Housing Conundrum (part 4)

[TheMailprasad]

In part 3, you said, financing got easier because housing prices went up and here you say housing prices go up because financing got easier. Isn't this logic recursive ?

[iNinjaNotes]

@TheMailprasad I remember watching this series a while back. I think he meant that financing got easier because of lax lending policies, like no down payments, extended mortgages and bad credit lending. While housing prices went up because of excessive lending mean't that everybody could own a house and the demand skyrocketed for housing.  Demand = prices rise. I'm sure he just made a small slip if that's even what he said.

[mahela1993]

Fantastic videos Mr. Khan!!

[mahela1993]

It might sound naive, but I think the main reason for all this is that people wanted to live beyond their means...Because they wanted borrow a tone of money to pay for a house that they couldn't really afford.

[eecsta]

thanks for posting these awesome videos!

[BapidBeagle]

Ohhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh­hhhhhhhhhhh.

[DocRocz]

One item that I didn't see covered was, the change made to the Community Reinvestment Act. In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act. This law repealed the part of the Glass–Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services.

If you've ever heard of Foreclosure Phil well this is the guy Phil Gramm.

[plasticbarf]

Very good video(s), I agree wholeheatedly. Bankers used to know their communities and were able to understand who would and would not be suitable to give a loan to. The problem arose when there was just a rating like AAA, which was to be taken on faith. I really think that is the genesis of the problem.

[ifginc]

Integrated Financial Group is that name that you have been looking for getting the best mortgage plan to suite your wallet and wishes.

[ZakBrownrigg123]

Very important question:

It was well explained how the chain reaction caused credit to be tightened and defaults to be widespread.

It was not explained how the first houses lost their market value, and started the whole chain reaction. It was only said that they did.

Question:

What caused the initial houses to lose such a significant amount of their value? If the demand had not yet been lowered due to tight credit, what caused these housing to fall into the abyss?

[srvkkar]

@ZakBrownrigg123 Its the next video on the, "credit crisis" playlist.

[Corsaircid]

@ZakBrownrigg123 Good question.

People whould should not have qualified in the first place may have been unable to pay their loans,because of the Sub prime.America since the Dot com bubble was only interested in speculitive wealth rather than creative wealth.China was making all the stuff.If banks of a country lend beyond its economic capacity like in Argentina then financial problems will occur.

Cheers!

[mp3rmd729]

Were these awesome videos posted in 2008? Do you have very recent ones (made in 2010) that talk more in detail about the loan modification act Obama set in place and the foreclosure crisis (currently at 50k foreclosures/month)? Thank you for taking your time to explain these complex concepts!

[wkxp0ny]

This is so awesome. Thank you sir.

[allenu]

Great video. Very informative and explained simply.

[kwak76]

very good video. Learned allot

[mustardy]

banks lost money because investors keep their money in banks!

[jhaverivivek]

Why the banks pretending they lost money when they actually made huge volumes of money. The only people who lost money are the investors who the banks sold the schemes to. Why are banks reporting huge losses and asking for government to rescue them with public money. How does it go forward from here for property prices.

[NumisEX]

The banks lost money because they had to buy and pool mortgages from mortgage brokers and package them into a mortgage backed security and sell it to investors. When the system collapsed they still had inventory of mortgages not yet packaged or they they sliced and diced the best portions and sold it to the most risk adverse pension funds at a huge premium and held on to the lower level tranches hoping an investor with higher risk appetite would take then later.

[TheEsquire52]

Watch the credit default swaps videos. Also, think about who is buying the securities?... banks, funds, companies, etc... Another point is a game of musical chairs, they got stuck with some when the game stopped.

[toti35]

now i understand why in the location were i moved you can see people with very low income owning huge houses.....and rusted cars parked on the driveway!

[tamerlan2209]

I think you didn' t mention one other big reason for the housing bubble. With the FED lowering the interest rates, people could get bigger loans for the same mortgage payment. And we know that people, expecially the less sofisticated, buy stuff they can afford pay by instalment , not caring about the principal. Bigger aggregate loans made bigger aggregate demand.

