While Hawaii has been largely immune from the mortgage market debacle, it has clearly impacted the thinking of mainlanders considering buying Maui real estate. In the NYT Sunday Magazine, Roger Lowenstein writes a good article for the layman to understand how this happened. Below are some key snippets.

Moody’s did not have access to the individual loan files, much less did it communicate with the borrowers or try to verify the information they provided in their loan applications…The analyst wasn’t evaluating the mortgages but, rather, the bonds issued by the investment vehicle created to house them…Moody’s used statistical models to assess C.D.O.’s; it relied on historical patterns of default. This assumed that the past would remain relevant in an era in which the mortgage industry was morphing into a wildly speculative business…In April 2007, Moody’s announced it was revising the model it used to evaluate subprime mortgages. It noted that the model “was first introduced in 2002. Since then, the mortgage market has evolved considerably.” This was a rather stunning admission; its model had been based on a world that no longer existed…Over the summer and fall of 2007, Moody’s and the other agencies repeatedly tightened their methodology for rating mortgage securities, but it was too late. They had to downgrade tens of billions of dollars of securities.

In other words, the models never anticipated the speculation in the market nor the willingness of people to walk away from homes when the equity in them, evaporated. For more details, contact us.