Unfortunately, and I blame the car industry for this, Americans are much more interested in a lower payment than they are in how long it will take to pay off a note or how much interest they will end up paying. It was ok though because they were going to bundle them together with a bunch of other notes and sell them to someone else. The whole lending system, from the big boys on Wall Street down to the loan officer in your local bank, was making and encouraging too many loans destined to fail. One example that Lewis uses is a Mexican strawberry picker making $14,000, who qualified for a loan for $750,000 all because he hadn’t proved he couldn’t pay.Īnyone with any sense, you don’t need business acumen for this one, can look at that situation and KNOW with certainty that strawberry picker will not be able to make his payments. Michael Lewis talks about ”thin file FICO scores,” which are people with short credit histories, but have good credit. ”A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages.” Many of them fell into the category of subprime mortgages. Many were buying properties they could not afford and knew it, but they were hoping to ride the positive wave of escalating property values which would allow them to keep tapping their equity to pay their bills. My friends and acquaintances from all over the country were buying properties. He said, “I haven’t written a fixed note in so long that I’ll have to look up how to do it.” My father always said to never trust a banker and, furthermore, never trust that a banker knows what he is doing.) When I told the banker I wanted a fixed mortgage, he looked shocked for a moment. (I’m the offspring of a farmer and had the opportunity to watch my father negotiate several mortgage notes. Of course, what he didn’t explain was what the payment would look like when the interest rate went up.
He showed me how much lower my payment would be. The first time I bought a property, the banker wrote it up as an ARM (adjustable rate mortgage). I put everything on 30 year notes to give me more cash flow.
I had an 800+ credit score, which had bankers salivating when I walked in the door. I was able to secure 6% interest on about any property I wanted to buy with no money down. The real estate market in the United States after several years of frantic growth peaked in 2004, which was the year I decided to start buying properties. Success was an individual achievement failure was a social problem.” ”The ability of Wall Street traders to see themselves in their success and their management in their failure would later be echoed, when their firms, which disdained the need for government regulation in good times, insisted on being rescued by government in bad times.
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