Posts for category ‘Foreclosure prevention’

The last post gives you the macro view of why the housing market collapsed but this is only one view. There is plenty of blame to go around on this one. Let’s take a look at some of the other players of shame in this housing crisis shall we? Some of the other parties that bear culpability in the mass housing hysteria are:

Don't Worry! There Is Enough Blame For Everyone

• Real Estate Agents
Yes my chosen profession is to blame for being the blindly optimistic cheerleaders that helped whip the housing hysteria into a nice frothy mix of “irrational exuberance”. Oh the commissions! As prices skyrocketed the net commissions rose too. It was a profitable time for real estate agents. Everyone was interested in buying real estate and everyone was qualified by their mere ability to fog a mirror.

• Loan Agents
They were the first link in the toxic loans that destroyed our financial system. They pushed ever more exotic loans to a naïve consumer base. They knew that those consumers never actually read or understood the 3 inch stack of loan documents they were signing. They told the home buyers what they wanted to hear and glossed over the little details that would blow up in all of our faces. They laughed among themselves as they came up with funny little nicknames for these toxic loan products. No documentation loans were accurately called “Liar Loans”. People with No Income, No Job, and No Assets were given NINJA loans that were created just for them. Many loan agents knew what they were doing was criminal but the pressure to meet sales quotas was intense. Predatory lending among minorities was rampant but it was not done in the way that the mainstream media presents it. Hispanic loan agents preyed on other Hispanics, Chinese agents on other Chinese. You name the group and there were plenty of loan agents who were members of that group who stepped up to prey on their own people. Predatory lending was dependent on the misplaced trust that was able to be created among peer groups. I find it unbelievable that the even the most flagrant financial predators will never be prosecuted for the crimes they committed. They continue to “service” their communities to this day.

• Appraisers
Appraisers did cooperate in the mass hysteria but I’m not as hard on them as other participants. In reality the true value of a home is whatever a buyer is willing to pay. I think the appraisers were reporting on the bubble as it formed and were not really an underlying cause of it. The strange thing is how the politicians have overreacted to the role of the appraisers by instituting unreasonable restrictions on appraisers while largely ignoring the outright criminal behavior of loan agents. I think that has to do with the weaker appraiser lobby.

• Banks
Entire books have been written about the banks and their role in the housing crisis so I’ll just give a quick overview here. The banks wrote bad loans and then passed the risk onto others by bundling the bad loans as securities and selling them on Wall Street. They succumbed to greed and lost but they are being allowed to continue business as usual. I believe that capitalism works best when the winners reap the rewards and the losers are allowed to die. It is this business Darwinism that revitalizes our system. The insolvent banks should have been allowed to fail in a way that saved the overall financial system. If a bank is too big to fail then it is too big to exist. The bailouts should not have been structured the way they were. The Feds should be overseeing an orderly wind down of all the financial institutions that needed to be bailed out. The injustice isn’t that AIG and Goldman Sachs are passing out bonuses. The injustice is that they were allowed to survive. Privatizing the profits of the banks when times are good and socializing losses when they make mistakes takes the worst aspects of two incompatible economic systems. We should be more angry at Washington than Wall Street. In closing keep in mind that while the banks have a big responsibility for the economic crisis but they are not the sole cause, but they are the biggest scapegoats.

• Home Buyers
Home buyers bear responsibility for their loan problems but they are usually painted as mere victims and not active participants in the bubble. They along with the social justice crowd and politicians are getting a pass on their role in the housing crisis. I’ll expand on the responsibility of home buyers in the next chapter.

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.