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Subprime myths

Yuliya Demyanyk has published an intriguing piece on the Cleveland Fed website. Ten Myths about Subprime Mortgages, it's called.

Demyanyk is a senior research economist in the Research Department at the Cleveland Fed.

My first thought on reading this - what? I can't blame greedy buy-to-let vultures or deadbeat homeowners or people who used their houses like ATMs anymore?

The way Demyanyk puts it, the financial crisis was simmering for years, many years, and developed more like a cancer than a bullet to the stomach (painful, but slow, the novels of Gerald Seymour assure me).

But read a little further and it seems I can blame someone. Except that I have to blame everyone. Including me. As she puts it,

...the causes of the subprime mortgage crisis and its magnitude were more complicated than mortgage interest rate resets, declining underwriting standards, or declining home values. The crisis had been building for years before showing any signs. It was feeding off the lending, securitization, leveraging, and housing booms.

She's got me there. I didn't see it coming.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101
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I know plenty of people how saw it comming, they just didn't know when. All people had to do is look around. How many people out there were buying homes the couldn't afford but the bank told them they could? How long have people been living beyond their means via debt?

I think this downturn has as much to do with Main street greed as it does Wall street greed.

I think the article did hit one nail square on the head - securitization. One problem that hasn't been talked about much with the securitization of mortgages is that it makes it impossible to refinance - who can refinance if the permission to refinance must be granted by multiple bondholders? Of course they're not going to agree to getting their profit cut! I know this one from personal experience and I believe that it is also the reason why many, many homeowners are being stonewalled by their loan servicers. And they won't come out and tell you that this is what is going on. Only if you 'talk the talk' and confront them with it squarely will they admit that this is the real reason they can't refinance your loan!

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permission to refinance must be granted by multiple bondholders? Of course they’re not going to agree to getting their profit cut! I know this one from personal experience and I believe that it is also the reason why many, many homeowners are being stonewalled
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