities must aborb the cost of defaults, the price on the asset-backed securities fell, because of a lack of demand. No new liquidity was coming from international capital markets for sub-prime loans. That chokes off the financing engine for the mortgage market. No liquidity and rising defaults leads to mortgage crisis.

Answer 2

I'm sure the banks had something to do with it since their underwriters are the ones who ultimately decide on wether a loan is appropriate. The past couple months most bank underwriters changed their criteria for being able to get sub-prime loans and equity lines. It's a lot tougher now. It's not up to the loan officers if a loan gets approved or not but the underwriters. Brokerage firms are a bit easier but all are now requiring more proofs of income and are taking a closer look at debt to income ratios. I deal in flipping houses and I'm having a tougher time getting house or equity loans. House buyers made the sub prime market popular without looking into the future as interest rates do rise but their incomes stay about the same. While easier to get a house, you should plan on locking in in a couple years. Brokerage firms make their money in getting you the loan of any kind but the buyers need to be responsible enough to see what may happen in a couple years. We must remember that only 15% of morgages are sub-prime and that only 15% of those went bad so most are paying. If home buyers stop going for the sub-primes it will become an obscure option and if banks and brokers stop pushing and start discouraging it as an option if you can't get a fixed rate loan, then maybe those 15% sub-primers who get foreclosed on wouldn't lose their American Dream. Who started it is a moot point. Those taking the bait are the ones keeping it going. Think before putting your name on the dotted line.

Answer 3

no one person
the problem we face now is one created by greedy brokers unwilling to inform thier borrowers that today you can afford this house but in 3 years when the rate gows up you cant.

they would qualify thier borrowers ar 50-55% of thier debt to income at the low rate they started with and not the end rate

i make no friends here with the brokers they dont want borrowers the know the truth. most borrowers are paying a higher interest rate only so the broker or bank can make a few extra grand without the borrower seeing it at closing
notice how many of them will comment about the link below while adding thier websites.
if you want to know the truth see for yourself!

its not all the brokers fault banks where doing it. If i had a say in the way ARMS should be handeled i think they should qualify borrowers on the endng rate not the begining rate. period.

they put people in homes to over priced or put thme in pay option arms no homeowner should have ever gotten a loan like that that was planning to stay in the home.

Greed is the problem here. plain and straight want a rea eye opener read this article below

Answer 4

Lol. I am a loan professional. Like all things capitalistic, the "entity" who created the sub prime mortgage market was the consumers themselves. If you build (offer) it, they will come. And come they did.

The important thing to remember is, if you are stupid or gullible, bad things happen. There are plenty of laws on the books that regulate this industry and protect the consumer. When buying a house, you sign 2 complete sets of disclosures. 1 initially at application, and 1 at closing. On a refi, after closing, you STILL have a 3 day recission period to back out. If you do NOT READ or UNDERSTAND these docs and and sign them anyway, then the potential financial ramifcations are on your head. Nobody is holding a gun to anyone's head at closing. In fact, just the opposite. I have had many clients threaten to WALK OUT of a closing for ridiculous minutia that I can not possibly control. The consumer holds all the cards even in the last 30 seconds of the 4th quarter of the loan process. Sorry if you stupidly agreed to a suicide pact spelled out in a 100 page sheef of documents and you SIGNED EVERY PAGE... TWICE.

I'll give you a parallel example. Crack and cigarettes are bad for you. Everyone knows this. But there is still a huge demand. The feeling is "worth" the risk. While the market corrects itself now, subprime loans will be back in force as the consumer is still screaming for them because #1 it "feels" so good to own a home and #2 Wall street will see a way to make subprime profitable again. .

It is simply a pity that the American public after making their OWN bad decisions expects and feels ENTITLED to a goverment bailout / handout. Now we all have to pay as stupid deadbeats who lost their job or cannot make a payment or did not straighten out their credit or bit off more than they could chew cry foul. I for one am angry and this is costing me a ton of $$ as loan program after loan program (temporarily) dies. I would estimate 30-40% of the potential buyers out there no longer qualify for a lon they could get 6 months ago. many of these are GOOD borrowers with good credit. This is particularly true for the SELF EMPLOYED borrower as stated income programs are dropping like flies.

So please - let's not point the finger (Bush did not do it just as he had nothing to do with Katrina, global warming, and Mike Vick's dogs). The American consumer is the only one to blame. Smarten up America. Time to learn some math and responsibility. Remember Jack Nicholson in "As Good As It Gets" describing how he writes women so well? "I think like a man, then take away reason and accountability." That is pretty much a spot on description of the American consumer today.

Answer 5

There has always been sub-prime credit of one kind or another. Without it, people with out great credit would have to pay cash for everything.

It's only irresponsible if an irresponsible borrower signs up for a loan that is not appropriate.

Answer 6

Sub prime lending has been around forever. Do you think the local grocer "wanted" to borrow from the Mob if he could get it from his banker?
It was popularized by "trying to keep up with the Jones".
Those who needed subprime loans thought the benefit was worth the risk. If they defaulted, they take a hit on their already bad credit.
Those who were "deceived" need to read everything they sign. If you don't understand all that legal-eeze, don't sign it.
Bottom line is that all of us need to start living within our means.

Answer 7

first of all, the approach began with Carter AND Reagan, so i do no longer see the way it is "liberal stable intentions long gone undesirable." Democrats persevered it, yet calling Carter and Clinton "liberals" is slightly a stretch. i'm going to admit that it is an argument that stretches in the time of occasion lines, that the two events are to blame, and that Bush and Obama caught the tail end of it, yet on the comparable time, i might say that Bush exacerbated the project extremely by his rules. The housing bubble burst in the previous Obama entered workplace, so i do no longer see how blame must be placed on him, nevertheless i might nevertheless say Bush merits very lots. i might additionally say Clinton, George H.W. Bush, Reagan, and Carter all deserve their share of it. i'm satisfied to verify a question like yours that easily explores this, yet you're nevertheless slanting right here, you're attempting to be balanced, yet no longer succeeding. you assert Medicare and Social protection are next, yet those are the two government run courses. i do no longer see how they correlate to a minimum of a few thing like the housing industry, that's fullyyt inner maximum. and because i do no longer see any info for those claims, its annoying for me to parent the place your place comes from.