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Showing posts from June, 2010

What Caused our Global Financial Crisis?

The U.S. Housing market became a "bubble" for the following reason -- people who could not afford the down payment nor the mortgage payment of the home were allowed to borrow anyway. Banking institutions then packaged these mortgages and sold them to Fannie Mae and Freddie Mac.

So how did this happen? The United States Government -- Executive Branch since Clinton, and the Legislature -- has promoted home ownership by lowering the financial requirements. In the 1980's, over 80% of homes had a 20% cash downpayment required with a 30 year fixed rate mortgage. By 1992, with the Community Reinvestment Act, Banks were not just ALLOWED to accept 15%, then 10% then 5% then no downpayment, then were told they could generate the loan and then sell it to Fannie Mae and Freddie Mac. Let me go further...Banks were now only allowed to offer variable rate mortgages, but they were encouraged to market products which ASSUMED home price appreciation and a growing economy (because it …