What Caused the Housing Bust (11)

Willing buyers disappeared

Very quickly the "liquidity" – the amount of willing buyers for these types of mortgage-backed securities – disappeared.

There are literally no bids for much of this paper.

That's why the subprime mortgage brokers – the Novastars and Fremonts – went out of business so quickly.

Not only did they take a huge hit paying off the early defaults of their 2005 and 2006 mortgages,

but the loans they held on their books were marked down,

with no buyers available and their creditors demanding greater margin cover on their lines of credit... poof...

The assets they owned were marked down, they couldn't be readily sold, and

they had no access to additional capital.


By Porter Stansberry