When you bought your brand new home you were giddy with excitement. The housing market was booming and you wanted to get in it before you were left behind. The biggest fear was that if you didn’t act quickly then you would be priced out of the housing market and would never be a homeowner. You winced as you signed the loan docs knowing that you were stretching your budget but housing prices were going up and the economy was humming along. We all believed our jobs were secure and our futures bright.
Does your home loan have you trapped?
Boy were we all wrong. The red hot housing market of the 2KOs and the overall economy were based on a lefty belief that homeownership is a right for everyone. The leftists misconstrued what were in reality commonsense loan underwriting standards and insisted they were in some way unfair to certain groups. An erroneous belief pushed by various social justice groups such as Acorn and NACA that the State and Federal Governments fell for. This set of lies shaped monetary and lending policy for the entire nation. The victims of these lies are the middle class as well as the lower income people they were trying to help. The real villains are not just the banks or Wall Street but the social justice crowd that swept our entire economy into a tailspin and then brought the very people that created the problem into political power as the providers of hope and change. The banks and Wall Street just make very convenient and believable scapegoats. They provide political cover for the true creators of our economic problems.
The root of our present day housing crisis begins with the Community Reinvestment Act of 1977. This act, signed by President Jimmy Carter was designed to prevent the practice of redlining and encourage homeownership among the poor. A very noble sounding goal but the law of unintended consequences is always ignored by the righteous. This natural law is the basis of the saying” The road to hell is paved in good intentions”. When combined with a tax code that encourages housing overconsumption, the federal loan guarantees through Freddie Mac, Fannie Mae and other agencies and a relentless push by the social justice crowd to push “affordable housing” at all costs we ended up with a whole raft of loans that made no sense to anyone without a social engineering agenda.
This political push for “affordable housing” had the exact opposite effect. This push for affordable housing is why traditional middle class buyers who represent a good risk for the banks overpaid for housing. It forced housing prices to skyrocket faster than any time in our nation’s history. As the pool of available buyers was increased by lax lending standards competition became fiercer. Prices were pushed ever higher. The loan products were redesigned to make it even easier for anyone with a pulse to overextend themselves on a mortgage. A feedback loop was created that caused a housing hysteria to form. It gathered steam because of a disconnect in the banking world created by allowing the securitization of mortgages.
Traditionally a mortgage was held by the bank that issued it for 30 years. This forced the banks to consider each application very carefully. They didn’t want to lend their money long term if the applicant represented a high risk. This changed when the Feds relaxed banking standards and allowed the over securitization of mortgages. The banks realized that they could take the pools of high risk subprime loans that were created not by common sense standards but by the new standards of politically correct lending and sell them to others. They could make money short term and push the risk onto others. This satisfied everyone at the time…well everyone but the middle class buyers. The banks were under intense pressure to increase the traditional homeownership rate. Traditionally that rate has been about 64%. This political push did increase the homeownership rate to a high of 69% in 2004 but at the cost of near economic collapse. That rate will plummet as this housing crisis unfolds.
What happened next was predictable. The number of subprime defaults went through the roof. What was not easily predictable was the way that these defaults would ripple through Wall Street and cause a near collapse of our financial system and a crippling of our economy on Main Street. The causes of the subprime meltdown were the loans themselves. The cause of the impending middle class wave of foreclosures is largely underemployment and unemployment of the middle class due to the economic turmoil. The middle class overpaid for their homes due to the subprime competition and now they are being forced into default due to the economic effect of the subprime defaults. The middle class got trapped twice by the same subprime lending.
To add insult to injury, when a poor family is facing foreclosure they have a plethora of free legal resources to turn to. The middle class are often on their own when it comes time to sort through their options. These free legal resources are paid for by tax dollars and supplied by the same non profits that pushed their political agenda and created the political atmosphere that caused the foreclosure problem. These groups now hold themselves out to be the solution to those problems they created and the savior of the very people they hurt the worst, the poor. These advocates for the poor trapped the middle class twice and now they don’t stand ready to give assistance. That’s why I am writing this book, to give the middle class homeowner an easy place to find their options and a plan to make the best of a bad situation.
