Mortgage Loan Origination Agreement Free: Fill & Download for Free

Yes. Getting a loan if the most common real estate financing option. There are many types of loan that a real estate investor can obtain to buy a rental property. Here are a few of them:1) Conventional Mortgage LoansBy a landslide, the most common financing rental property method is through a conventional bank loan. Buying an investment property through conventional loans is possible through both big banks and local banks. Conventional loans consist of long terms, down payments of usually 20%, and low interest rates. Two of their most important requirements is having good credit and having a steady history of employment.2) Mortgage Loans from Local BanksIf you’re interested in buying an investment property in a certain area, consider obtaining a mortgage from local banks. Like big banks, local banks offer conventional investment property mortgage loans. One of the differences, however, is that local banks tend to offer better deals than big banks if a real estate investor is interested in buying investment property in the local area.3) Owner-Occupancy LoansOwner-occupancy loans allow investors to purchase real estate investments with less strict financial requirements and better terms. The catch is that the investment property must be occupied by the owner for the first year of purchase. After that time period, the real estate investor is free to turn the property into a rental, with no change to the original loan terms.4) FHA MortgagesFederally qualified lenders can issue a certain type of owner-occupied mortgage called FHA loans. Just like standard owner-occupancy mortgages, FHA loans allow investors to purchase real estate investments and rent them out after living in them for a year. What makes FHA loans stand out, however, is their low down payments (as low as 3%!), easy credit requirements, and long terms. This makes FHA loans among the top financing options for beginning real estate investors.5) Lease with the Option to BuyLike owner-occupancy loans, financing real estate investments with a lease with the option to buy allows an investor to live in a property before buying it. The difference between this form of real estate investment financing and owner-occupancy is that the investor rents out the property; it is not a primary residence. A lease with the option to buy is when a real estate investor reaches an agreement with a tenant who is looking to buy the property. Portions of the paid rent go towards the final purchase, and there is a deadline set between the two parties.6) Hard Money LendersIf you plan to begin financing rental property quickly, hard money loans might be for you. These investment property mortgage lenders can provide loans within a matter of days. Instead of credit requirements, hard money lenders will be more interested in the fair market value of your real estate investments.Hard money investment property mortgage loans might sound like a stress-free financing method, but they are far from that. These loans carry considerable risk. For instance, hard money loans have very short terms, which usually last up to 36 months. It is virtually impossible to pay off a real estate property in merely 3 years. For this reason, hard money loans are best used for investments that are quickly bought and sold, like fix-and-flips. The second risk with hard money loans is that they have high interest rates, much higher than the average.7) Private Money LendersPrivate money investment property mortgage loans are the less risky counterpart of hard money loans. This real estate investment financing method is also a short-term loan, like hard money loans, but the terms can be negotiable.Interest rates are still higher than the average when financing rental property with these loans, but they are still lower than those of hard money loans. It’s most suitable to use high interest loans when you are sure that the investment property you’re buying will generate high rental income.8) Home Equity Mortgage LoansIf you are buying an investment property but own a primary residence or investment property, you could decide not to finance the new property with money. Instead, you could use the equity of one of your real estate properties to finance the loan. Home equity investment property mortgage loans allow real estate investors to borrow up to 80% of a property’s equity for financing rental property.9) Purchase-Money MortgageA purchase-money mortgage, also known as owner financing or seller financing, is a real estate investment financing method in which a property seller issues a loan to the property buyer. Essentially, the seller acts as a bank lender, and the buyer pays monthly payments to the seller.Purchase-money investment property mortgage loans might seem like a strange method of financing rental property, but they come with their benefits to both parties involved. A buyer who does not meet the standards of conventional financing options could acquire such a mortgage. The property seller receives higher interest payments, which means that anyone interested in such a financing method must ensure the investment property will generate high rental income.Hope this helps!

