The Big Short: What they left out

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The Big Short: What they left out

Brandon G.
Middle Tennessee, TN · Member since 2015 · 102 posts · 17 votes

I just finished watching The Big Short, a movie about the real estate bubble.  I enjoyed the information in the movie but I was very let down by the fact that they never acknowledged the fact that subprime mortgages were pushed on the American people under the tired guise of racial and minority discrimination.  It was this trump card (no pun intended considering today's political climate) of discrimination that allowed the no-contest argument against solid reasoning, labeling anyone against such subprime mortgages a racist or prejudice.  
I feel this would have been an immensely important lesson to learn so that it could be applied to so many facets of society and politics today.

For references, I refer anyone interested to this book, which itself cites sources for its source material for statistics.
 http://www.amazon.com/Housing-Boom-Bust-Revised/dp/0465019862/ref=sr_1_1?s=books&ie=UTF8&qid=1457247632&sr=1-1&keywords=the+housing+boom+and+bust

(edited because I linked to the wrong book)

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

@Brandon G.  @Chris Mason  point counter point !

Well I was in the thick of it back in the day.. both as a HIGH volume real estate agent ( owned and office and had a team) and HML in the Deep south. so I think I can speak to this a little.

For the CA borrowers it was all credit score driven... and just like today were you see posts I live in LA but need to invest other places.. lenders made those loans far to easy for folks who eventually lost the assets..

in the DEEP SOUTH  and I mean Mississippi can't get any more deep south than that I was the largest hard money lender in the state for many years doing 300 plus loan in Jackson a year. for fix and flippers who sold not only to investors for rental purposes ( see above almost all out of  state) to homeowners..

the issue that caused much of this is CRA never mentioned and most don't know what it is .. its the Community Reinvestment ACT that Clinton put in.. it basically forced banks if they wanted to work in certain areas they MUST provide loans for the citizens who live there... Now you take Jackson which is 70% or more AA and average credit score of 600 state wide.. and you force banks to make loans to those in the communities and you had a bunch of folks that probably did not know enough about finance's and homeownership and had a history of not being able to manage their personal finances buying homes when they should not have in the first place. I got one line of credit from Community bank in Jackson for 1 million dollars to use for my HML's and I got it because they could book at as CRA because I was lending on Jackson properties it worked great for them they could book a big fat CRA loan and lend to a guy like Me.. LOL which is not a sub prime borrower but funds were going to sub prime neighborhoods.

The banks know were the foreclosure clusters are.. a friend of mine works for company that  that is all they do is analyze risk by demographic and geographic areas they can tell a bank up front basically what they will deal with with defaults and how much to put aside.

There were PLENTY of high wage earners 700 plus ficos in CA that got wiped out.. and they also borrowered as Chris pointed out ( crappy loans) because of the RE craze.. it was all over the place. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @George Gammon  we may not have had a country wide bubble like 08 before .. but we had a CA bubble in 1989 to 1992... and many of you would find this hard to believe but even the holy grail of solid real estate San Francisco and silicon valley in those days many properties dropped 50% in value and it was not until 1998 dot com rebound that values got back to 1987 to 1988 peaks.  I had a loan on a home on Green St. in SF.. Mai  2mil when I made the loan in 1988... sold at auction in 1990 for dollar over to the first ( BoA) 925k... value in 1998 right back to 2 mil plus. So its happened before.

    We have false markets again in many markets.. and much of this created by the out of state investor seeking yield... if no out of country out of state or out of area buyer ever bought a rental in any mid western market  and those markets were 100% relying on local investors your values would not be were they are today.. they are higher because of highly organized and funded marketing campaigns to bring in investors who would without these outside influence's ever have looked at those as possible investments.. its the CA concondrum,  Same with Australia were they bought literlay multi thousands of US sFR's because average price of home in Sydney is 900k or so.. same thought process.   Think of all the investors from out of state that went to LV and invested created false demand. PHX you name it.  this fueled by easy money created false values in my mind.

    if you left the mid west markets to only the locals and they know the rigors involved with their tenant base and demographics no property would sell for more than backing into the 2% rule.

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  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    There was no racism involved in the subprime disaster.  It was about one thing... Greed.  It didn't matter whether or not you were black, white, asian, latino, gay or straight.  If you had a pulse and didn't want to read between the lines when you were applying for a mortgage, you were getting a subprime loan.  

    Now, was Wall  Street to blame, Yes.

    Were lenders and loan officers to blame, Yes.

