May 25, 2008
House Of Cards: The Mortgage Mess
60 Minutes Reports On How The Subprime Loan Crisis Is Shaking Markets Worldwide
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The U.S. Mortgage Meltdown
Steve Kroft reports on the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, and how this crisis is now roiling capital markets worldwide.
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Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
Since last summer, Americans have seen their investments shrink and their property values plummet. At the heart of the problem is something called the subprime mortgage crisis, which began back then and continues to ricochet through the economy.
It sounds complicated, but it's really fairly simple: banks lent hundreds of billions of dollars to homebuyers who can't pay them back. Wall Street took the risky debt, dressed it up as fancy securities, and sold it around the world as safe investments. If it sounds like a shell game or Ponzi scheme, in some ways it was a house of cards rife with corruption, greed, and negligence.
And as correspondent Steve Kroft first reported in January, it started in places like Stockton, Calif.
Real estate agent Kevin Moran gave Kroft a tour of the wreckage in one subdivision called "Weston Ranch," with block after block of vacant and abandoned houses.
"If you see a 'for sale' sign in this neighborhood that probably is a sign of distress, right?" Kroft asks.
"I would say that, yeah. Two out of three of all the sales are probably foreclosed properties, and/or people who are in distress," Moran explains.
The "for sale" signs and the overgrown lawns in Weston Ranch only show part of the picture. To get a real overview, you need to look at a map from Sean O’Toole's Web site, foreclosureradar.com, which tracks distressed properties in Stockton and other California communities.
"The light blue circles are folks that have gone into default. And that means that's the first step of the foreclosure process," O'Toole says, explaining how his maps color-code properties. "The dark blue is auction properties. And the red icons are properties that were sold at auction, had no bid, and therefore went back to the lender."
As of last week, there were 4,200 Stockton homes either in default or foreclosure; $1.4 billion in bad loans in just one California community, and it is far from over.
"Two months from now, what's this map gonna look like? How many of those light blues are gonna be red?" Kroft asks O'Toole.
"We'll probably see at least 60, 70 percent of these light blues turn red. And we'll see at least this many light blues again," O'Toole predicts.
Banks are auctioning off houses all over California and in South Florida, in Nevada, and in parts of Ohio and Texas, the result of a huge real estate bubble that began forming in Stockton back in 2003, when people priced out of the Bay Area and Silicon Valley discovered that you could buy a four-bedroom home there for just $230,000.
Developers started turning asparagus fields into subdivisions, and lenders handed out free money to anyone who wanted to buy.
"What do you mean by free money?" Kroft asks Jim Grant, the editor of "Grant's Interest Rate Observer" and one the country's foremost experts on credit markets.
"I mean free money. I mean you had to apply not to get a loan, almost. Sometimes you have to apply to get a loan, you almost had to apply not to get one," Grant says.
"When you opened your mailbox in 2004, 2005, you could barely -- people were pressing on you, if you were not institutionalized, all matters of schemes in which to expand your personal debt and mortgage debt. You could, and people did, borrow more than 100 percent of the price of a house with the most fragile of financial bonafides," Grant explains.
Most of the mortgages issued in Stockton, and half of those now in default or foreclosure, were something called subprime loans, meaning less than prime quality. The borrowers often had sketchy credit, were financially strapped or lacked sufficient income to qualify for a standard mortgage. After a year of artificially low payments, the interest rates on subprime loans jumped all the way to ten or 11 percent.
Produced By L. Franklin Devine and Jennifer MacDonald
© MMVIII, CBS Interactive Inc. All Rights Reserved.
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See all 303 CommentsTyco take us for a loop. Now the high priced bankers want their share. The bankers should watch "It''s a Wonderful Life" at least once a week. Lending money should be rather simple and not become a high stakes poekr game.
I can we had no problems before homecomings financial bought the loan. AS soon as our 2 yers were up. They immediately upped the payment, would not answer phone calls, take payments and hold them in "suspense" claiming we were short and not credit them. It was expained to us that the APR was what the current interest rate was in that year and could be changed annually
It is the the fault of greedy, fly by night mortgage comapies. They know your income and make it impossible for you to meet the payment. They know they are forcing you into a foreclosure!!!!!!!!!!
Now they want to cry foul of the mess they have caused.
I wish stupid politicians would watch to understand there is no quick fix to this. This was mortgage fraud gone wild. As a reader of Ben Jones Blog for a couple of years many of us warned that this was happening. Somehow it was thought that everyone should own a home regardless if they could afford it. In CA some farm workers with $20k income bought $700k homes and put money in their pocket at closing. Brokers and everyone made money and everyone looked the other way at this fraud.
