The Big Short – Origins of the Foreclosure Crisis
Last weekend, I went to see The Big Short, which portrays the origins of the foreclosure crisis. As a foreclosure defense attorney, I was interested in seeing how the movie explained the events of the financial meltdown and its effect on residential foreclosures across the United States. Notably, this is the second foreclosure defense movie that has come out in the past two years. Who knew foreclosure defense could ever be so entertaining?
The Big Short has an all star cast (Christian Bale gives a great performance) and a compelling story line. Unfortunately, the movie is a bit long, even for someone highly interested in the origins of the foreclosure crisis. The movie would have been much, much better if it was shorten and focused on fewer characters. With all of the good movies out now, you are best waiting to see this one on video.
Nonetheless, if you are interested in the origins of the foreclosure crisis, The Big Short is worth watching. The movie does a good job of explaining how the secondary mortgage market, securitization, and incompetent bankers lead to the mortgage meltdown. The short answer to the origins of the foreclosure crisis is that bankers were given enormous incentive to give out mortgage loans, because these loans could be easily sold on the secondary market (allowing the loan originator to “wash their hands” clean of the original lending transaction). Securitization, which I have written about before, played an important role as well: these complex financial transactions allowed investors to diversify risk, giving a great incentive for lenders to make toxic loans. If you are interested in reading more about this, check out this op-ed from the New York Times, written by Michael J. Burry, one of the characters from The Big Short (played by Christian Bale).
I liked The Big Short because it provides important ammunition in fighting big banks in foreclosure defense cases. Bank like to blame everyone but themselves for the origins of the foreclosure crisis, but this movie shows where the real blame lies. I’ve seen first hand the effects of these toxic loans from the early 2000s, with homeowners having been given loans and refinances despite no supporting income and documentation. Many of these borrowers were “setup to fail” from the beginning.
An important word of caution about The Big Short. I know some will see this movie and think that these origins of the foreclosure crisis alone are enough to beat foreclosure. A few, unfortunately, may even believe that foreclosure defense can result in a free home. Foreclosure defense is much, much more complex than that and struggling homeowners should consult an experience attorney in handling one of these cases.