Answering for consumers located in the United StatesThe meltdown started in the fall of 2006, with the collapse of Merit Mortgage in Kirkland, WA. Reports of a fraternity-like culture where the owners hired their frat brothers who knew nothing about lending can be found by a simple google search.The party's over at Kirkland mortgage companySo we start from 2006. At that time, the Conference of State Bank Supervisors had already written the law that President Bush would sign in the summer of 2008:2008The SAFE Mortgage Licensing Act, which required loan originators who work for a mortgage broker or non-depository mortgage lender to take a 20 hour pre-licensing course, pass a comprehensive national exam, take continuing ed each year, pass a background check, submit a set of finger prints, and set forth requirements such as "no felony convictions within the last 7 years and no felonies at all if the felony was a financial related crime." Here is The SAFE Act:Code of Federal RegulationsThe SAFE Act mentions "subprime" but the industry quickly found ways to say "subprime" without using that word because subprime lending was associated with predatory lending. Instead, we started using the phrases, "non-traditional loans" or "non-prime loans" and the first place we see these euphemisms emerge in the law is in the above mentioned ^SAFE Act.2008Housing And Economic Recovery ActSigned by President Bush in the summer of 2008, this law gave us many, many things but I'lll just focus on mortgage lending:1) The above mentioned SAFE Act2) The TARP Funds (troubled asset recovery program) which demanded banks accept capital whether or not they needed it, so more banks like Washington Mutual would not be in danger of failing. Note that after President Obama was elected, he re-allocated the TARP funds to help people obtain loan modifications. This program, while widely criticized is seen as a success.3)"If Fannie Mae and Freddie Mac become insolvent, the government shall guarantee its debt." AND F&F went insolvent about a month and a half later. As of this writing, Fannie and Freddie are still being run under government conservatorship. More fun and games here:Federal takeover of Fannie Mae and Freddie MacThe HERA was a bailout of the banking and mortgage lending industries. It was widely unpopular when President Bush signed it into law in the summer of 2008, but today as we look back, the bailout probably saved us from a global economic crisis and another Great Depression. Today, in 2016, Fannie and Freddie have completely repaid the Treasury all the money they borrowed, the list of failing banks has shrunk back down to a reasonably low level, home equity has returned and many underwater homeowners are no longer underwater. It worked. Will we do it again if we face a similar crisis? There is absolutely no doubt in my mind that the government WILL bail out the banking and mortgage lending industries should this happen again. Whether or not you approve of HERA, it averted disaster and for that reason alone, a future Congress will likely pass something similar.Don't like helping the big evil banks? Then you and the independent senator from Vermont can go create your own land of free unicorns on some other imaginary planet.Note: All investment banks either failed outright or were acquired during the 2008 crisis except the Vampire Squid: Goldman Sachs.Let's continue.With Countrywide Loans collapsing in the summer of 2007 and Washington Mutual's slow, painful demise, the federal regulators who were suppose to be regulating laws that were put into place in the 1970s such as the Truth in Lending Act and the Real Estate Settlement And Procedures Act, started realizing that they need to do something. So we saw another law:2009The Mortgage Disclosure Improvement ActMDIAThe Federal Reserve and the Federal Trade Commission were suppose to be regulating the Truth in Lending Act. And they didn't do a very good job of holding banks and lenders accountable. So they whipped up this law as an attempt to improve the Truth in Lending Act. MDIA is part of TILA. This law went into effect in the fall of 2009. Without going into long detail about MDIA, the main assault was against liar loans. MDIA required lenders to make sure people had the ability to repay their loan. That mean no more "no documentation" loans. Lenders began asking for tax returns, W-2, bank statements, and other old-fashioned documents that we use to collect and analyze back in the good old 1980s when they were still playing The Cure and Pat Benetar and Heart on our FM radios. Many loan originators began leaving the industry at this time because they could not obtain a license due to previous felony convictions or they thought it was "too hard" to put loans together.2010The Dodd Frank ActPresident Obama signed the Dodd Frank Act in 2010. The Act is massive at well over 2000 pages, but only 3 sections are directed at residential mortgage lending. The rest is aimed