So how did we get ourselves into this mess?
Just like the stock market in the late 90s, the extreme price appreciation of real estate over the last 5-10 years has been stratospheric. It didn’t take an economist to sense a bubble.
What blew this bubble way up, though, was the reckless way mortgages were doled out so freely. Speculation was rampant; loans were taken out without verification of income or assets. People got in over their heads in mortgage debt, either looking for a quick buck or living beyond their means.
Now, here comes the tricky part, which explains some of the problems we are seeing today. Historically, you took out a loan with a bank and the bank might hold/own that loan until the end.
But a process called securitization really started to take off on Wall Street over the past 10-20 years. But before I explain what securitization is, remember that a mortgage loan is DEBT for you the homeowner, but an ASSET for the bank or whoever owns the mortgage.
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