I think the ever widening financial black hole that centers around the subprime mortgage lending in the US originated with the advent of the legal adjustable rate mortgage: Garn-St Germain Depository Institutions Act of 1982 allowed Adjustable rate mortgages;
http://en.wikipedia.org/wiki/Adjustable_rate_mortgageThe Garn-St. Germain Depository Institutions Act of 1982 (Pub.L. 97-320, H.R. 6267, enacted 1982-10-15) is an Act of Congress, that deregulated the Savings and Loan industry. This Act turned out to be one of many contributing factors that led to the Savings and Loan crisis of the late 1980s.
The bill, whose full title was "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans," was a Reagan Administration initiative.
The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272-91 in the House.
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis`The subprime mortgage crisis is a current economic problem characterized by contracted liquidity in the global credit markets and banking system. The crisis began with the bursting of the US housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM). Loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief they would be able to quickly refinance at more favorable terms. However, once housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically, as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.
The term subprime lending refers to the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, with over 7.5 million first-lien subprime mortgages outstanding.Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005. By January 2008, the delinquency rate had risen to 21% and by May 2008 it was 25%.
Subprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007. During 2007, nearly 1.3 million properties were subject to 2.2 million foreclosure filings, up 79% and 75% respectively versus 2006. Foreclosure filings including default notices, auction sale notices and bank repossessions can include multiple notices on the same property. More homeowners continue to receive foreclosure notices, with one in every 519 households receiving a foreclosure filing in April, 2008.`
The feds created the adjustable rate mortgage monstrosity during the Reagan Administration. It outlived Reagan and survived Bush I, and thrives to terrorize the local villagers and global markets.
If a local restaurant serves bad food the customers can decide to go to another restaurant, but if the government allows mad cow diseased beef to enter the market, going to another restaurant isn't a solution.
There would have been no subprime mortgage crisis of this magnitude now without adjustable rate morgages.
The current administration is very pleased with the surge tactical result in Iraq, while not at all capable of rescuing the US Economy, which is far more important.
Posted by terabot
