As I have said before in RealJock forums I have been tremendously blessed in life. I would not venture to come to a definitive answer as to why we are in the current mess. In general, it is due to very poor business practices of all involved.
I can tell you my experience. I sit on the board of directors of a bank that is now 120 years old. It's a small bank, but not much has changed in many many years. We are still making money. We make and hold mortgages. In other words we don't make a mortgage, package it into a debt obligation, then sell it off to someone who might package it in a derivative like those to be bought in the $700BB fix. Currently around 18,000 or so mortgages are outstanding. Of the value tied up in these, we have 2.8 times that in assets, not including deposits. So yes, we've made a good bit of money in those 120 years
We are not thought well of by folks who can not place a 20% down payment. I won't get into the particulars of that because that's not my thing. But we are not like the mortgage originators who make 100% loans and then pass it off to a willing partner churning out derivatives.
I am also in the construction business and span residential, commercial, and industrial. I can tell you the greatest .single threat to the economy has been the habits of those in development and construction who constanlty pushed values into the stratosphere with ever higher gross margins as high as 55%. They and folks who for instance were financing rental properties at 100% have defaulted at an amazing rate. Ergo WCI, with home I've done business.
I would bet that 3% at most of the mortgages in minority communities have gone into foreclosure due to some illegal or illicit action by the owner. Some were due to the loss of anti-predatory lending laws like in Georgia when Republican Governor Sonny Purdue came in and wiped out such a law.
We have moved in along with the FDIC and taken over four banks in the last three months. All of these banks were playing this game: Builder Joe comes in with a home plan and wants to borrow 70% (a 70% loan to value ratio) of the appraised value of the home defined by the plan. (Appraised based on location and materials used, etc.) The baker should get the appraisal, see what he'll loan, and then check Joe Builders ability to pay. Joe Builder must have verifiable income not dependent on the businesses core building operation (in other words he should have capital geneating income to service the debt) to service the debt even if the loan goes for years.
This is not of course what happens. All builders who cut individual construction loans service the debt out of the draws received in the loan. If they can't sell the home, they run out of cash and hand the home back to the bank.