at Wall Street. The first thing The Act created was The Consumer Financial Protection Bureau, Senator Elizabeth Warren's idea. The CFPB now regulates all federal law governing residential mortgage loans (among other things) except Fair Housing, which is still regulated by HUD.By the way, all the links to the laws can be found by scrolling down to the VERY BOTTOM of this page:Regulations > Consumer Financial Protection BureauSince The Dodd Frank Act is so massive, the CFPB began enacting rules one at a time, which gave the industry time to prepare and train their staff. There are so many rules attached to the DFA, it would take quite a long time to list them, but I can do it if you need them. Just let me know. The one we just finished from the fall of 2015 is called the TILA RESPA Integrated Disclosure Rule (TRID) which gave the industry a new, combined early consumer disclosure called the "loan estimate," and a new "closing disclosure." TRID is not a separate law; it is part of the Dodd Frank Act.2011Federal Reserve Board Rule on Loan Originator CompensationThis rule was a direct reaction to predatory lending and the meltdown. The Federal Reserve Board was TEN YEARS too late on this issue so now the FRB no longer gets to regulate The Truth in Lending Act.This rule has three components:1) Loan originator cannot be paid by the customer and also by the lender funding the loan.2) Loan originators cannot be paid a bonus for selling a higher rate or for selling a specific loan program or specific loan terms.3) Loan originators cannot "steer" people into a lower quality loan (think subprime) for the sole purpose of receiving higher compensation.The above three prohibitions helped eliminate the most egregious forms of predatory lending. The FRB Rule was added into The Dodd Frank Act.FRB: Press Release--Federal Reserve announces final rules to protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices--August 16, 20102013Unfair Deceptive and Abusive Acts and PracticesThis law attacks deceptive advertising, which continues to run rampant in the mortgage industry. Don't believe me? Open your spam bin and see deceptive mortgage ads every day promoting products and rates that may or may not exist, that only a very small percentage of people may qualify for, or ads that make it look like you're dealing with a government agency but instead it's just a lead generation vortex designed to suck you in and sell you as a lead to 100 different loan originators. If you're a hot lead, you get sold as a Glengarry Glenn Ross lead and lead gen companies can make some serious coin selling your lead by live-trasnfering you to a licensed loan originator who can get you to sign on the line that is dotted. Beyond your spam bin there are other deceptive ads running on the radio, or coming to your house in the form of a letter or postcard. This Act puts a black and white definition to the words Unfair, Deceptive, and Abusive Acts and Practices and CFPB now has the muscle to enact fines, penalties, order restitution and to make those fines against not just the company but also the individuals, including upper management.http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdfSo what we have here is a wave of consumer protection legislation. When things go bad, consumers complain to the politicians and the regulators and we end up with a bunch of laws aimed right at the residential mortgage lending industry. We went through this around the 1960s-70s. During that consumer protection wave the industry saw the following laws passed:Fair Housing ActTruth In Lending Act (TILA)Real Estate Settlement And Procedures Act (RESPA)Fair Credit Reporting Act (FCRA)Equal Credit Opportunity Act (ECOA)And now, as a result of the 2008 financial crisis and the long recession, we have seen the following laws passed:Secure And Fair Enforcement Mortgage Licensing Act (SAFE Act)Mortgage Disclosure Improvement Act (MDIA)Federal Reserve Board Rule on Loan Originator CompensationDodd Frank Act (DFA)Unfair Deceptive Acts and Practices (UDAAP)Many in the mortgage industry loves to criticize The Dodd Frank Act and drink the hatorade when President Obama's name is mentioned. I am not one of them.We needed the Dodd Frank Act. We needed all these new rules. Our industry only listens to law. We don't listen to "suggestions" from regulators. Not following the laws comes with consequences and those consequences are monetary in nature. So the company owners complain loudly about all the laws...Yet when it comes to the very end of the line, when we cannot delay the new law or rule any further, our industry always does the right thing and we start following the law....And the world doesn't end. Loans get written, people can buy, sell, refinance, we all make money and we survive and thrive just fine. In the future, we will look back and nod our heads in agreement that ALL the 2008-era laws were necessary, especially the Dodd Frank Act. Just like we look back and realize that laws like Fair Housing and The Equal Credit Opportunity Act were needed in the 1960s and 1970s.Note: States can make their laws tougher than Federal law and some have definitely done that in the wake of the financial crisis and many consumer complaints. Some states have added laws targeting predatory loan modification scammers, and requiring short sale negotiators to hold a loan originator license, laws that give consumers more protections when facing foreclosure, and laws directed at people who want to take advantage of people in foreclosure. Also, some states elevated the relationship between the loan originator and his or her client to that of fiduciary.Let me know how else I can help!

