Roy Oppenheim’s commentary was originally published on Yahoo! Homes and is being republished on South Florida Law Blog with their permission.
It is easy to call Wall Street a villain and lay the blame for the housing collapse at their doorstep, and I did just that in one of my recent blogs, where I likened the banks’ conduct during the housing collapse to “economic homicide.”
My Rabbi asked me to further explain the concept of foreseeability, a notion I touched on in the blog, as it relates back to the banks and the real estate bubble.
So allow me to explain, but first, please grant me a few more hyperboles.
If you pour gasoline on a fire, then you’d have to know that fire would accelerate. Otherwise people would think you are a fool.
Likewise as people often refer to the real estate market as a bubble, I like to think of the banks and their agents as people who filled that bubble with helium.
At some point they’d have to know it would burst. It was absolutely foreseeable. So how did they “fill the bubble?”
First, they completely disregarded underwriting guidelines. Bank of America, Wells Fargo, and most of the big banks took shortcuts, playing fast and loose with guidelines they once held sacred.
They signed off on these loans without considering their underwriting obligations, without checking whether the borrower was creditworthy, or even checking tax returns. More loans went out, and into the securitization machine, but of course the quality of those securitized trusts ended up resembling something your dog might leave behind on the sidewalk.