What caused the US Housing market collapse?

[bj229r]

Umm, me? I live in Sweden, you know Europe? And I don't think that your government should pay a single cent to the bankers who authorized those loans.

Sweden...then I'm not terribly sure what stake you have here...at any rate, nothing happens bad to the bankers...they get their bonuses and walk away....the borrowers who are upside down on overpriced homes with payments more than they can afford are getting bailed, which hacks me off beyond reason--when I grew up, it was a rule that your mortgage payment oughtn't be more than a week's pay--I spent 3 years living in an apartment when I moved here from FLA before I found a home that fit such a profile...could have gotten a 250k home with an ARM, bought a brand new car, charged all the furniture...just like the folks going under right now. (Alas, these institutions can't be allowed to fail,,,,just REALLY hacks me off that it was allowed to happen, aGAIN)

[GFShill]

I thought this lady pretty much summed it up:

A couple years back, one of the larger mortgage companies lobbied Congress NOT to regulate the home mortgage market.  Congress' concern was that there as an exposure to overspeculation and feared it could cause economic chaos, so they wanted to close some of the holes still open despite Fannie Mae and Freddie Mac and FDIC guarantees.  The mortgage firms pressured Congress to back off on its legislation and rely on the open market to control itself, citing that there had been no history of trouble and no pre-existing problems and the manpower required for compliance by the companies would be a drain on their bottom line.  There was also an argument that Sarbannes-Oxley would have a deterrent effect to any fraudlent actions that might be contemplated.

A year later, a number of mortgage backers, dealers, and investors are either being sought for bank fraud or left holding loans that are upside down.  Because home ownership covers such a broad spectrum of American society, it is dragging the other industries down with it because of the impact on the credit institutions.  When you add in the rising cost of fuel (and therefore the rising cost of living), to the current cash and credit crunch, you have a society that doesn't have money to spend/invest in other ventures, and the economy slows.

Which is where we are now.

In a "what-if" scenario, if Congress had reined-in the mortgage credit cowboys, I believe the impact would've been lessened somewhat. Now Congress has to rescue the nation's largest government-backed mortgage corporations to fix something that could've been addressed in 2006.

And the company that lobbied?  It was one of the first ones to go bankrupt when the tide turned. Countrywide Financial.