Good question. From what I can see, they're a lot freer with credit than right after 2008, but not as ridiculously free as in the early 2000s.

Just sold a house for the inlaws. There were difficulties due to mortgage requirements. The buyer had a deal fall through in underwriting.

I think some of the price insanity is due to lack of affordable entry level homes in some areas.

I think some of the price insanity is due to lack of affordable entry level homes in some areas.

Yes, this is the case in my area. Anything remotely affordable is immediately snatched up by an investment buyer for over-priced rental/air bnb/sober home. Mortgages don't even come into it.

One thing I find rather humorous is that there are homes in some small towns and rural areas, fixer-uppers usually, that sell for less than a lot of cars and trucks these days, yet a buyer has to go through all of the mortgage requirements, which can take weeks, even if they have great credit. Yet the same person could walk into a car dealership and finance a $60,000 vehicle, and drive out in an hour.

I know, it's a different department, different kind of loan, etc. But still.

^^Some mortgage lenders can issue a mortgage quickly in far less than 30 days, but not big box banks. As a general rule they take a very long time to approve and close a loan -45 days seems typical. The paperwork process for a mortgage is entirely different from getting a car loan with a tremendous amount of verifying that just doesn't occur when you buy a car. When you get a mortgage, the title work to transfer the documents is a long process. Ten days is pretty standard for an attorney or title co to check title on the property and issue a title commitment.

Also, in the auto loan documents you sign, the lender can pull the loan after several weeks but a mortgage lender can't do that if you have closed on the property.

The high prices also have to do with empty nesters and millenials competing for the same low maintenance properties while McMansions linger on the market. There was a article about it recently.

we closed last year and the hoops were a lot tougher to jump through than when we purchased in 2004. Hanging around mortgage forums though has shown that they are definitely looser than right after the crash. Interest rates are climbing as well from what i am gathering.

bry911 - I had to read what you wrote twice, but it makes sense to me now.

Okay, so here's my question, then: If it wasn't a significant factor that so many people defaulted on subprime loans, why then do I see subdivision after subdivision utterly devastated by that very thing? All of these homes abandoned by people who got loans, didn't pay them, and now the homes are either vacant or when they're finally sold, they're turned into rentals. The people who actually bought homes, paid for them, and took care of them have crack houses next door, and they now have to sell for a fraction of what they paid just so their kids can have a safe place to live. If they can afford to. Otherwise they're stuck.

Now, I do get your point that this may not have caused the 2008 collapse, and I have no reason to argue that. But what happened with subprime was a very significant hardship for many people - more so the hard-working ones who paid their bills than the ones who walked away from their homes. And, it happened at a much higher rate as a result of whatever decisions were being made to grant those loans. There have always been defaults, but not the numbers we saw then.

I think so much of this was caused when banks changed mortgage officers into mortgage sellers whose pay reflected the amount of mortgages they sold. That is not how things used to be: they were paper generators and gate keepers.

I refinanced my house 18 months ago. My credit rating was 860 and I had no debt other than the lease on my car and it took about 3 months to satisfy them. But then I'm in my 70's living on 2 pensions, SS, and income from 2 trusts. Apparently these are "riskier" than someone who is 30 losing his job. Go figure...

Without arguing the points of whether subprime caused the crisis, I agree with bry911 that the next crisis is almost never a repeat of the previous crisis - people are dumb, but not that dumb.

Also, outside of coastal markets, and really I'm talking about California, prices are still well below the peaks of crisis in areas where they inflated alot like Vegas, Phoenix, FL. In my area - a NYC suburb, we are still 10% or so below 2007 peak, but the market is strong and appropriately priced properties sell very quickly. I think demographics are really driving the market - the early millenials are now in their mid 30s - they've put off having kids and suburban living for as long as they can, and are slowly moving out here. But having come from 'pick up the phone for maintenance' apartment living they really prefer new build - there is a huge market here of existing lot redevelopment of our 1950s housing stock.

If it wasn't a significant factor that so many people defaulted on subprime loans, why then do I see subdivision after subdivision utterly devastated by that very thing?

My post was in response to the OP's assertion, not on whether or not bubbles can be devastating to homeowners when they pop, but that isn't something we can fix.

