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Re: In Spain, Homes Are Taken but Debt Stays
A debt is an "investment" for the creditor. In a capitalist economy, investments carry risk for the investor. These risks are somewhat proportionate to the expected return. That's how the "free market" works.
However, in real-world practice (at least in the US), the "free market" works in a different manner. Here "investors" in government-backed mortgages and Guaranteed Student Loans are guaranteed never to lose money no matter how irresponsible, incompetent or fraudulent the underwriting.
Testimony given the the Financial Crisis Inquiry Commission by Richard M. Bowen, III on events during his tenure as Citi's Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group (where he was responsible for over 220 professional underwriters) suggests that by the final years of the US housing bubble (2006–2007), the collapse of mortgage standards was endemic. His testimony relates that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents). This, despite the fact that each of these 1,600 originators were contractually responsible for -and had certified via reps and warrantees- that their mortgage origination's met Citi's standards. During 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".
In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdings -the largest residential loan due diligence and securitization surveillance company in the United States and Europe- testified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% percent of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "Too Big To Fail" banks) additionally showed that 28 percent of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e., those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors
Raters Ignored Proof of Unsafe Loans, Panel Is Told: http://www.nytimes.com/2010/09/27/bu...pagewanted=all
Hearing on Subprime Lending And Securitization And Government Sponsored Enterprises, April 7, 2010: http://www.fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf
All Clayton Trending Reports 1st Quarter 2006 - 2nd Quarter 2007: http://www.fcic.gov/hearings/pdfs/20...ing-Report.pdf
A debt is an "investment" for the creditor. In a capitalist economy, investments carry risk for the investor. These risks are somewhat proportionate to the expected return. That's how the "free market" works.
However, in real-world practice (at least in the US), the "free market" works in a different manner. Here "investors" in government-backed mortgages and Guaranteed Student Loans are guaranteed never to lose money no matter how irresponsible, incompetent or fraudulent the underwriting.
Testimony given the the Financial Crisis Inquiry Commission by Richard M. Bowen, III on events during his tenure as Citi's Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group (where he was responsible for over 220 professional underwriters) suggests that by the final years of the US housing bubble (2006–2007), the collapse of mortgage standards was endemic. His testimony relates that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents). This, despite the fact that each of these 1,600 originators were contractually responsible for -and had certified via reps and warrantees- that their mortgage origination's met Citi's standards. During 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".
In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdings -the largest residential loan due diligence and securitization surveillance company in the United States and Europe- testified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% percent of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "Too Big To Fail" banks) additionally showed that 28 percent of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e., those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors
Raters Ignored Proof of Unsafe Loans, Panel Is Told: http://www.nytimes.com/2010/09/27/bu...pagewanted=all
Hearing on Subprime Lending And Securitization And Government Sponsored Enterprises, April 7, 2010: http://www.fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf
All Clayton Trending Reports 1st Quarter 2006 - 2nd Quarter 2007: http://www.fcic.gov/hearings/pdfs/20...ing-Report.pdf
Originally posted by Starving Steve
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