This is an excellent question that people really need to know more about.When we solve a problem, after a while, we tend to forget what solved the problem and go back to what we used to do that caused the thing to go over the cliff in the first place.That was the 2008 mortgage and financial crisis, as it forgot the lessons of the Great Depression.History up to the Great DepressionIn the 1920’s, when the economy was booming and it seemed like the party would never stop, banks lent out a ton of money on credit, with the presumption that all that money would be paid back and that there was sufficient collateral to cover it.Except, there wasn’t.One of the biggest assets that people might own that a bank could recover is real property. As Will Rogers once noted: “Buy land. They ain’t makin’ any more of the stuff.” Real property was something that pretty much always appreciated in value.Prior to the early 1900’s, most people didn’t own their own homes. Most people rented. Many lived in tenements and apartments in cities, or lived as tenants on farms in rural areas. Land speculators often bought what was left of the government land grants as the frontier closed.But, in the 1920’s, that began to change as banks felt more confident in lending credit for new construction. There were significant speculation bubbles. People bought property and built homes on future credit that wasn’t based on anything but hope.And as the stock market ticked ever higher and higher, banks bet on it. With the deposit money of their customers.And then the Stock Market Crash of 1929 hit.Banks that were significantly overleveraged and undercapitalized were hit hard. Many just failed, and those who had their deposits at banks that became insolvent just lost everything. There was no deposit insurance. If your bank went under, you were screwed out of your entire savings.And if you lost your job, that meant you also lost any means of continuing to pay back that home loan.Additionally, there were suddenly vast quantities of new construction for sale… that nobody could afford any longer. That drove down property values everywhere.Suddenly, your property that was worth $10,000 last year might now only be worth $5,000. But you might still owe $8,000 - what we call “underwater.” If you default or declare bankruptcy, the bank loses. And you’re out on the street.And then, what could the bank do with the house? How could they sell it? Nobody was buying. So, the bank suddenly has a ton of illiquid assets.More foreclosures in a neighborhood continues to lower the property values further, and the destructive cycle just ends up repeating itself.The Hoover administration tried economic protectionism. At the administration’s pushing, Congress passed the Smoot-Hawley Act of 1930, which imposed schedules of high tariffs on over twenty thousand types of imported goods, to protect American business, by golly.It backfired spectacularly and greatly exacerbated the worsening Depression.Weather conditions didn’t help. A severe drought ravaged the Midwest and Great Plains starting in 1930. Farmers had been using what in retrospect were poor farming practices, tearing down line fences and forest windbreaks and not planting cover crops for winters. The thin layer of good topsoil in the Great Plains turned to dust and became an ecological nightmare.Farms started going under as crops failed. The Smoot-Hawley tariffs only made things worse.Additionally, the money supply dried up. The banks that survived, like J.P. Morgan Chase, just turned off the credit spigot to stay afloat. They stopped lending. Why? Again: illiquid assets. The banks were holding on to all these properties and other assets that they couldn’t sell. And people didn’t trust the banks because so many had lost everything depositing their savings there. Because the banks couldn’t sell anything they had, and nobody would give them any cash, they didn’t have any money to give out.Part of the problem was the gold standard. Under the Federal Reserve Act, at least 40% of the money in circulation had to be backed by gold reserves held by the federal government. So, there was no modern tool of being able to print more money to help increase liquidity.On top of that, gold became more expensive. Mortgages often had clauses that allowed banks to demand repayment in gold because of the gold standard. By 1932, that resulted in a disparity in payment between the dollar and the value of gold that meant that if a debtor was forced to repay in gold, it could