The OP wonders if we are heading for the same type of crash because house prices are going up and maybe lenders are relaxing credit standards. The demand for subprimes certainly added to the height of the 2008 bubble, but the demand for subprimes was driven by credit default swaps. The existence of either the bubble and/or subprimes isn't sufficient to repeat what happened before.

Bubbles exist without subprime mortgages and property values die without subprime mortgages. Southern California is absolutely on a bubble again, and that bubble is going to burn people eventually, however, it is their right to be on a bubble. Let's not forget that a bubble is just unsustainable demand. People have the right to pay what they want for a house and get paid what they can for a house and if someone gets hosed in that transaction there really isn't anything we can do about it. People overpay for houses all the time and we don't blame the system then.

Moreover, homeowners are always beholden to their neighbors. My parents bought their first home in a new very nice neighborhood, they sold that home in 1977 for $42,000 in 1980 it sold again for $34,900. Today it is worth $58,000 because what was a nice neighborhood is now best described as a ghetto, and there was no market collapse that made it that way. One very good employer laid off some people.

outside of coastal markets, and really I'm talking about California, prices are still well below the peaks of crisis in areas where they inflated alot like Vegas, Phoenix, FL.

I am not sure about this. There are some major metropolitan areas that are still down and a few regions but most of the country has recovered rather well. The Case/Shiller HPI has us up 4 points and that is inflation adjusted, which means most of the country is up 20% over what their highest 2006 value was. This is pretty close to my experience in my area.

I blame lenders for giving mortgages to people who could not pay them. That's who made that decision. Demand for subprime mortgages isn't the issue; people can demand them all day long but that doesn't mean everyone should be approved. There was never really a bubble in many parts of the Midwest, where I live. You could buy houses for reasonable prices in the early 2000s, as you can now. The problem wasn't people paying more than the house was worth, it was people buying a house they had no hope of affording.

I agree that people can pay what they want for a house - if they have the credit and other financial resources to support it. I have seen the results first-hand of what happens when there are too many unqualified people getting mortgages, and it ain't pretty.

How it worked here is, builder puts up subdivision, works with lenders to fill it with people who can't pay, walks away with profit while the paying homeowners are left with a mess. Credit is probably tight enough now that it cannot happen exactly that way again.

I think some of this also had to do with adjustable rate mortgages going up very high when the beginning rate expired. If this happened to you and you couldn't refi, or you lost your job or had to move, combined with a declining market, it was a perfect storm.

That is what happened to my parents- payment went from 850 a month to 1600 and since banks use foreclosures for comps no ability to sell or refi for what was owed.

If the bank properly assesses the likelihood of loss and the likely amount of default then subprimes are no more risky than prime loans. They have a higher rate of default but pay more in interest charges.

No more risky but have a higher rate of default. Sounds more risky to me.

I remember seeing signs advertising loans where you can "borrow 110% the value of your home". I'm not seeing those around these days.

Also the worst of the defaults were in HIGH value homes that had NO doc loans. People walking left and right with the CASH to simply buy elsewhere for CASH so the hit to their credit didn't matter.

I blame lenders for giving mortgages to people who could not pay them. That's who made that decision. Demand for subprime mortgages isn't the issue; people can demand them all day long but that doesn't mean everyone should be approved

Uhmm, no. I am not sure how you can say that purchase demand for subprime loans wasn't the issue. Please understand we are not talking about consumer demand. Banks will sell the loans they make to investors, most people are pretty familiar with Fannie Mae and Freddie Mac, but they are not the only investors who buy mortgages. In response to the Community Reinvestment Act banks developed the mortgage backed security. Largely MBS made lending to poor people less risky, but it also created a market for loans as investments.

None of this was a problem until we invented the credit default swap, and, in fact, mortgage backed securities have done a lot of good. However, hedges got us into a situation where MBS were paying more money than the loans they supported. The entire problem can be summed up in one sentence.

"An investment based on mortgages with an average 6% interest rate can't have a 9% return." Yet, they did. The worse the mortgages, the better the return.

So people were paying the banks more for bad loans than they were for good loans. The banks were certainly culpable, but if people pay a lot more for riskier loans the banks are going to find a way to make riskier loans.

No more risky but have a higher rate of default. Sounds more risky to me.

