Comments on: Alan Greenspan on the Roots of the Mortgage Crisis http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: Alex http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/comment-page-1/#comment-190232 Alex Sat, 15 Dec 2007 16:17:18 +0000 http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/#comment-190232 Check out the subprime origination chart. http://www.investopedia.com/articles/07/subprime-blame.asp Check out the subprime origination chart.

http://www.investopedia.com/articles/07/subprime-blame.asp

]]> By: dave http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/comment-page-1/#comment-189787 dave Fri, 14 Dec 2007 18:18:25 +0000 http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/#comment-189787 I agree with Ernesto. Working as a mortgage broker myself in 2005-2006, many if not most of the people interested in ARMs wanted them precisely because they couldn't afford something else. This was particularly true of the Option ARM, which had an initial teaser rate that didn't even cover the actual interest. I had people applying for mortgages when even the 1.5% teaser rate was a stretch for them, and insisting even when I spent considerable time laying out exactly how the mortgage worked and how it could impact them. Also +1 to what Honest Dollar said. Spot on. I agree with Ernesto. Working as a mortgage broker myself in 2005-2006, many if not most of the people interested in ARMs wanted them precisely because they couldn’t afford something else.

This was particularly true of the Option ARM, which had an initial teaser rate that didn’t even cover the actual interest. I had people applying for mortgages when even the 1.5% teaser rate was a stretch for them, and insisting even when I spent considerable time laying out exactly how the mortgage worked and how it could impact them.

Also +1 to what Honest Dollar said. Spot on.

]]> By: Honest Dollar http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/comment-page-1/#comment-189457 Honest Dollar Thu, 13 Dec 2007 18:33:30 +0000 http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/#comment-189457 You're right that mortgages are tied to longer term rates. But I think that's what Greenspan meant: he made a policy change with direct impacts on short-term rates, and he expected, "as a bonus, a consequent increase in long-term interest rates, which might have helped to dampen the then mounting U.S. housing price surge." A rate cut by the Fed has no direct impact on long-term rates, but it does affect investor expectations about economic growth and inflation, which will impact long-term rates through bond trades. Since the impact on long-term rates is indirect, Fed policy's effect on long-term rates and thus mortgages are not always predictable. What was predictable, though, was that rates on an ARM will increase. I completely agree that people should have known that their mortgages are not sustainable. But most people are just not financially long-sighted like that. You’re right that mortgages are tied to longer term rates. But I think that’s what Greenspan meant: he made a policy change with direct impacts on short-term rates, and he expected, “as a bonus, a consequent increase in long-term interest rates, which might have helped to dampen the then mounting U.S. housing price surge.”

A rate cut by the Fed has no direct impact on long-term rates, but it does affect investor expectations about economic growth and inflation, which will impact long-term rates through bond trades. Since the impact on long-term rates is indirect, Fed policy’s effect on long-term rates and thus mortgages are not always predictable.

What was predictable, though, was that rates on an ARM will increase. I completely agree that people should have known that their mortgages are not sustainable. But most people are just not financially long-sighted like that.

]]> By: Ernesto http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/comment-page-1/#comment-189454 Ernesto Thu, 13 Dec 2007 18:17:05 +0000 http://allfinancialmatters.com/2007/12/13/alan-greenspan-on-the-roots-of-the-mortgage-crisis/#comment-189454 It seems revisionist history is all the rage these days. I’m not surprised to hear Greenspan chime in and deny involvement in the mortgage mess. Having been an insurance agent in the days or the ARM boom (I sold homeowners policies to help my Realtor and mortgage originators friends close their deals) I spent some time with the people getting in over their heads with these mortgages. Without the ARM loans, these people wouldn’t have gotten the mortgages to begin with. “not major” ? What data is he looking at? It seems revisionist history is all the rage these days. I’m not surprised to hear Greenspan chime in and deny involvement in the mortgage mess.
Having been an insurance agent in the days or the ARM boom (I sold homeowners policies to help my Realtor and mortgage originators friends close their deals) I spent some time with the people getting in over their heads with these mortgages. Without the ARM loans, these people wouldn’t have gotten the mortgages to begin with. “not major” ? What data is he looking at?

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