    Were borrowers who had no income, jobs, and horrible credit history to blame for taking out loans that they had no possible way of paying back, you bet.  

    Stupidity and greed knows no race, color, or creed.

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  • Andrew Hamilton
    Grand Rapids, MI · Member since 2015 · 20 posts · 2 votes
    10y

    If you take a loan out you are responsible for the numbers. It is your money and your life. Nobody cares about those things as much as you. As they showed it in movie people took out multiple loans on a house. Nobody ran up to their door and said take out another mortgage on your house. Every time you get a credit card advertisement in the mail do you apply for it? People were buying houses they couldn't afford. To blame this on race is exactly what is wrong with our country. The entire country had real estate crashes. From the richest white Cali suburb to the poorest parts of the inner city.

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  • Brandon G.
    OP
    Middle Tennessee, TN · Member since 2015 · 102 posts · 17 votes
    10y

    This seems to have turned into a really informative thread.  I don't have time to read through everything right now, but real quick just to Kevin.  I think asserting my articles as confirmation bias assumes these or these types of articles are the only ones I've read and that I had an agenda when I learned about this information.  Instead, I've read many different opinions on this and what I have posted are some of the references I agree with, particularly from Sowell.  If I implied that I thought race was the only thing that caused the bubble then I did not intend to.  I merely meant that I believe it was a part, through a big part, that sparked the fire and a part that I feel was wrongly left out when the telling of this story was done.

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  • George Gammon
    Flipper/Rehabber · Las Vegas, NV · Member since 2016 · 174 posts · 251 votes
    10y
    Originally posted by @Brandon Ingegneri:

    There was no racism involved in the subprime disaster.  It was about one thing... Greed.  It didn't matter whether or not you were black, white, asian, latino, gay or straight.  If you had a pulse and didn't want to read between the lines when you were applying for a mortgage, you were getting a subprime loan.  

    Now, was Wall  Street to blame, Yes.

    Were lenders and loan officers to blame, Yes.

    Were borrowers who had no income, jobs, and horrible credit history to blame for taking out loans that they had no possible way of paying back, you bet.  

    Stupidity and greed knows no race, color, or creed.

     Please include the catalyst...changing of government polices and artificially low interest rates.   

    0Reply
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    @George Gammon, there is absolutely no doubt that there were ample loopholes that were exploited.  I agree with your statement that less stringent government policies along with the appearance of a low interest rate during the, "Teaser" time period before adjustments took place were both contributing factors.  

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  • George Gammon
    Flipper/Rehabber · Las Vegas, NV · Member since 2016 · 174 posts · 251 votes
    10y
    Originally posted by @Brandon Ingegneri:

    @George Gammon, there is absolutely no doubt that there were ample loopholes that were exploited.  I agree with your statement that less stringent government policies along with the appearance of a low interest rate during the, "Teaser" time period before adjustments took place were both contributing factors.  

     Just to clarify Brandon that's not exactly what I'm saying.  True, repeal of Glass Steagall could've been a factor, but the more stringent government policies, that came in the form of quotas given to the banks and FF, were the first steps in reducing lending standards.  This happened gradually through the 1990's and early 2000's.    

    And the low interest rates I was referring to is the fed funds rate set by Greenspan then Bernanke.  It's hard to imagine a scenario where we could've had a housing bubble (regardless of political blunders or wall st. malfeasance) without Greenspan taking real rates negative.  

    If anyone would like to know the story from start to finish in a format of well documented facts read the book suggested above, Thomas Sowell's "The Housing Boom and Bust"...

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    10y

    I haven't seen The Big Short, but I have read the book and while it was definitely a good read, it did take the "this was all the fault of greedy Wall Street fat cats." There is, of course, truth to that. But if I remember correctly, it mentions the Fed keeping rates down to just shy of 0% after a relatively mild recession at the beginning of 2000 in all of one sentence and all but completely ignores Fannie Mae and Freddie Mac encouraging subprime borrowing along with pretty much the entire government bureaucracy. While the Wall Street bankers ran wild with robo-signings and bogus derivatives and deserve plenty of blame (along with the rating agencies), given the climate to boost homeownership and affordable housing, the idea that a regulatory system wasn't strong enough is nonsense given the regulatory apparatus was all pointed in the direction of increasing home ownership at whatever the cost. Andrew Cuomo, the secretary of HUD even admitted such loans would have a higher default rate long before the crash.

    There aren't really in good guys in this mess. Wall Street and the government were both to blame. Although personally, I put the most blame on the Fed. 

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