... What do you feel are the real causes of the meltdown?
Several factors have led to the current crisis - in particular, "illusory" liquidity and lazy underwriting. With the advent of the various "exotic" mortgage products, families began purchasing homes that they couldn't really afford under more traditional lending schemes. The debt wasn't really any cheaper; the costs were simply back-loaded.
On the other side of the table, lenders were willing to issue loans to individuals that couldn't necessarily afford them on account of the fact that the mortgages were set to be sold into the secondary market, and the company closing the deal wasn't necessarily the same one that would be receiving the loan payments. There was less incentive to be picky about borrower qualifications when the mortgage originators weren't going to be suffering the consequences of a default....
March 1, 2008