cost him as much as $1.69 for every dollar he owed. This led to more bankruptcies and foreclosures still.Because of the tariffs, the lack of money supply, the collapse of agriculture, and lack of consumer spending, rampant deflation initially set in. This made exported American goods increasingly more expensive for overseas importers, even where other nations had not instituted retaliatory tariffs of their own. Manufacturing began to collapse. The steel industry followed.And the Depression spiraled out of control.When Roosevelt took over from Hoover in 1932, the nation was becoming increasingly desperate.The New DealRoosevelt ran on a radical new idea that he called “The New Deal.” The premise was that the government would intervene in the economy and prop it up through deficit spending and government borrowing. The New Deal would create government programs to put people back to work and get people back to farming and building things, and that eventually, once people got back on their feet, the government could take those supports out.Various New Deal reforms were leveled at the financial sector to try to get the credit flowing again.One reform was put on the banks directly: the Glass-Steagall Act. One of the problems with the banking crisis was that banks could gamble with depositor’s money. The Glass-Steagall Act separated investment banks from commercial banks. Investment banks are gamblers. These deal with stock and bonds and venture capital and hedge funds and Wall Street. Commercial banks are the Savings and Loan where you put your nest egg. The Glass Steagall Act put a firewall between the two. The idea was that Wall Street could melt to the ground and Main Street wouldn’t go with it.Keep this in mind. It will be important later.Another was to protect depositors. Commercial banks would be required to pay into a new Federal Deposit Insurance Corporation: the FDIC, which would make sure that depositors would get paid back if the bank collapsed. That encouraged people to trust banks again. People would deposit their money, and banks could use that money to start giving out loans again.A third was to help reduce the risk of default on certain types of loans through surety agreements. Sureties had been around forever: they’re a promise to pay a debt if the original debtor defaults.The Federal government aimed these programs at home loans in particular, to try to reduce the homelessness problem. And so, in 1938 with the National Housing Act, the government formed the Federal National Mortgage Association, or FNMA. FNMA, or “Fannie Mae,” would buy the mortgages from the banks, who would continue to “service” the mortgages. From the perspective of the consumer, it looked just like their ordinary transaction: get a loan from the bank, pay the bank. The bank kept some money for “service fees,” and the Feds took over the loan, and importantly: the risk of default. This created a secondary market for mortgages for the first time in history.But Fannie would only buy that mortgage if it met certain criteria, such as debt to income ratios, term of the loan, and more. If banks wanted to make other loans, that was fine, but Fannie wouldn’t buy them.And the program basically worked. Banks started lending again. Credit slowly started to thaw out. Banks started getting more liquidity in their balance sheets. People started being able to buy homes again.After World War II, the housing market took off again, fueled in part by the GI Bill and a push for suburbanization and the creation of easily duplicated, cheap ranch houses on a standardized template.But in the background still driving things along was always Fannie Mae and the prime 30 year fixed-rate mortgage, which had become as much a part of the standardized American experience as baseball. Housing prices rose steadily home ownership became a stable part of the American economy. Virtually every person in the country could see a viable path to owning their own home.By the 1960’s, FNMA owned more than 90% of the residential mortgages in the United States and individual home ownership had risen to the highest levels ever recorded. This led to the greatest expansion of the middle class in history.So, of course, like all wildly successful government programs, we had to fix it.PrivatizationIn 1954, FNMA was semi-privatized into a public-private hybrid where the government owned the preferred stock (with better voting rights within the corporation,) and the public held the common stock (which gave dividends, but inferior voting rights).And in 1968, Fannie Mae was privatized entirely, with a small slice of it (known as Ginnie Mae) carved off to maintain Federal Housing Authority loans, Veterans Administration loans, and Farmer’s Home Administration mortgage insurance. Because Fannie Mae had a near monopoly on the secondary mortgage market, the government created the Federal Home Loan Mortgage Corporation to compete with it: Freddie Mac.By 1981, Fannie and Freddie were doing well as private companies, and Fannie came up with a great idea that had been done in limited settings: