Who bought mortgage backed securities?

Discussion in 'Economy' started by TheNewYorker, Dec 10, 2012.

  1. TheNewYorker
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    TheNewYorker Rookie

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    A while back a few people told me that the majority of customers who purchased mortgage backed securities to buy homes were minorities.

    I responded by saying that the race of the buyers didn't matter and that the financial crises would of happened regardless of who bought them.

    I've tried researching this online but cannot find any info. Does anyone know if this is true that most of the buyers were racial minorities?
     
  2. EdwardBaiamonte
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    EdwardBaiamonte Gold Member

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    a MBS is a package of mortgages that would have been bought by big institutions, foreign countries, or wealthy Wall Street customers. Not exactly the profile of a racial minority.
     
  3. JimmieD
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    JimmieD Senior Member

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    Investors buy mortgage backed securities. You can think of a mortgage backed security (MBS) as being somewhat analagous to a mutual fund. The MBS is a "fund" whose assets are a bunch of mortgages (rather than something like stocks). Anyone can invest in them; I own some.
     
  4. TheNewYorker
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    TheNewYorker Rookie

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    I'm sorry but I didn't ask the question correctly. Many of these mortgages were sold to families across the country who in reality could not afford them. The standards to qualify for these loans were lowered a great deal over the years so investors could make money when they foreclosed on buyers' homes.

    My questions is, were most of the buyers of these loans considered minorities? If so, was this a significant factor in creating the financial crisis?
     
  5. martybegan
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    martybegan Gold Member

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    First of all, considering how the market tanked, the banks couldn't make money on the foreclosures, as the value they could sell them for was probably much less than the value they lent out as the mortgage.

    The issue was as the pool of "good" clients for mortgages dried up, the banks lowered the standards for getting a mortgage of a given value. Thus the risk was increased, but the banks kept selling the MBS's as just as good as the ones based on more creditworthy debt.

    Minorities come into play as the poor minority neighborhoods were where a disproportionate amount of these "sub-prime" mortgages were made.
     
  6. TheNewYorker
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    TheNewYorker Rookie

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    Thanks for the response.

    Is there any statistical information available that reflects what percentage of these loans were were sold to buyers in these poorer communities on a national level?
     
  7. martybegan
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    martybegan Gold Member

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    Start with the wikipedia article on the 2008 financial crisis. It may have the source information on this.

    The biggest problem with the sub prime MBS's was that they were not really well defined. Mortgages were bundled quickly without real checks, and pushed out as fast as possible. The crisis really was created with the ambiguity of what was exactly IN each MBS and the quality of the mortgages it contained.
     
  8. JimmieD
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    JimmieD Senior Member

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    No, those families borrowed money they couldn't afford to pay back. The MBS has to do with how the mortgage is securitiezed and then sold to investors. You're confusing a mortgage for a mortgage backed security.
     
  9. jillian
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    jillian Princess Supporting Member

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    that's not true in most instances. they were given adjustable rate mortages and told that they'd be re-fi'd before the rates increased. then when the market crashed, the houses weren't worth enough to secure a new mortgage. so they ended up with rates that went up astronomically. and they couldn't sell the houses because the sale wouldn't pay off the mortgage.

    and then there were people who lost jobs when the economy crashed who were otherwise current on their loans.

    a lot of things happened which weren't the fault of the borrowers because of the games the banks played with the mortgages.
     
  10. KissMy
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    PEW Research Study - "From 1995 through the middle of this decade, homeownership rates rose more rapidly among all minorities than among whites. But since the start of the housing bust in 2005, rates have fallen more steeply for two of the nation's largest minority groups -- blacks and native-born Latinos -- than for the rest of the population"

    NY Times - "But the storm has fallen with a special ferocity on black and Latino homeowners, the analysis shows. Defaults occur three times as often in mostly minority census tracts as in mostly white ones. Eighty-five percent of the worst-hit neighborhoods — where the default rate is at least double the regional average — have a majority of black and Latino homeowners."

    --September 1999-- "A study by Freddie Mac, confirming earlier Federal Reserve and FDIC studies, contradicts race discrimination arguments for CRA. The study found that African-Americans with annual incomes of $65,000-$75,000 have on average worse credit records than whites making under $25,000. This showed that the difficulty in qualifying was not because of race but bad credit records. Accordingly, the Federal Reserve Bank of Dallas entitled a paper "Red Lining or Red Herring?" "City Journal warned that the Clinton administration had turned CRA into 'a vast extortion scheme against the nation's banks,'committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers."

    "The nation's top subprime lenders, including New Century Financial (NEWC), which has filed for Chapter 11, have lavished generous donations on homeownership programs sponsored by black or Hispanic members of Congress. Still, a key lawmaker and caucus officials say subprime lenders remain important options. About 50% of black and Hispanic borrowers used subprime loans in 2005, compared with 17% of whites. "Not all subprime lenders are bad," says Rep. Joe Baca, D-Calif., chair of the Hispanic Caucus Institute. "The solution … is not to get rid of all subprime loans but instead to make sure there are safeguards."...The Congressional Hispanic Caucus Institute's "Hogar" (Spanish for hearth or home) initiative, provides fellowships, financial education and other efforts to boost homeownership in 63 congressional districts in 11 state. The group's 2007 funding has not been finalized. But in 2006, one of Hogar's "trusted friends" who paid $50,000 for a line on the caucus' website, special mention in its newsletters, listing on materials and advertising at events, was Countrywide Financial, which like a number of lenders makes both prime and subprime loans. Countrywide did not respond to interview requests."
     
    Last edited: Dec 11, 2012

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