Originally Posted by Guybrush Threepwood
I would look at the morgage brokers before anyone. Most of these "loan officers" were just kids looking to make a quick buck.
I had a few friends work for Ameriquest during college. A lot of them even quit school to work full-time, as they were making over 100k within their first few months. I couldn't begin to tell you how many people they fucked over. Most of their dirty work came from refinancing, but they would do whatever they could in order to make money, knowing all-well they would be probably ruining lives in the process.
The ones that quit school are suffering now. All of them except one were laid off when the market died.
Not to say there weren't unscrupulous brokers, but that's not the problem. Brokers can only sell the product that banks provide. Banks formerly had a huge number of special finance vehicles available to the consumer. It was they who allowed things like teaser rates, "no doc" loans, negative amortization, etc. They could do this because the marketplace was willing to buy these loans. Fannie Mae, Freddie Mac and Ginne Mae
bought and guaranteed these mortgage loans.
With declining/historically low interest rates, skyrocketing property values and a good economy, there was no problem. It didn't matter if someone bought more house than he could afford, because chances are he could just tap the equity for more cash or sell the home for a huge profit. Or, if he did default, the bank had an appreciated asset as collateral.
Of course, that has now changed for reasons you already know. The pendulum has swung completely the other way. Whereas banks may have had 40 financing programs in the past, they know have, say, 15. The approval guidelines have changed in the extreme. In the past, a credit score of over 600 would likely get one approved. Anyone over 680 was consider a prime borrower. Now, you won't be considered under 680. They look closely at anyone between 680 and 720. The end result is people like me (who fall at the extreme upper end of that range) now have more trouble getting loans. They get them, but it's not as easy. So this is far more than a sub-prime issue.