pass-through mortgage derivatives. They would bundle up various mortgages and sell them as a type of bond to investors. Investors loved the idea. The housing market had been extremely stable for nearly fifty years and offered a modest, but highly reliable return. And so the commercial home loan mortgage backed security was born.Keep this in mind. It will be important later.The Savings and Loan CrisisBy the early 1980’s, the economy had been stable for 30 years (more or less,) and thanks to the Glass-Steagall Act, commercial banks were doing okay even with the “stagflation” of the 1970’s. Home prices continued to rise about on par with wage growth.But one type of commercial banks, the Savings and Loan banks, wanted to do better than okay. S&L’s were the kind of bank in It’s a Wonderful Life. S&L’s were specifically singled out in federal legislation, like credit unions, for a single purpose: to promote and facilitate home ownership, small businesses, car loans, that sort of stuff.A business-friendly Congress agreed. They passed two laws in 1980 (signed by Jimmy Carter) and 1982 (Signed by Ronald Reagan) that allowed banks to offer a variety of new savings and lending options, including the Adjustable Rate Mortgage, and dramatically reduced the oversight of these banks.Adjustable rate mortgages work by locking in a fixed rate for a short term, and then after that initial term, the mortgage rate would re-adjust every additional term after that. If the prime interest rates set by the Federal Reserve stayed high, lenders would get hammered.But S&L’s had a fix in mind for consumers: just keep refinancing your home every time the first term is up. Home prices would just always continue to rise, right? They could collect closing costs every couple of years, and consumers remained essentially chained to them in debt with a steady stream of revenue that would always be secured if something happened. It was perfect.Keep these types of mortgages in mind. It will be important later.By the mid-1980’s, the lack of oversight allowed S&L’s to start making riskier and riskier decisions, offering certificates of deposit with wild interest rates, as much as eight to ten percent. They were exempted from FDIC oversight, while still keeping deposits federally insured (what could go wrong there, right?)And then the Federal Reserve, in an effort to reduce inflation, raised short-term interest rates, which sent ripple effects through these S&L’s, who had been made very vulnerable to that particular issue through these bad decisions, lack of appropriate capitalization, and overpromising depositors.By 1992, almost a third of savings and loan banks nationwide had collapsed.This crisis led to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which put back some of the same oversights that had been taken off because people wanted to make more money, particularly better capitalization rules (which were tied to risk,) increased deposit insurance premiums and brought back some FDIC oversight, and reduced these banks’ portfolio caps in non-residential mortgages.Keep this in mind. It will be important later.The Repeal of Glass-SteagallRemember how back in the 30’s, in the midst of the Great Depression, we instituted that firewall between investment banks and commercial banks?Again, it worked so well, we had to fix it.Starting in the 1960’s, the federal regulators began to start to allow commercial banks to get back into the securities game again. The list was limited, and was supposed to stay in relatively safe stuff.This accelerated under Reagan’s policy of deregulation, and continued under Clinton in the 1990’s. By 1999, Bill Clinton declared that Glass-Steagall no longer served any meaningful purpose, and most people had declared it dead well before that. The law was officially repealed in 1999 with the Gramm-Leach-Bliley Act.Immediately, investment and commercial banks start merging again. Bear Stearns, Lehman Brothers, Citibank, all of these investment banks start buying out the commercial banks or merging.And there’s a culture difference between those.Remember: investment banks are gamblers. These are the Wall Street guys. They’re risk takers. They’re hedge fund managers. These are your Gordon Gekko type guys. Commercial banks are Main Street guys. They’re generally conservative, George Bailey types.And the investment banker culture won out over the course of the 2000’s. George Bailey starts snorting coke and putting on Ray Bans with a blazer and jeans.Sub-Prime, NINJA, and ARM LoansIn the early 1990’s, affordable housing started to become a greater and greater issue. George H.W. Bush signed legislation in late 1992 amending Fannie and Freddie’s charters to push them to make loans to people with lesser means than the traditional prime criteria. The Clinton Administration continued pushing Fannie and Freddie to accept more low and moderate income earners.That meant taking on riskier loans.The Clinton administration put rules in place in 2000 to curb predatory lending practices, and rules that disallowed those risky loans from counting towards their