Is this the 800 pound gorilla in the american foreclosure crisis that no one is discussing?

no it was congress who demanded they make loans to unqualified people. Why don’t people think congress does no wrong.

No.
1. Many who got adjustable rates qualified for regular mortgages, but were tricked
2. The housing market would have stayed level instead of exploding. The exploding was due to lack of regulation( thanks bush) so that they started lending to people who also didnt qualify and thus inflated the market

basically it is just like the S&L scandal. You remove regulation, and the the people take full advantage of people

While you may be correct that credit worthiness has declined over the last 10 years you seem to be ignoring the underlying cause of the decline in credit worthiness.

I believe that it was a vicious cycle, e.g., that our credit worthiness declined simply because of the expansion of credit in the last 10-20 years!

Look at it this way: The expansion of credit made it easier to finance housing which drove up the cost of the housing which required the expansion of credit to allow the houses to be resold which caused every more inflated housing prices…Further, easy credit allowed us to refinance our homes to take out the equity that was building and to finance our toys.

Thus is is clear that easy credit could have been a major factor in causing the credit problems!

So if banks had not lowered their standards.. the expansion of credit would not have been needed and our credit worthiness would not have declined…

Now admittedly housing prices would not have gone up and the economy would not have expanded as it did so many of us benifitted.. so

You’d also have to ask if the credit scoring guidelines changed at all during the period in question. From the bond rating agencies’ failure to acknowledge the risk in the subprime loans, we know that manipulating credit ratings is surprisingly easy.

But one thing that we know for sure is that the savings rate of Americans has been dropping over the past decade. Without savings, people are unable to react to a short-term downturn in their financial situations, and can not begin to improve their lives in any significant way.

The prevalence of mortgage loans requiring little or no money down allowed people to purchase homes with no financial investment. They were not required to save up 10 or 20% as a down payment, so they had far less emotional attachment to the property.

If you had a history of late credit card or car loan payments, and were then offered a house loan with no money down regardless of your credit score, who cares if you default? You have a history of paying late and not saving for an emergency fund, but you’re being offered a great mortgage loan anyway.

There’s always the chance that you’ll get away from the foreclosure house with no negative consequences, besides more damage to your already meaningless credit score. And a bad credit history didn’t stop banks from lending you hundreds of thousands of dollars in the past, so you can probably just wait a few years until credit conditions ease and apply for a new mortgage.

That doesn’t describe every homeowner, of course, but these types of borrowers, who had previously been turned down for loans, were given the subprimes. Whether they were just somewhat ignorant of the entire system or were trying to get in on the boom by buying a dozen houses and flipping them, the banks obviously overlooked past poor payment histories.

I don’t know if the lenders had to lower their standards in response to this demand from subprime borrowers for loans requiring no financial investment on their parts, but for some reason, the banks did lower standards. If they did this in an attempt to stay in business a little longer, it was a shortsighted goal with unintended consequences.

Hope that helps.
ForeclosureFish