HappySqurriel said:
I don't think that is an accurate characterization of what happened ... The mortgage and credit markets (along with the housing market) were dramatically changed in the 1990s in order to help low-income people buy homes. The problem is that the changes that were made to help poor people access credit were also taken advantage of by speculators and traditional home buyers which drove the price of homes up; eventually, a large portion of people (poor and middle class) needed the highest risk mortgages (ARMs) in order to buy any home and when the market began to fall it collapsed under its own weight. |
I think that's a fair description of what happened.
If I could add one thing it would be the following.
A significant number of the people that bought houses using risky mortgages these last years did so expecting the price of their houses to keep raising ( that's the only way they could afford them) and so did the bank lending to them too.
That is probably the root of the issue.
Housing market is not different of any other market, prices kept raising so everyone wanted in, even if it meant taking bigger and bigger risks to get in and using more and leverage ( no down payment).
As soon as the prices of the houses started to stagnate and then go down, the whole system exploded....
It's not different from the 2001 market crash where stocks kept going up so everybody wanted in and nobody ever thought it would one day go down, same with houses, noone ever expected the price of houses to drop ( I know this sound stupid but that's the root of the problem lol).