low-income targets.The Bush administration took those predatory lending rules off in 2004, and allowed those risky, “sub-prime” mortgages to count towards the low-income targets set by Housing and Urban Development.Remember those ARM mortgages?Heh, heh. This is getting long, and you probably glossed over that, didn’t you? I told you it was going to be important.Banks started making riskier and riskier loans, often those ARM loans. They could meet their HUD targets and make tons of money. And again: the gravy train was endless, right? The housing market had not lost value for over fifty years, even in the recessions of the 70’s and 80’s.So, they put more people in houses. Bigger houses. More expensive houses. The economy was doing good. New construction was hot. Contractors couldn’t build the McMansions fast enough.Banks started a race to the bottom with these sub-prime loans, getting all the way to NINJA loans: No Income, No Job, No Assets required. You’re a homeless person selling Etsy products out of your car? You’re already prequalified on a quarter-million subdivision home with a quarter-acre. Congratulations.As long as you could afford the payments, you were in.De-regulationIn the early 2000’s, the Bush administration wanted to keep the economy going. There was a low-level recession from March 2001 to November 2001 following the dot-com crash. The administration lifted a number of securities and financial sector oversight rules. One of those rules was about capitalization.Remember that? I told you that was going to be important.Capitalization requirements are how much reserve cash a bank needs to keep on hand to prevent collapse if something happens, against their liability sheets. Remember: that’s how banks got in trouble before the Great Depression and again right before the Savings and Loan Crisis. They took on too many liabilities and didn’t have enough capital to actually pay it all out.The Bush administration relaxed the rules on required capitalization and what assets could count as capital. Some of those assets turned out not to be very useful.Collateralized Debt Obligations and the Mortgage Backed SecurityRemember, back in 1981, when Fannie starts issuing those mortgage backed securities, re-selling them as bonds with a low, but reliable interest rate?That gets more complicated after 2004–2005 with the increased use of a financial tool called the collateralized debt obligation. Basically, a CDO is just a promise to pay investors in a sequence based on the cash flow from something the CDO invests in. The rate of return was tied to how risky the CDO was.In the 70’s and 80’s, CDOs were pretty safe, mundane things. They were basically like index funds; they invested in a lot of stuff and did okay. But by the mid-2000’s, CDOs were becoming riskier and riskier, while providing more and more reward. CDOs bought up mortgages like crazy, because they had increasingly higher interest rates as the subprime mortgages started taking off.But people were nervous about investing solely in these high-risk CDOs. And so, investment banks that bought up those mortgage-backed securities started to bundle together some high-risk mortgages with some regular, low-risk mortgages and promising that they were safer.And then some investment banks started to lie about how many of those high-risk mortgages were in them. Why? Again: the housing market was super-stable and always going up. Those loans only looked high-risk on paper, right? I mean, those debtors could always just keep refinancing every couple of years.So banks bought up those assets and added them to their capitalization sheets.You see it, right? You see the problem here? Not yet?Keep this in mind. It will be important in just a minute.The CollapseI remember being in college in the early 2000’s, and asking the loan officer at our local bank how some of the people I knew were making maybe $10–12 an hour could afford these massive homes and boats and jet skis and campers. My parents were teachers; they weren’t doing bad, but we couldn’t afford all that and I knew they were doing better than some of those people. The loan officer shook his head and said, “They can’t. They can afford the payments.”Some of those people didn’t have furniture in their homes. If they had a party, they rented furniture for a couple days. I’m serious. That was a thing. Many of them were in deep, crippling credit card debt, paying off the balances of one with another, and justifying it with the idea that it would be okay when the next raise kicked in.It was a classic speculation bubble.Then in late 2006–2007, that bubble burst.The housing market became oversupplied. People stopped buying the new construction and the existing homes as much. And home values started to drop.And suddenly, because home values plateaued and then dropped, so too did the little bit of equity that many of these purchasers, in debt up to their eyeballs, had in their homes. Without more equity, they couldn’t refinance. And because they could’t refinance, those ARM loans or other loans kicked in, and the interest rates on them