Housing Boom May Have Been Good for Bankers But was Bad for Investors

The housing boom of the mid-2000s occurred during the Bush Administration and was a time of prosperity. Housing prices were not too high and people were buying and selling in significant amounts. Unfortunately, all was not as it seemed. Bankers, a dual study done by Colombia University and Chicago University found, bankers made more money than was originally thought by packaging home loans into bonds.

A bond is an obligation that is made between two parties that the party that the bond is issued to will remember to make a series of interest payments to cover the original cost of the bond. They also gave false information to the investors they sold the bonds to and made them seem that they could be trusted. This piece of information truly shows the unscrupulous nature of our country’s banking system.

The study itself examined over 1.5 million mortgages and they found that many of the loans made out to unsuspecting homeowners contained several undesirable features. Another interesting statistic that was noted was that many of the bond underwriters were aware of what kind of loans, or “mortgage-backed securities”, they were handling. Assets were also exaggerated by many of the underwriters; a definite sign that there was a kind of scheme going on between the mortgage brokers and the banks themselves. This occurred in many places across the country, particularly Florida. Poor homeowners were caught unawares in the midst of this maelstrom.

Many banks were involved in this plot but the ones where the most false bonds were founds were Lehman Brothers, Washington Mutual and Countrywide Financial. Other banks, like Merrill Lynch and HSBC, were also reported to have dealt with misrepresented securities. Currently, they are being sued by the investors that they duped along with Freddie Mae and Freedie Mac. The banks are going to be punished for their transgressions.

According to recent news from various news outlets, it is possible that all the banks that were involved will have to buy back around $60 million or more of the faulty bonds that they issued. However, this is not definite and it is possible that the banks will be able to negotiate themselves out of this dire situation. The rich get away with many things in the United States.