Who bought mortgage backed securities?

[TheNewYorker]

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?

 

[EdwardBaiamonte]

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?

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.

 

[JimmieD]

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?

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.

 

[TheNewYorker]

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?

 

[martybegan]

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?

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.

 

[TheNewYorker]

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?

 

[martybegan]

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?

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.

 

[JimmieD]

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.

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.

 

[jillian]

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.

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.

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.

 

[KissMy]

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."

 

[jillian]

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."

moron

 

[KissMy]

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."

moron

I posted quotes & links on info the OP wanted. These are not my words. How does that make me a moron? Suprized you did not say racist moron. Are the NYT & Pew Research writers morons?

 

[TakeAStepBack]

Jillian is just projecting. She's an ugly sod.

 

[KissMy]

University of Massachusetts Boston - ScholarWorks at UMass Boston: Borrowing Trouble? IV: Subprime Mortgage Refinance Lending in Greater Boston, 2000-2002

"Subprime lenders made disproportionately large shares of the refinance loans to black and Latino borrowers in Boston. In 2002, subprime lenders made over one-quarter (27.7%) of all refinance loans to blacks and over one-sixth (17.2%) of the loans to Latinos, compared to just 5.1% of the loans to whites. Expressed differently, the subprime loan share for blacks was 5.4 times greater than the subprime loan share for whites, while the corresponding Latino/white disparity ratio was 3.4. Subprime lenders accounted for 5.7% of refinance loans to Asian borrowers, for a disparity ratio of 1.1.

The disproportionately high shares of subprime loans among all loans to black and Latino borrowers cannot be explained simply by the fact that they have, on average, lower incomes than white borrowers. When borrowers are grouped by both race/ethnicity and income level, subprime loan shares for blacks ranged from 30.9% (low-income) to 27.7% (upper-income), while subprime loan shares for Latinos ranged from 11.4% (low-income) to 22.9% (upper-income), and subprime loan shares for whites ranged from 9.3% (low-income) to 3.6% (upper-income). The 27.7% subprime loan share for upper-income blacks was 7.7 times greater than the 3.6% subprime loan share for upper-income whites and, even more striking, it was three times greater than the 9.3% subprime loan share of low-income whites."

This ethnic group lending disparity is caused by credit ratings.

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."

 

[Mad Scientist]

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.

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.

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.

Or they were given "Liar Loans" where income was greatly exaggerated or they were allowed to put down welfare as "income".

But don't you little kiddies worry one bit! The Privately Owned Federal Reserve is using our money to buy Mortgaged Backed Securities for themselves at a rate of 40 Billion Dollars a month, soon to be 80 Billion!

So when the dollar crashes, the Privately Owned Federal Reserve will own nearly every piece of mortgaged property in the United States!

That means YOURS!

Haha! Checkmate!

Now go back to arguing about "gays" or who "won" the election.

 

[martybegan]

Trying to pin blame on one party or another is all well and good, but the truth is everyone was to blame, from homeowners, to the government, to the banks, and the real estate industry.

The housing boom was a unique economic event. One of the reasons it went so far and so many people made out from it was that it was a boom with no losers.

Everyone was a winner as long as housing prices went up, and mortgage requirements went down.

First time homeowners won because they could afford mortgages they previously couldn't
Current homeowners saw thier property values go up, allowing equity loans
Local governments saw increased property taxes from increased home values
Real estate agencies made increased income from increased values and volumes
Speculators made money because values were going up quickly
The federal and some state governments made money of the increased incomes of real estate people, mortgage brokers, and speculators
Banks made money securitizing thier mortgages
Brokers made money selling the MBS's
Insurers made money from credit default swap fees


There were no losers, until housing prices dropped, people began to default, values of MBS's became question marks, the real estate industry tanked and on and on.

Once one segment began to lose, EVERYONE began to lose.