The Financial Services & Housing Crisis – How Did We Get Here?

Merril Lynch goes under!

Lehman Brothers will be sold!

Just how did we get here?

There are Politicians who will tell you the failure of these Financial Service Companies are a result of the “bad economy”. THAT CLAIM IS FALSE. 

Thats right.  The economy didn’t cause these companies to fail – implying that the economy did is simply putting the “horse before the cart”.  The same “bad business practices” these companies practiced are to blame for hurting the economy.  The Financial Service Companies that are in trouble today are in that trouble because they invested heavily in “sub-prime”,  “Liar or NINJA” Mortgage Loans. Thats right, the Housing & Financial Services Crisis, like the Housing Crisis is not the result of a faltering economy, instead they are causing the economy to falter.   

The recent “take over” of Fannie Mae and Freddie Mac and today’s sale of Merrril Lynch and the potential bankruptcy of Lehman Brothers is directly related to the number of failing “NINJA or LIAR LOANS” used to back mortgages in an over hyped Housing Market. This situation is similiar to the “Stock Market Bubble” of the 1990’s, when “stocks” were sold on “over evaluated” or “non-existent” companies.        

Ok, so the Feds have announced they will be taking over lending giants Freddie Mac and Fannie Mae. The two institutional lenders either hold or back half of the outstanding mortgages in the US.

Lets tell the truth about the sudden and dramatic worsening of the mortgage markets. The foreclosure rate has nearly doubled since the end of March. There are those facing foreclosure due to the slowing economy, but that number of individuals has remained consistent over the months and matches past historical numbers. The “recent financial results and trouble in the mortgage market has shifted to homeowners who took out exotic loans with little or no proof of their income and assets”. Half of Freddie & Fannie’s  losses come from sour Liar Loans.

The Financial Services Companies in trouble today invested heavily in these same mortgages.

The Obama/Biden ticket are trying to make political hay – claiming the that the culprit for the current surge in foreclosures is the economy – when in fact the blame should be laid squarely on “egregious lending practices and rampant speculation by home builders and small investors alike”. For those of us who don’t use “egregious” in everyday speech, Webster’s says it means: conspicuously offensive <flagrant errors>; especially : so obviously inconsistent with what is right or proper as to appear to be a flouting of law or morality <flagrant violations of human rights>.

The Mortgage Industry nicknamed these “egregious” loans “NINJA or LIAR LOANS”.

The Detroit Free Press, known to be a liberal publication, defined  “NINJA LOANS” as loans where little or no effort was made to verify a borrowers income or assets. The FREEP pointed out that NINJA stood for  NO INCOME, NO JOB, NO ASSETS.

NPR, long noted for its liberal bias, referred to “Liar Loans” as, ” where the lender makes no effort to verify the income reported by the person receiving the loan”.

Details of the Feds intervention, which could cost taxpayers billions. Losses on liar & ninja loans could total $900 billion. Lehman Brother’s could lose $150 Billion alone.

Why did the Mortgage Industry recklessly pursue the use of “Liar or Ninja Loans”? The answer to that question is simple – PROFITS.

“The loans were immensely profitable for the mortgage industry because they carried higher fees and interest rates. A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan. Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan”.                                        

Reckless lending practices have robbed the economy of the capital necessary to fuel economic growth and create jobs.

Liar and Ninja Loans should be prohibited by Congress. Congressional spending needs to be reduced and taxes lowered to foster econmic growth and put America back on track to properity. 

If the Democrats want to effect real change – they need to start telling the real truth. The Freddie/Fannie bailout is directly due to the fact that the institutions embraced reckless lending practices. If the true problem isn’t recognized, it can’t be fixed.


Washington Mutual replaces CEO Kerry Killinger

BY SARA LEPRO, AP Business Writer 2 hours, 58 minutes ago

NEW YORK – Washington Mutual Inc., ravaged by losses from sour mortgages, replaced Kerry Killinger as chief executive of the nation’s largest savings and loan on Monday, adding him to the growing list of banking bosses ousted by their boards. Its shares sank almost 22 percent.

Battered by rising mortgage delinquencies and defaults, and by the sinking value of its mortgage portfolio, WaMu has lost nearly 70 percent of its market value this year.

Killinger, who was stripped of his chairman title in June, became CEO of the Seattle-based thrift in 1990 and built WaMu into one of the country’s largest banks with a heavy focus on the types of mortgages at the heart of the housing bust.

The company expects losses in its residential mortgage portfolio to total $19 milion.     


2 Responses

  1. Love your article. The reason we are in this mess is because financial instituions were reckless by giving out loans to people who should not have gotten loans in the first place. Again, great article.

  2. I completly agree with;
    “If the true problem isn’t recognized, it can’t be fixed.”
    But, that does not mean that speculation has to be outlawed. The people who made the profits should be the ones who incurr the loss. Just like when I buy a stock and the price falls.
    Just because the loans were sold and resold does not mean the original deal is not available. Many industries have charge-backs for commissions paid out that did not fully mature. The laws should support the system not cotrol it.

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