skyrocketed.And suddenly, they couldn’t make the payments anymore.And then they went into default on their mortgages.Followed by foreclosure.And often bankruptcy.It turned into a vicious cycle. Once one or two neighbors end up losing their homes in foreclosure, it affects the property values of everyone else around those properties like a contagion. Healthier borrowers started to become impacted as property values declined and now they couldn’t refinance.In 2007, lenders foreclosed on 79% more homes than in 2006: 1.3 million foreclosures. In 2008, this skyrocketed another 81% still: 2.3 million. By August of 2008, nearly one in ten mortgages nationally were in default and foreclosure proceedings. By one year later, this had risen to over 14% nationally.The RecessionRemember, the financial sector had heavily invested in all of those housing market securities. They thought they were safe. They thought that the housing market would never go anywhere but up. They built their whole foundation on it.And they had relied on those securities to meet their capitalization requirements.Securities that suddenly turned out to be nearly worthless.Huge banks ran out of liquid cash almost immediately. This is what happened to Bear Stearns, Lehman Brothers, Goldman Sachs, Citibank, and more. They were suddenly holding on to billions upon billions of dollars of assets that were either worthless, or completely frozen. They couldn’t sell the bits of stuff that was even worth anything.And because their assets weren’t liquid, they didn’t have money to lend anymore.And that lack of credit is what grinds the economy to a halt.That impacted every sector of business in the United States. Which impacted every sector of business in the world. And that meant that businesses started having to lay people off because they couldn’t get the money to keep paying them.And then because those people lost their jobs, they started to default on their mortgages. Which rippled through the CDO market again.This was why it was so critical for the Federal Reserve to buy those toxic assets and provide the banks with liquid cash in their place. They had to get the credit flowing again to re-start the gears of the economy. Without it, we almost certainly would have seen a full repeat of the Great Depression.And that brings us to today.That’s the abbreviated, oversimplified explanation. It’s more complicated than this, and there’s other factors that contributed, but that’s kind of the main story in basic terms. That’s roughly how 10 million homes went into foreclosure.And we still haven’t fully recovered. Over twice as many people rent as opposed to own. Less than one-third of people who have lost a home in foreclosure in the last decade will be able to repurchase another again. Roughly 2/3ds of those people who lost their homes have so damaged their credit that they will never qualify again. Hundreds of thousands, if not millions more, were so emotionally traumatized by the experience that they simply refuse to go through it again.And that number of renters to owners is substantially higher for my generation, the Millenials, who have never seen any substantial portion of the post-2008 recovery. We still haven’t made up the wages that would allow us to save enough to purchase, even setting aside the massive increase in student debt we carry.75% of my generation wants to own a home. Less than 35% do.And, in case reading this wasn’t chilling enough for you, the present administration has been lifting some of the exact rules and regulations that were put into place after the 2008 collapse that were lifted in 2004 that were put in place after the 1980’s collapse after those were lifted. Because it worked so well the first two times.Mostly Standard Addendum and Disclaimer: read this before you comment.I welcome rational, reasoned debate on the merits with reliable, credible sources.But coming on here and calling me names, pissing and moaning about how biased I am, et cetera and BNBR violation and so forth, will result in a swift one-way frogmarch out the airlock. Doing the same to others will result in the same treatment.Essentially, act like an adult and don’t be a dick about it.Look, this is pretty oversimplified. Ph.D. theses have been written about this. I’m trying to make it at least remotely accessible to those with the patience to read it. Don’t be pedantic about it, please?Getting cute with me about my commenting rules and how my answer doesn’t follow my rules and blah, blah, whine, blah is getting old. Stay on topic or you’ll get to watch the debate from the outside.Same with whining about these rules and something something free speech and censorship.If you want to argue and you’re not sure how to not be a dick about it, just post a picture of a cute baby animal instead, all right? Your displeasure and disagreement will be duly noted. Pinkie swear.If you have to consider whether or not you’re over the line, the answer is most likely yes. I’ll just delete your comment and probably block you, and frankly, I won’t lose a minute of sleep over it.Debate responsibly.