PDF The IRT/LEMAC Project is based on several key concepts:
- That the financial crisis was caused primarily by bad loan originations resulting in a sudden departure of investors from the asset-backed securities (ABS) markets.
- That the ABS markets were improperly developed and easily affected by crisis or minimal circumstances that could compel investors to pull out of the market.
- That the departure of investors meant that lenders had insufficient funds to make loans and that insurers, duped into believing in the quality of originations were forced to pay out on debt obligations resulting in the near collapse of AIG.
- That the crisis with states and municipal governments, and the value of municipal bonds is diminished by reduced tax receipts from defaults, foreclosures and walk-aways, resulting in the majority of our states suffering financial crisis.
- That tax rolls at all levels became inflated beyond reality because of a series of bad lending and bad appraisals based on an euphoric market and deregulation.
We believe that loan originations made compliance with Federal regulations result in better quality loans with better results; avoiding foreclosures and defaults; improving the chances a borrower will succeed with their home ownership and; that all the concomitant issues are resolved or never come to pass.
Historically, loans originated prior to 1989 defaulted at a considerably lower rate than loans originated after 1990 (about a year’s lag time between de-regulation and growth of defaults). Still, between 1990 and 2003, the percent of defaults and foreclosures remained relatively low, but following 2003 (about a year after the next round of deregulation started), foreclosures began a slow and steady increase, reaching their crescendo in 2008 when the investors in ABS abandoned their market positions for safer waters.
Since 2008, property values have continued a steady decline, defaults and foreclosures driving values lower in what is clearly an international economic depression, placing most home owners with mortgages originated after 1989 in debt for more than the property is actually worth in today’s market.
Excessive lending on property ownership is causing added problems as underqualified borrowers were able to obtain credit based on home ownership and the false belief that property values would continue rising.