Well they are not. A risk of default doesn't establish a higher net risk for the bank. Any loan has a risk of default, the bank's job is to assess the likelihood that you will default and assign a commiserate interest rate. As the risk of default goes up the bank should raise the interest rate so even though there is a higher risk of default the net risk vs reward for the bank stays the same.

ETA: The basic idea of this is one we are all familiar with. Would you pay $100 for a 1 in 1,000 chance of winning $2,000? Maybe not. Would you pay $100 for a 1 in 1,000 chance of winning $20,000,000? Maybe yes. It is just simple risk vs. reward.

Subprime loans were designed for poor people. And when the economy tanked guess who was the first to stop paying their loan? The people without any money to begin with. The same ones with bad credit.

Subprime lending is riskier, hence the higher interest rate.

IMO, if you can't pay your bills on time and put 20% down to avoid PMI then you shouldn't be buying a home.

I have dealt with several different loans over the last few years and each required several hoops to jump through. The verification process was ridiculous and I remember thinking to myself, if someone with money has to go through this much, how does a person with no money buy a home. I don't know the answer to that one.

To the OP, I don't think the lenders have lightened up on their underwriting process. But then again, I haven't done a subprime loan, so I don't know what that process is like.

Subprime lending is riskier, hence the higher interest rate.

This is correct, a subprime loan has a higher risk of default and therefore a higher interest rate. But I am speaking on an institutional and system level. If that risk is properly assessed by the bank and the interest rate is appropriate for the likelihood of default it presents no additional system risk.

Suppose a bank has 100 subprime loans and it properly assesses that 15 of them will default and have a net $450,000 loss ($30,000 each). If the remaining 85 loans each pay more than $5,300 extra in subprime interest premiums the bank has no net exposure.

So long as the default rate and loss are correct the bank is protected from damage. These numbers are pretty hard to get right so banks tend to charge a bit extra for interest premium.

I don't agree with you.

There's no such thing as "properly assessing" people without money that shouldn't be buying homes to begin with.

The higher interest rates didn't make up for all the loses.

I know my comments sound a little harsh. I'm sure there are some people out there who do pay their subprime loans on time and haven't defaulted yet. But when you look at the big picture, the loans are too risky and the higher rates don't make up for the risks in my opinion. It's like giving fat people more food and asking them to maintain or lose weight. It's an uphill battle.

per Thom Hartmann, its investors & speculators are inflating the bubble this time around - buying it all up for rentals/investment. Got a lot more renters to house these days, thx to the last boom-bust cycle.

btw I loved that movie (the Big Short) - characters and story were fun to watch ... except for the fact it was based on reality and real people did get hurt.

You have every right not to agree with me.

I contend that people without money are no more hard to assess than people with money. Which you could argue is a large part of the problem. Loans have moved from a relationship with your bank to an actuarial calculation.

Did the banks do a bad job before 2008? I don't know that I can answer that. I think everyone did. Pinning the blame on the bank seems shortsighted when the loans were being bought by all kinds of investors.

ETA: It is important to understand that everyone has a risk of default. Well qualified buyers with great credit default also. Establishing that risk of default is a bank's job and it is just an actuarial calculation.

Excellent points bry :)

I agree that the banks are not solely to blame. I blame the buyers/investors too. It was a recipe for disaster. And you're right that well qualified buyers also default on loans so there is no bulletproof system.

Banks make money when homes default. They take bets on those profiles as well.

In addition on a government backed loan the bank collects the home, the insurance (fha, usda, va) and then resells the home and collects that money as well. It would seem a 20% down with no mortgage is actually riskier for the bank and again, millionaires defaulted as well. Check out Florida.

The bank only keeps the money that is owed. If the foreclosure results in a sale for more than what is owed, the excess goes to the former owner.

Getting back to the original premise of this post, it appears that credit standards are indeed about to ease:

http://www.cnbc.com/2017/07/05/two-major-lending-changes-mean-its-suddenly-easier-to-get-a-mortgage.html

Jn3344- incorrect. In our case we had one home, a FHA loan for 8 years, we tried to sell 3 times over 3 years but the banks used foreclosures for comps. The bank got the home. It had 75,000 left on the 89,000 loan. They put in a claim with HUD for the full 75,000 remaining and sold the property for 71,000 at the sheriffs sale. They kept it all. So I call BS on your claim.