We should go into a depression to clean this mess up. But washington politicians think they should use my tax money to bail everyone out. We need to fight to prevent this.
These same issues are happening in Spain, UK and several other countries throughout the world. There was a GLOBAL housing bubble because of GREED. It was not only related to the US and not only related to blacks, hispanics and poor whites. Quit playing your race/class card! The only color that was the problem in this debacle is the color green.
Ireland is also going through the same problems.
Re: "Steve Kroft Reports How The Mortgage Meltdown Is Shaking Markets Worldwide"
You read it here first- not from Steve Kroft, 60 Minutes, or CBS Newz, of course, but right here in the comments section, moths ago. This was predictable and was predicted.
CBS has a lot of catching up to do. The real estate meltdown is bound to get much worse, before it gets better.
Ireland is also going through the same problems.
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Posted by whatithink at 08:28 PM : Jan 27, 2008
+ report abuse
Really? Does the Government have the same problems? It''s hard to imagine another country with a leader and a political party as Incompetent as Bush and the Repubican''s. When you look at what they were handed and were we are it takes the breath away. Going from a Balanced Budget and a Surplus to Record Debt and Interest Payments in the BILLIONS.. that''s tax dollars by the way... It''s just mind boggling. You would figure a High School Student could do better than they did.
Posted by txengr at 08:01 PM : Jan 27, 2008
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Did you benefit from the Tax Cuts we borrowed all that money for? If so, yes you should pay. If we do NOT get money into the system and soon we could well slide into a Depression. Maybe someday we''ll figure out that "Trickle Down" doesn''t work because it''s the Working guy who pays the freight. If he doesn''t have the bucks then it doesn''t work... take it from me in recent years NONE of the money has "Trickled Down" to us.
...there''s a reason why the rich get richer....etc.
The trigger of this problem was Alan Greenspan lowering interest rates to levels never seen before because of the dot com bubble and 9/11. Many central banks outside of the US followed suit. This flooded the market/banks with cheap money. One bubble (the dot com bubble) was transformed into a new bubble (the real estate bubble). Speculators started buying houses around the world and driving up prices. Banks were getting rich and had little risk because they bundled these loans up and sold them to greedy investors searching for yields. That''s where the problem with the banks came in. They started giving loans to anyone because the loans didn''t stay on their books. So, they didn''t care. This has been happening in many countries throughout the world.
Thank you, "Valerie0903".
Honest perspective from a former insider is obviously very valuable to this topic.
It is stories and people like this that will allow the US economy to fail! If you signed it, OWN it. Do not come back and say "I did not know". What a crock! Take some ownership and live it. We ALL read the same thing at CLOSING. If you are an IDIOT, do not buy a house and claim someone else at fault.
The report was so one sided I dare the producers to contact me and ask what responsible folks consider. My wife and I bought the house we are in in the time frame spoken about. Go figure, we took a fixed rate and fought the whole way to the table as I wanted the ARM. Look who is right. SHE WAS!
Do not blame Bush or the gov. for this. This is 100% owned by the industry. And private industry.
Jay Michaud
The "professionals" in this could see this coming a mile away - its exactly the same thing Milken did 20 odd years ago - they needed the people at the end of the chain to keep buying as long as possible so they made it easier and easier and also "pushed" the idea that property would never go down - I could have bought in 2002 but never did - I will buy in 2010 for probably less....
people like mozilla at countrywide should be in jail.
What does this have to do with politics? However, since you bring this up, the last time something like this happened was in 1990/91 and people also walked away and mailed the keys to the bank. Who, by chance, was the president at that time? I''ll give you a guess, he had the same last name as the current president.
There is a reason to keep the vast majority of the population barefoot and stupid. Many of the buyers were stupid and some were fraudulent. This does not however let the banks and regulators off the hook. At the end of 2006 I remember hearing about the huge bonuses given out on Wall Street. Many bankers (not even close to CEO level) were getting 10 million and 20 million dollar bonuses for one year. Much of those bonuses were tied up in this mess and they don''t have to give it back.
Jay Michaud
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Posted by Jay_MIchaud at 08:50 PM : Jan 27, 2008
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So Bush ASKING the Fed to LOWER Rates and asking the Fascist in Congress to take off the restrictions to prevent just such events don''t count? I''ve come to the Conclusion that you fascist will come up with and excuse for the Incompetent fuhrer of yours no matter what. YES he is partly to blame and ALL to blame for the failure to balance the budget and for the Debt that''s comsuming all our tax funds...even MORE now to get us out of this mess. Sieg Heil Bush!!
