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Boston Fed: Mortgages Not to Blame for Housing Crisis

reversemortgagedaily.comMay 7, 2012

By Elizabeth Ecker

It wasn’t irresponsible mortgage brokers or unscrupulous securities professionals who caused the housing crisis: it was price overestimation, argue policy advisors of the Boston Federal Reserve Bank in a report published last week.

“The dominant explanation claims that well-informed mortgage insiders used the securitization process to take advantage of uninformed outsiders,” the report states. “The typical narrative follows a loan from a mortgage broker through a series of Wall Street intermediaries to an ultimate investor. According to this story, …deceit starts with a mortgage broker, who convinces a borrower to take out a mortgage that initally appears affordable. Unbeknownst to the borrower, the interest rate on the mortgagewill reset to a higher level after a few years, and the higher monthly payment will force theborrower into default.”

However, the theory presents 12 facts that debunk the common belief. Rather than the mortgage market being to blame, over-inflated idea of house price increases were the real culprit, the authors, Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen write.

“If both groups believe that house prices would continue to rise rapidly for the foreseeable future, then it is not surprising to find borrowers stretching to buy the biggest houses they could and investors lining up to give them the money….The bubble theory therefore explains the foreclosure crisis as a consequence of distorted beliefs rather than distorted incentives.”

View the Fed report

Back to May 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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