I'm not quite sure what you are getting at. It was the lowering of interest rates that initially allowed people to afford More expensive houses, which had the effect of driving up the price of houses. Then when the price of houses began to outstrip the ability of more and more people to afford them, mortgage companies began to write "liars loans" to people who definitely could not afford them, knowing perfectly well the couldn't. The guy who wrote the mortgage didn't care because he got his commission and moved on, and the mortgage company kicked the bad paper upstairs to the banks. So basically, the subprime mortgage market was what was responsible for the housing bubble..
Your first proposal is perfectly obvious and the way things used to work. When I got the mortgage on my house, circa 1992, they did everything short of examining me with a colonoscope to make sure I could make the payments, and they had the house professionally appraised, which I had to pay for. I still have the appraisal. In the heat of the moment, and with no oversight because of deregulation, all that went out the window.
Here in Florida, things went quite insane. People were buying houses just to slap a coat of paint on them and "flip" them. I recall a couple I knew saying I was stupid for not getting into condo pre-sales: people were buying condos before they were built and flipping them before even making a payment. They and a lot of others eventually got caught holding the bag. They fled to Arizona, which apparently has some interesting banking regulations.
I was getting at least one call a week from loan companies urging me to refinance and take cash out of my house, I also know a few people who did that and got caught when housing prices dropped.
Regarding your second point, maybe ARMs should be outlawed altogether. I could have gotten an ARM when I bought this place, but stuck with a fixed rate because I remembered the interest crises of the late '70's and didn't want to end up paying 22%;. Really, the subprime borrowers shouldn't have been given loans at all, cf. paragraphs 1 and 2 above.
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Your first proposal is perfectly obvious and the way things used to work. When I got the mortgage on my house, circa 1992, they did everything short of examining me with a colonoscope to make sure I could make the payments, and they had the house professionally appraised, which I had to pay for. I still have the appraisal. In the heat of the moment, and with no oversight because of deregulation, all that went out the window.
Here in Florida, things went quite insane. People were buying houses just to slap a coat of paint on them and "flip" them. I recall a couple I knew saying I was stupid for not getting into condo pre-sales: people were buying condos before they were built and flipping them before even making a payment. They and a lot of others eventually got caught holding the bag. They fled to Arizona, which apparently has some interesting banking regulations.
I was getting at least one call a week from loan companies urging me to refinance and take cash out of my house, I also know a few people who did that and got caught when housing prices dropped.
Regarding your second point, maybe ARMs should be outlawed altogether. I could have gotten an ARM when I bought this place, but stuck with a fixed rate because I remembered the interest crises of the late '70's and didn't want to end up paying 22%;. Really, the subprime borrowers shouldn't have been given loans at all, cf. paragraphs 1 and 2 above.