THE CREDIT CRISIS: 10 YEARS AND COUNTING RICK TOBIN
The implosion of the subprime mortgage industry, AltA
mortgages, EZ Doc (no income and / or no asset
verification options) 1st and 2nd mortgages, owner and
nonowner occupied EZ Doc credit lines, option pay
ARMs (adjustable rate mortgages) that had starting
negative amortization payment rates of 1% and 40year
terms, and 100% loan to value owner and investor loans
up to as high as $1.4 million (one to four units) with no
money down began vanishing earlier in 2006 prior to
rapidly decreasing in loan program numbers in 2007.
Perhaps the main reason why there were millions of
foreclosures filed across the U.S. between the last
major housing market peak near 2006 or 2007 and over the next few years was that a majority of home buyers
and investors in pricier regions or “bubble” or “flipper” states such as California, Arizona, Nevada, and Florida
qualified for third party mortgages to buy the properties with no income verification that later disappeared after
the financial markets almost imploded. Buyers usually need money to get into and out of a deal. Once the
money dries up, it becomes more challenging to unload a property to anyone besides an allcash buyer.
Once the “music” stopped playing (or the easy money flow) on a larger scale beginning in 2007, then property
owners, investors, and new buyers had far fewer lending options available to them to either refinance their
existing mortgage debt or qualify for no money down, EZ Doc
loans to buy the properties that were for sale at the time. It was
akin to the music stopping during a game of Musical Chairs as
there were more people actively seeking the safety of available
chairs. In many ways, it was like passengers on the Titanic ship
reshuffling deck chairs trying to survive instead of grabbing the
nearest lifeboat for safety. The 2007 version of the Titanic
“icebergs” were the frozen financial and derivatives markets that
were sinking lenders, investment firms on Wall Street and
elsewhere, investors, and property owners around the world.
Sadly, the U.S. subprime mortgage implosion has been blamed by many financial analysts around the world as
the catalyst or primary cause of the ongoing Credit Crisis. Yet, delinquent subprime mortgage loans only
accounted for less than 1% of all total outstanding defaulted financial debt towards the early years of the Credit
Crisis back in 2007 and 2008.