Let me share with you my experience when I used to have a 3-bedroom house and a 7-bedroom house in Sugar Land Texas from 1998 to 2007 when the housing bubble took place. A housing bubble or real estate bubble happens when the market price of residential real estate sharply rises. This will happen when demand for homes exceeds the actual supply. During that period, I was able to research that Wall Street found new ways to package the mortgage loans into securities to sell to investors in the mid-1990s. When mortgages are packaged into securities owned for example by Goldman Sachs, borrowers’ monthly payments are divided up by Goldman Sachs as investment bank and sent to thousands of investors around the
world. At the beginning of Year 2000, the Federal Reserve started cutting interest rates to historic lows. That’s why investors poured money into U.S. mortgage market, particularly into securities made up of high-interest mortgages made to borrowers with poor credit records. According to a trade publication, Inside Mortgage Finance, lenders stopped worrying about the creditworthiness of borrowers and offered them even riskier mortgages. Most of those loans were made by commission- driven mortgage brokers, who had nothing to lose if the mortgage went bad because it has been resold. Homebuyers were issued credit without adequate risk management. By the time it defaults, it is somebody else’s headache.
In January of 2005, I received a lot of letters and emails with
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