If your house was sold at an auction any overages above the amount to satisfy the loan plus reasonable attorney fees are yours. However, the bank may not mail you a check and the attorney may not make extraordinary efforts to contact you about the claim. If there were an overage you can contact the attorney for the bid and deposit receipt. If there are any funds ask for a disbursement request form (every attorney will have their own form for this).

However, if there was a HUD reimbursement in lieu of auction, HUD will get the overage as a reimbursement. Unlike most citizens, HUD is very good at getting their money returned. While there is no obligation for the bank to make an effort to get your money returned (you are not their client anymore), there is an obligation for them to return HUD dollars and the penalty for not returning HUD money is fairly severe. I would be surprised to learn that it wasn't returned to HUD. However, if you find out that they didn't refund the money, 50% of the amount that they wrongfully kept can be yours for reporting the oversight.

So it is worth a letter to the foreclosing attorney for a full accounting just because of that.

I know that no one can afford an attorney when they are being foreclosed on, but it is one of those times where it is really helpful.

Back to the original topic, there is the complicating factor that the government wants banks taking risky behavior in home loans. Sometimes they blindly follow the idea that home ownership is a societal benefit, but the fact remains that there is evidence that says homes have a stabilizing effect on families.

It is something to think about as we begin relaxing credit.

I'm not wrong, lol.

You owed 75k. Then you defaulted. They only got 71k for the sale of the house. No money was owed you.

Did the banks do a bad job before 2008?

bry911, I agree that credit default swaps were extraordinarily damaging to the economy- huge causation for the Recession. But?

Yes. The banks did a bad job before 2008, as did our government. Do remember what happened, in the run up, to destroy 80 years of market protection in RE. Down payments acts, in legislation, that erased the need for the standard 20% down. All the way down to Zero Down Payment Act. And we cheered, because, you know- "you know what they [terrorists] hate? They hate the idea that somebody can go buy a home.

And our President went on to sell that to HUD and lenders, who in turn lent money to people in a way that there was NO way that they could handle any real downturn in the market.

It's a real reason that we had so many who simply walked away from their properties, in the Recession. It's bad enough to be really invested in a property and watch a 40%+ downgrade in valuations. But those who had no real investment- almost worse than car loans- yep. Easier to let go, than to try to hang on.

I remember back in 2008/09 reading discussions of homeowners lamenting what to do. They had fallen on hard times in their employment and were underwater on their home loans. Continuing to pay their loan was not going to relieve them from the inevitable. One poster, taunted them for continuing to pay on the loan. He was going to stop payment on his loan and bank the monthly payment. He said that he figured he'd get 18 months in the house before being forced out and have that money saved up to make a new start. Not sure how that played out but it was in stark contrast to the homeowner wanting to honor their loan.

The problem with blaming the banks is that they are not the real culprit.

There is a great Khan academy video series on mortgage backed securities that does a solid job explaining everything. One of my students recommended it and it certainly explains things well enough that there is no need for me to retype it.

Remember that banks sell loans and banks will make whatever loans that they get paid the most for making. If investors are paying two and three times more for bad loans than for good loans, then banks will make bad loans. I mean if someone paid you $8 for used chewing gum or $2 for unopened chewing gum, which would you sell (assume nothing nefarious)?

Whether right or wrong the government wants to encourage home ownership even if there is some system risk for it. I actually kind of agree with those reasons. There is a great insight by Terry Pratchett about socioeconomic unfairness called Boots theory. I am going to paste it here because it is something to think about.

The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes ‘Boots’ theory of socioeconomic unfairness.

We think home ownership is an important step in lifting people out of poverty. In fact, many believe that the extra default costs of low interest loans relieves much more strain on the social safety nets.

Or as my dad used to say, it costs less to keep your gas tank on full than it does to be running on empty all the time.

It took me a while to internalize this lesson, but once I did I had a lot less anxiety about money,and life.

When I watched "The Big Short," what I saw was a lot of people making money "packaging" mortgages. We bought our last home in 2001, and that mortgage was sold every couple months for some time. We'd get a letter in the mail that someone else held our mortgage now. It was insane.

