Illegal Aliens, Amnesty and the Housing Crisis
Did the 2007 failure of the amnesty bill cause the mortgage crisis? Before your answer the question, consider this: "By early 2005 pretty much everybody who wanted to refinance [their mortgage] did. And pretty much everybody who wanted a house had one."1 Banks were running out of customers. So were homebuilders.
Aggressive outreach to what became the sub prime market kept things going for a while. "As home values skyrocketed earlier this decade, ‘banks gave money to anybody with a pulse,’ said UCLA economist Ryan Ratcliff."2
Adjustable Rate Mortgages jumped from 8% of all mortgages in 2001 to 35% of the market in 2006.3 Soon, there were even NINJA (No Income, No Job or Assets) loans for home purchasers.4
More than a few people gamed the system. Accordingly, FBI mortgage fraud cases jumped from 5,623 in 2002 to 46,717 in 2007.5 One scam alone cost now-bankrupt Lehman Bros. and another lender $142 million.6 A 2006 report by the Mortgage Asset Research Institute found that 60% of borrowers had overstated their income by 50%.7
Mortgage lenders didn’t seem to mind, convinced that housing prices, already at historic highs, would never fall, meaning they could "always repossess and sell the house if necessary."8
One thing lenders failed to bank on was the housing glut that manifested in 2005-6. A lot of people were building houses, convinced that home construction was the same license to print money it had been in the past. Unfortunately:
It takes three months to sometimes three years to complete a development. In other words, the market can easily switch from
1 Aaron Clarey, Behind the Housing Crash: Confessions from an Insider (2008) at 26.
2 "How a bank fell victim to loan fraud," Los Angeles Times, December 31, 2007, http://articles.latimes.com/2007/dec/31/business/fi-homescam31
3 Clarey, supra, note 1, at 26
4 Id. at 113.
5 "Loan fraud," supra, note 2.
7 Clarey, supra, note 1, at 113.
8 Id. at 99.