[andrewseburn]

Thanks for the information. Great videos.

PS - I before E, except after C ;)

[AndroidPolitician]

Also the Fed lowered interest rates dramatically in the 2000s.

[shofie222]

Financial got easier because the Greed.. this video is awesome!!!

[RvNYC]

kev3d: "politicians figured that it is a good thing to own a home. Homeowners cause less crime, make more money..etc."

Typical politician think. More likely, those who caused less crime, as a lifestyle, got better jobs. They managed their money responsibly and a result were able to afford a home.

[aquapurity]

Was this "cycle" possible without the monetary policy set by the fed?

[hctivas]

explained clearly even to people without expertise in finance.

[ch00bz0rzz]

Wait so why did financing get easier in the first place again?

[kev3d]

Because The Federal Government guaranteed the loans, so the banks could lend to more people without assuming the same level of risk. Basically the idea was that politicians figured that it is a good thing to own a home. Homeowners cause less crime, make more money..etc. So to increase the home ownership, especially for minorities, the standards had to be lowered and financially backed by the government. Seemed like a good idea at the time...

[ch00bz0rzz]

perfect answer thanks!

[dogsgoarfarf]

more people wanted to invest into these securities because the rate of return was high and home prices were going up up up. the brokers see that more and more people want to invest and the only way they could allow it was to lower requirements. by allowing easier finance everyone could make money: the mortgage broker, the investment banks, and the investors (only for so long as we now see). wrong to suggest its because of the federal governments mistakes. it is greed + mistakes of everyone

[bringthe8tracback]

kudos!

[chaszzz]

This is excellent material. It is fantastic that you are doing this.

[WHEATTHlNS]

Some of you guys don't get the point of these videos. I doubt hes "forgetting" anything, and instead is leaving it out for simplicities sake, while still maintaining the fundamental base.

[juv95hrn]

Great videos!

[U2BHistory]

bump. Someone gets it. You are still forgeting Mortgage Insurance in your explanations. But the results as presented are right on. Someone also mentioned ARM's, that's part of the Financing Easier part of the description. Also that it was evident that no one was going to wait 30 years to pay off the mortgage the payoff rates were so fast, why pay higher rates based on 30 year money when the average pay speed was so much faster. The 30 year interest rates are still based on 10 yr money/bonds

[CincyDude]

He forgot to mention Adjustable Rate Mortgages. Which I heard is a big factor to this mess. I would like to know more about that.

[as702ecs]

Excellent presentation.

The question is, why did house prices fall? Going by this model, there was no reason why people had to foreclose.

What went wrong?

[FFace6]

sub-prime people kept defaulting. There were not any other people for them to sell the houses to so they foreclosed. The banks also couldn't find anyone else to sell the houses to. so the house prices went down a bit. At the same time, banks have started to realise that this sub-prime dynamic might mean that lending isn't as safe as they thought so everyone raised the criteria at which they would lend. just as everyone's rating is going down.

[ThatIsNotDeadWhich]

Because the dynamic works just as well when things go the other way. It's essentially a big Ponzi scheme. And when a Ponzi scheme either runs out of suckers, or people realise that it's a Ponzi scheme (or rather, when they realise that everybody else has realised it, which is not quite the same thing...), the whole thing comes down like a house of cards.

[brco2003]

1:30: Of course, you also must pay the interest expended for the year.

[busrider85]

Excellent explanation. There was no negative feedback in this system b/c everyone was benefiting. Home owners with no money, mortgage brokers, investment banks and investors. Cancer in the human body also has no feedback

[minidinho]

well so wat happens when the price of the houses go down in the market? is it related to an increase in Int. rates by the FED...

where is the next video ??? thnkss

[bay77]

i'd also like to know where the next one is :)

[bigbtripathi]

Good one. Which one is the next video?

[petepeee]

Fascinating..... thanks :)

[Sonny453]

NIce...very informative. Enjoyed all 4 videos. Thank you.

[worthrisking19]

another excellent video! Highly recommend it! Thanks again!