We bought this house in 2014, and haven't received a single letter about our mortgage being sold to someone else. I think that problem is not going to happen again, but other problems will surface. There seems to be a shortage here. Houses are flying off the market, even in my sleepy Midwest town.

This is true:

Remember that banks sell loans and banks will make whatever loans that they get paid the most for making. If investors are paying two and three times more for bad loans than for good loans, then banks will make bad loans.?

But a lot of simultaneous culpability to go 'round, yes? If the banks hadn't been so encouraged/emboldened to write bad loans (backed by a stunning lessening of industry standard in lending), the investors wouldn't have had much to buy cheaply. Help me with the chicken/egg thing.

At its heart, the 2008 financial crisis was caused by the exact same thing that all other financial crisis have been caused by. You can call it incomplete information, reckless behavior, or whatever you want, but all it means is that investors failed at properly understand risks.

There are lots of "but for's" out there, and many of them are correct. But for the government relaxing regulations we wouldn't have had the crisis, but for the banks making bad loans we wouldn't have had the crisis, but for the Community Reinvestment Act we wouldn't have had mortgaged backed securities, but for the bubble, but for the downturn in the job market, but for adjustable rate mortgages, etc., the list goes on and on. While all of those things made the crisis possible, none of those things were directly responsible.

There is a problem inherent in the "but for" game, because it never ends. But for wheels we wouldn't have cars, and if we didn't have cars we wouldn't have car accidents, and if we didn't have car accidents people wouldn't die in car accidents. Therefore our ancestors cause 1.3 million people to die each year with their invention.

There are lots of people out there who deserve some grief for not stepping in to slow the problem down. But in the end, investors believed that people would always pay their mortgage. They just fooled themselves into believing there was little to no risk associated with their investment in mortgage backed securities. That assumption doesn't even make sense, things with no risk, have no reward. If you are getting big returns investing in mortgages then they have big risks. Still investors ignored the signs, and pressed harder on the gas.

Thank you. We definitely agree on the "but for", and had to giggle at blaming our ancestors for car accidents. I wonder if that would work as a valid excuse in a fender-bender?

I worked for a Investment House (now collapsed) during the Boom Years and specialized in Structured Finance. Needless to say, this is a topic I know pretty well.

Originally, this boom "started" when Alan Greenspan cut the Federal Reserve Interest Rates due to the Dot Com Crash & 9/11. Our country was in a bit of a minor rescission, and he was looking to stimulate the economy.

Now there had always been "Subprime" Lending. And some of it was being Securitized and Packaged into "ABS" (an Asset Backed Security) or MBS. But most of it was actually held in Banks Portfolios, and funded with Depositors Money.

Around 2003, this started to change. Investment Banks started hearing demand from investors for higher-yield products, that would track the worlds indices (like the Treasury Yields, or LIBOR) and their main products that seemed to function for this box was Home Loans, Auto Leases & Car Notes, and... Corporate Debt.

At this same time.... many huge Mortgage Lenders... Ameriquest, New Century, Washington Mutual, Countrywide, Option One... were having record mortgage sales, thanks to the lower interest rates and homeowners lining up to Refi, but.. they knew the business would begin to slow down dramatically in Late 2003, and Early 2004.

They realized if they wanted to meet their shareholders demands and keep up with the earnings, they'd have to start offering new products. And... companies like mine, were willing to provide tons of capital to temporarily fund these alternative, and subprime loans. We were also more than willing to purchase them, and were fighting with other Investment Banks, all competing to buy these loans to be packaged into ABS and MBS. Everyone was trying to beat each other on Premiums and Yields for these loans.

One of the most popular ones were the 2/28's. Which simply means, the first two years of your home loan is "Fixed"... during the "Hybrid" Period, and than it converts to a high priced Adjustable Rate based off an Index. Usually the Six Month LIBOR.

And they could reset 2 or 3% higher than your initial rate on the first Reset, than.. usually an additional 1% higher six months later.

The Margins on these loans were made to almost guarantee an adjustment would occur, even if rates stagnated. Although... that didn't really happen. The Federal Reserve kept on upping the Prime Rate. And World Markets Followed.

The biggest problem with these loans... was they were never designed to be actually kept by the Homeowner. They were originally designed to be refinanced out of and deliver returns to the Mortgage Company. They were truly made to give a steady stream of Refinances to the mortgage lender.

