“Twelve Facts That May Surprise You About the Housing Bust”

Nick Timiraos has a great post at the WSJ’s Real Estate blog which summarizes the findings of an academic paper. Here are 12 facts about the housing bust that may surprise you:

Fact 1: Resets of adjustable-rate mortgages did not cause the foreclosure crisis.

Fact 2: No mortgage was “designed to fail.” Instead, the products weren’t designed to sustain a drastic decline in home prices.

Fact 3: There was little innovation in mortgage markets in the 2000s.

Fact 4: Government policy toward the mortgage market did not change much from 1990 to 2005.

Fact 5: The originate-to-distribute model was not new.

Fact 6: MBS, CDOs, and other “complex financial products” had been widely used for decades.

Fact 7: Mortgage investors had lots of information.

Fact 8: Investors understood the risks.

Fact 9: Investors were optimistic about house prices.

Fact 10: Mortgage market insiders were the biggest losers.

Fact 11: Mortgage market outsiders were the biggest winners.

Fact 12: Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.

Here’s the paper.

Posted by on May 4th, 2012 at 3:36 pm

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