Real Estate Blog

Mortgage Crisis Part One

April 6th, 2011 11:18 AM by Sherry Lee

I get a lot of phone calls from people with questions about their home value and the precarious decision they face between staying and paying on a property that has lost so much value, or simply walking away. I want to answer their questions and help them decide. That is what real estate agents do. But in this market, selling often results in painful financial choices and buying is nearly impossible when financing is involved. People are out there trying to make major life decisions without all of the information.
 
This will be the first in a series of articles on the subject of the mortgage market crisis. We will attempt to explain some of the scenarios that got us into this mess. If people can better understand what has happened, they can disengage from the propaganda, stop repeating the sound bites so often heard in the media, stop blaming each other and begin to move beyond the shame, guilt, fear and anger that so often accompanies the decision to walk away from a mortgage obligation. 
 
Author's name withheld
One of the media's favorite topics regarding the housing meltdown is whether or not it's unethical to walk away from a home loan when the property's value has fallen far below the amount owed on it. Another topic that usually accompanies this issue is the assertion that all (or most) "stated income" borrowers lied about their incomes in order to obtain home loans they couldn't afford. Notice that no media pundit ever examines the question of what made so many of these once-affordable mortgages suddenly unaffordable. They also never mention the 400,000 people who lost their livelihoods from real estate industry jobs that disappeared overnight. Are those people guilty of something too? These victim-blaming perspectives are so promoted in the media, they seem intentionally designed to steer people away from the true causes of foreclosure.  When's the last time anyone in the media focused their attention on the policy changes that caused so much damage to housing prices, that millions of innocent homeowners were forced to even consider the unthinkable option of a strategic default? Homeowners who were lured into business arrangements based on nondisclosure of personal financial information, are now forced to disclose everything if they want to continue. But what about the lender's disclosures? Personally I've never seen a RESPA statement that disclosed to any borrower, the possibility that interest rates could be raised by the Federal Reserve 17 times in a two-year period. This was done just as a record number of A.R.M's were about to reset, during a non-inflationary environment! I've also never known a RESPA to disclose that mortgage lending standards could be changed so dramatically, and so quickly, that the resale value of someone's home could be destroyed in an instant. This took away the responsible option of selling the property if financial trouble should arise. I've also never heard of a lender or county government asking a borrower if their ability to make their mortgage payments could be adversely affected by annual double-digit property tax hikes, or a tripling of insurance rates. It's these changes to the rules in the middle of the game that are at the root of nearly every mortgage default, yet no one in the media ever questions the ethics of the institutions who implemented those changes. Recently I've read the Federal government is recommending the IRS eliminate the "home mortgage interest rate deduction" when we pay our income taxes. What affect do you suppose that will have on the resale value of homes and current owner's ability to keep them? Let's face it, this real estate market hasn't fallen off a cliff, it was pushed.
 
We must learn to accept that on the flip side of 25 million Americans losing their homes are $40 Trillion dollars worth of mortgage insurance policies that yield $15 for every mortgage dollar that fails. These illegal insurance policies (called Credit Default Swaps for the purpose of side-stepping U.S. insurance regulations) were the creation of 15 Wall Street banks, hedge funds, and one individual who resides in Palm Beach. Their sole purpose was to destroy all of their competitors (Real Estate, Bear Stearns, Lehman, AIG, Wachovia, etc...), and enrich themselves beyond comprehension. It was evil, it was diabolical, it was illegal, and it continues, but don't expect a media that's owned by the same people who committed this treason to tell you about it. Every channel on your television, including FOX News, is owned by a company that's owned, traded, and financed by Wall Street. Even Public Television has become a slave to their donations, so learn to question everything. The silence we've heard on this subject has been deadly.
Posted in:General
Posted by Sherry Lee on April 6th, 2011 11:18 AM

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