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Posted by whatithink at 08:43 PM : Jan 27, 2008
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It''s always someone else''s fault isn''t it bootlickers??? ROFLMAO For 7 long years now, through failure after failure.. after LIE after LIE, I''ve heard just about every excuse known to man. The ONE thing I have never heard though is an responsibility. The ONLY thing that I can think of as far as success from the fascist congress was interferring in that Florida Family''s decisions on a Brain Dead Woman. Sieg Heil Bush!!
It is stories and people like this that will allow the US economy to fail! If you signed it, OWN it. Do not come back and say "I did not know". What a crock! Take some ownership and live it. We ALL read the same thing at CLOSING. If you are an IDIOT, do not buy a house and claim someone else at fault.
The report was so one sided I dare the producers to contact me and ask what responsible folks consider. My wife and I bought the house we are in in the time frame spoken about. Go figure, we took a fixed rate and fought the whole way to the table as I wanted the ARM. Look who is right. SHE WAS!
Do not blame Bush or the gov. for this. This is 100% owned by the industry. And private industry.
Jay Michaud
http://www.youtube.com/watch?v=iVLB9LfHXjU
Two youtube videos on the global housing bubble.
Banks have a responsibility to make sound decisions. They were led by greed these days. With mortgage vehicles like NINJA loans (No income, No job, Absolutely No problem), they were clearly asking for problems.
You forget, THIS IS PRIVATE INDUSTRY. Let them fail and they will be replaced with companies that know how to run in the market.
Take Bush or the soon to be *** out of the game and let capitalism take over. Do not allow those from public education sway you.
Take ownership and drive the consumers do do the work. If you bought a 200K home and could only dare to afford a 100K home, who''s fault is it? BALANCE YOUR CHECKBOOK and SAVINGS ACCOUNT!!
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plus another good one:
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Jay_Michaud
What is needed is a balance between private and public industries. Private industry is about making a profit. Some things should not be solely about making a profit. Have you learned nothing from Enron?
How do we separate out those who didn''t know what they were doing to those who were taking advantage of the system? We shouldn''t be bailing out the guy who invested in too many properties or the couple who are business savvy enough to know they were playing with fire - but we should help out those like the day care owners who relied on the advice they paid the mortgage broker to give them and got taken.
The banks already got their money up front - they knew they were *** around but those fees kept adding up and they took them - now they should forfeit instead of being bailed out. The people they took advantage of are the ones who should be helped instead.
MCVet,
Banks have a responsibility to make sound decisions. They were led by greed these days. With mortgage vehicles like NINJA loans (No income, No job, Absolutely No problem), they were clearly asking for problems.
There is a system of federal banking regulators put into place for a reason - they were instituted following the Great Depression.
Under the Bush Administration there are been an attitude of ''olly olly oxen free'' for every industry from energy companies to banks to coal mining.
Bush is an utter disgrace - but then again he always was wasn''t it.
You made a bad judgment, the gov. should bail you out????? Or, should the LENDER take the bite?
"With the help of some Government programs it is possible for mortgages to be refinanced away from interest only or other bad loans to a conventional fixed loan".
Have you learned nothing from Enron?
Of course the banks had a responsibility - and we have to make them responsible - that''s what the Federal Banking Regulators are supposed to be there for -- they let the country down - yet another Bush failure.
There appears to be no department left untouched by the Bush failed theory of neoconservatism -- Bush and Cheney kept telling Congress and the country that the private industries could and would be able to self-regulate.
ANother line of hooey from George W.
Stop being SUCH a tool.
The janitory that cleans the office building you work or live in isn''t financially savvy - which is why he''s not working on wall street. DUH
This has nothing to do with the government forcing banks to loan money to anyone. Banks are not the "victim" in this story. Banks have been making loans to people in poor neighborhoods for the last thirty years. I work in the banking industry. These people still had to meet certain lending criteria. You are mixing things up. Banks were not forced to lend money to anyone. They did so willingly because they were making huge profits.
PK
PK
Get OVER Enron, it is the past and does NOT apply.
Just so we are on the same page. I voted for Bush, but would kick him out in a heart beat. What is going on now,falls on the banking system.
I can tell you this as I am a living proof why NOT to get an ARM.
If you signed the deal you own it. If you have the expectation of a government hand out, than why do we NOT embrace the style of a Socialist ( Communist) Republic?
PK
The janitory that cleans the office building you work or live in isn''''t financially savvy
PK
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