Foreclosure Crisis Caused by Borrowers who 'Overreached': Study

[bobbyw24]

Ah, but what allowed them to Overreach?





By: Brittany Dunn 05/07/2010

The true cause of the foreclosure crisis is up for debate. Did banks prey on unwitting consumers, or did households “overreach” and borrow more than they could afford? Economists at the University of Arkansas recently completed a study to answer that very question.

The study, The Foreclosure Crisis: Did Wall Street Practice Predatory Lending or Did Households Overreach?, found the latter to be true.

Although the researchers found some evidence of predatory lending, they concluded that a more accurate explanation of the foreclosure crisis was households who got in over their heads after borrowing more than they could afford. However, the researchers were careful not to excuse Wall Street banks, as reckless lending enabled households to become dangerously leveraged.

“Our evidence does not disprove or excuse reckless subprime lending by the large Wall Street banks,” said Tim Yeager, associate professor in the Sam M. Walton College of Business and lead author of the study. “We argue that there is plenty of blame to go around for the financial crisis. Both banks and consumers overreached. Banks extended too much credit to households, and households purchased more home than they could afford.”

Relying on massive datasets from private companies that compile information about demographics, real-estate properties, and foreclosures, Yeager and four other researchers created profiles of households who were in foreclosure during the third quarter of 2008. The researchers used a classification system to identify and examine the characteristics of these households, which they separated into 21 life-stage groups, each with specific demographic characteristics that tied them together.

The researchers then developed two categories of groups based on formulas for “excess foreclosure shares” and “relative default shares.” The first calculation determined, in absolute numbers, which groups accounted for the most foreclosures. The second calculation showed which groups had the highest likelihood of foreclosure.

By far, the group with the greatest excess foreclosure percentage was “Cash & Careers,” the most affluent generation of adults born between the mid-1960s and early 1970s. Members of this group had high household incomes, high education levels, high home values, and none to only a few children. In addition, members of this group were classified as aggressive investors, most of who lived in areas of rapid real estate appreciation, such as California, Nevada, Arizona, and Florida.

Read more

http://www.dsnews.com/articles/forec...udy-2010-05-07

[LiveFree79]

Those "overreaching" consumers are the ones that have propped up the economy. So everyone benefitted from their overreaching. It was EVERYONE......not just borrowers. Lenders, borrowers, government, corporations, banks, greed.

[Brian4Liberty]

Who bears the responsibility for a liar loan? It is the responsibility of the lender to verify, since they are the ones who are supposed to be taking the risk. They did not perform their jobs. Quite the opposite: the lenders knew and encouraged the bad loans. They passed the risk on, until it rested with the US taxpayer. Fraud all throughout the system, as they knowingly passed on bad risk.

[Zippyjuan]

The lenders (not necessarily banks) share the responsibility by not trying to verify the ability of customers to be able to pay the loans they issued. Consumers do share some responsibility but I still think it was the lenders who were more responsible since they had the ability to say "no" to people who were trying to buy more than they could reasonable be expected to afford. When they even stopped asking people if they even had a job they totally failed in their responsibility. But in many cases the people issuing the loans weren't going to be the ones who tried to collect on them so they did not have any incentive to care. This was a problem too.

[torchbearer]

The lenders (not necessarily banks) share the responsibility by not trying to verify the ability of customers to be able to pay the loans they issued. Consumers do share some responsibility but I still think it was the lenders who were more responsible since they had the ability to say "no" to people who were trying to buy more than they could reasonable be expected to afford. When they even stopped asking people if they even had a job they totally failed in their responsibility. But in many cases the people issuing the loans weren't going to be the ones who tried to collect on them so they did not have any incentive to care. This was a problem too.

when i was getting my home loan, the loan officer was doing everything he could to make the loan work. he only gets paid if he closes.
i'm sure this was done for everyone's loans.
since it wasn't his money to loan, he had no incentive to make sure it could be paid back.

[echebota]

You bought something, you can not pay back your debt according to a contract you have signed - you default and/or go bankrupt. The bank has given loans that can not be paid back - it's this particular bank's and it's shareholder's problem. Done. Why do we even have to discuss this? Isn't it obvious???? The only problem is that our government does want to "socialize" these problems and "distribute" these debts among everybody - including those who didn't take and didn't give the "overreached" loans. And they even failed to "distribute" equally. Banks are the clear winners.

Fascist government - this is the only problem.

[WaltM]

Those "overreaching" consumers are the ones that have propped up the economy. So everyone benefitted from their overreaching. It was EVERYONE......not just borrowers. Lenders, borrowers, government, corporations, banks, greed.

sounds like the broken window fallacy if you ask me

[Danke]

You bought something, you can not pay back your debt according to a contract you have signed - you default and/or go bankrupt. The bank has given loans that can not be paid back - it's this particular bank's and it's shareholder's problem. Done. Why do we even have to discuss this? Isn't it obvious???? The only problem is that our government does want to "socialize" these problems and "distribute" these debts among everybody - including those who didn't take and didn't give the "overreached" loans. And they even failed to "distribute" equally. Banks are the clear winners.

Fascist government - this is the only problem.

It is not a contract. Only one person (you) signed the document and there wasn't any consideration.

[WaltM]

It is not a contract. Only one person (you) signed the document and there wasn't any consideration.

Do you actually think only a piece of paper with 2 signatures counts as a contract, and both must have a "consideration"?

Why would one sign the contract, unless he saw his consideration in front of him? A consideration might not be obvious to a bystander, but the fact a person signed it means he had a good reason to (whether it was fulfilled is the question).

[Danke]

Do you actually think only a piece of paper with 2 signatures counts as a contract, and both must have a "consideration"?

Why would one sign the contract, unless he saw his consideration in front of him? A consideration might not be obvious to a bystander, but the fact a person signed it means he had a good reason to (whether it was fulfilled is the question).

Contract: An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable in law. Black's Law

[WaltM]

Contract: An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable in law. Black's Law

since when did two parties agreeing, require both signatures?

Sometimes the contract is authored by one party, which is their offer, once you sign it, it's YOU agreeing to THEIR terms. The fact the authored it and allowed you to sign it, without any further alteration, is in fact their proof of agreeing to it.

[Danke]

since when did two parties agreeing, require both signatures?

Sometimes the contract is authored by one party, which is their offer, once you sign it, it's YOU agreeing to THEIR terms. The fact the authored it and allowed you to sign it, without any further alteration, is in fact their proof of agreeing to it.

Well, the way our courts work, if there is only one party to a signed contract, how is the other party going to enforce it. Where is their standing? Anyway, a mortgage is a trust document, who is the Grantor?

Cannot the Grantor change the trust at any time? And where did the funds come form, if not the Grantor?

[WaltM]

Well, the way our courts work, if there is only one party to a signed contract, how is the other party going to enforce it.

Like I said above, the other party made the offer by authoring the contrast, the summary of the document states "sign here if you agree, and we have made our case above, we're mentioned here too, and we will enforce".

Where is their standing?

Their standing is the fact another party agreed to their offer and signed the document.

Anyway, a mortgage is a trust document, who is the Grantor?

Cannot the Grantor change the trust at any time? And where did the funds come form, if not the Grantor?

If I understand correctly, the grantor is the selling party, or lending party, or creditor.