Mortgage stakes

With mid-semester over and nothing to do on Sunday I decided to watch V for Vendetta again for the 3rd time not because I didn't get the plot but solely because its an amazing and thought provoking movie.Soon I got bored and unexpectedly opted to peruse some articles on mortgage crisis on the net.
For matters related to finance I classify myself as a total layman and assumed it to be downright insipid and excruciatingly dull.But once I started I kept on reading for like 3 to 4 hours on a stretch.Quite contradictory to my expectations this mortgage crisis turned out to be quite an interesting topic and the more I read the more I came to realize that this disaster was quite likely to happen and that the effected people clearly saw it coming and made naive judgments for excessive inflow of money which indeed had made them billionaires.


The whole process begins with a broker selling a mortgage to a client.The broker then sells to an some small bank which then sells it to an investment firm on Wall Street where shares of monthly income received from it are invested.For some time this status quo prevailed because of a sense of conviction that property prices could never fall.Since home loans were easy to get,so more people started buying houses and the demand subsequently increased.Homes became an investment where people after 1 year of purchase would sell it at a much higher price.Even if some one defaults the bank would own it on foreclosure and its worth even more than before.

But what was most shocking was the lax guidelines for mortgages which eventually led to the scourge of NINA(No income and No asset loan) loan requiring least verifications.Competition among various banks led to more mitigating guidelines.The fact that the major stalwarts in this field had let this happen merely for lucrative profits was quite staggering because it made people buy unaffordable home loans.
And then the property prices plummeted and in came an inexorable regression.As more people defaulted more houses came into the market and with no buyers the prices further declined.The ones who felt the blight of this crisis most severely were the small banks who had borrowed heavily from big banks like Citibank for buying such mortgages and had intended to repay them once they sold them to firms on Wall Street.Since these banks had very little of their own money and when they couldn't sell off those loans they defaulted.The aftermath would be a latent warning"WE MIGHT GO OUT OF BUSINESS" which would eventually be followed quite bluntly by "WE COULDN'T WORK ANYTHING OUT AND WOULD BE CLOSING DOORS."

My favorite character who ultimately kind of survived out of this ordeal is the cunning broker who deceived clients by stating intangible incomes making them liable to get loans and end up with hefty commissions.