On the recordMay 4, 2010
The interesting element of the subprime market was that those who were selling the product, the originators of the loans, weren't holding on to any of the instrument. They had no skin in the game. It was sold off to Wall Street, where they put them in these tranches and then sold them off again and again. One of the things that is required in this new bill is that you will have to have some skin in the game, that you will have to have reserves, that you cannot leverage, like we have seen happen over the last couple of years. But the interesting thing about the subprime market that just came to light, the industry also realized these people weren't equipped. If you were a $14,000 a year gardener in East L.A., you couldn't afford a $700,000 home. But since there was no documentation, since it was going to be sold, and after the teaser rate was no longer available to you, you were going to come back and refinance that loan again, so the fees to the originator, to the bank, would be generated again. So there was this huge churning that was going on in the industry as well.
