Former State Treasurer Phil Angelides' national inquiry into the financial meltdown came to Sacramento today to hear first-hand testimony on how the Central Valley's out-of-control housing market contributed to the financial crisis of 2008.
"Sacramento, I am sad to say, is among the many communities in the country that can show us how one of the safest purchases traditionally made by families - a home with a mortgage - became the beating heart of a financial monster," Angelides said in opening the day-long hearing of the Financial Crisis Inquiry Commission.
A crowd of about 80 individuals attended the hearing at the state Department of Education's boardroom near the Capitol, listening to economists, financial experts, fraud investigators and others. The hearing focused on how risky mortgages in communities like Sacramento were packaged together on Wall Street into exotic and toxic investment securities, leading to the financial meltdown in September 2008.
Mark Fleming, economist at real estate research firm CoreLogic, explained that subprime and so-called "alt-A" loans made up 30 percent of the home mortgages in the Sacramento area by 2007, setting the stage for disaster. The low-interest loans gave homeowners the ability to tap their home equity for other purposes. "Households increased their debt burdens. They increased their exposure to a declining price environment," he said.
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