Supposedly in theory, the Two Year Period would allow the Homeowner to pay off Credit Card Debt, and allow their Credit Score to recover and get them into a better loan... but often the actual homeowner would go back on a spending spree and never think much of it. So they were still "Subprime" and locked into a endless cycle of these 2/28 Mortgages.

What really happened, in my mind was a few things.

You see.... pretty much everyone, assumed that home prices would always go up. And as long as they did... these loans would be refinanced, and there would never be any reason to worry about "Payment Shock", and "Poor Performance" from homeowners. Nothing would ever go wrong as long as the underlying value (property) kept going up. The underwriters at the mortgage companies slept at night, knowing all of this stuff would be refi'd out of before payments adjusted.

But...

Home Prices in Southern California, Parts of FL, and NV.... started to stagnate, and even fall in 2006. Far before most of the country got to their 2007 Peaks.

When these people could no longer serial refinance. When they could no longer refinance out of the higher payments they could never truly afford in the first place... things really got bad.

The worst part was... many of these ABS, and MBS Deals that were constructed... contained large portions of loans from Cali, FL, and NV, and AZ. So... when these particular markets... (which were supposed to be "regional") all started to go bad in late 2006, and early 2007.... losses started to hit badly on the lower-level certificates.

Even worse... was Investment Banks begin to demand buybacks for loans that had defaulted from the Mortgage Companies... (Countrywide, Ameriquest, New Century, etc)... and these Mortgage Companies really didn't have clear answers, nor the capital to repay them. So they were beginning to go bankrupt.

Investors... who had always seen wonderful returns and performance in the 2004, and early 2005 deals... begin to question the soundness of their investments from 2005 and 2006... and started drawing back in 2007.

It took until about mid-August for everyone to eventually lose confidence in what are called the "Non-Agency" MBS.

-------------------------------------------------------------------------------------------------------

The entire thing feel apart in 2007, because of delinquencies that were not modeled begin to affect certain low-level tranches of these Investment... that were assumed wouldn't fail.

The Investors begin to become unsure about the entire model that had been formed and used. And just didn't want to risk any more money in the market.

Now... what a lot of people don't know is...

These low-level certificates, often times were not rated at all, or if they were rated, they were noted as "Speculative".

The Actual "Original" Mortgage-Backed-Securities & Asset-Backed-Securities, with Senior Tranches rated "AAA" have all been mostly repaid, and less than 2% of them have had ratings downgraded. Because in the pass-through-structure of these deals, they were entitled to repayments first.

So... "AAA" wasn't all lies, as people are led to believe.

The real problem came from people who held the lower-level certificates, that no one wanted. This was supposed to the be cash from "making the deal" and was supposed to be retained by the Sponsor.. or person who made the MBS. In Essence, it was free money... but impossible to sell on it's own.

Many of these certificates did benefit from something called "excess interest".. which was extra cash flow from higher level certificates... but if losses happened, they were the first to take it.

Some investment houses begin to package these leftover "residuals" into new securities, that the world know understands as "CDO's". But at first... the structure worked.

Many analysts believed, it was impossible for tons of MBS Deals to have underlying certificates all go bad at the same time. And the deals were so diversified.. sometimes containing the underlying bonds of 400 or so Mortgage Deals... that it was just assumed nothing could go wrong.

And the Senior Certificates of these Deals, did obtain high ratings. Even though... they contained nothing but Junk-Bonds from residuals of Mortgage Deals.

Truth be told though... many of these CDO deals didn't go bad until Late 2007 and the early months of 2008.

I might post more later. But.. it's a topic I do like to share when I can. If anyone is curious, feel free to message me or post. :)

WOW awesome insight... Thank you Edward P

"Supposedly in theory, the Two Year Period would allow the Homeowner to pay off Credit Card Debt, and allow their Credit Score to recover and get them into a better loan... but often the actual homeowner would go back on a spending spree and never think much of it. So they were still "Subprime" and locked into a endless cycle of these 2/28 Mortgages."

"When these people could no longer serial refinance. When they could no longer refinance out of the higher payments they could never truly afford in the first place... things really got bad."

W. Buffett comes to my mind... "when the tide goes out you can tell who was skinny dipping"