The goal seemed simple enough. Provide more opportunities for people to own a home. After all, home ownership helps stabilize neighborhood values and contributes to the growth of the overall economy. Home ownership is the cornerstone of the American capitalistic system; it symbolizes freedom and our right to vote. Its foundation can be traced to our Constitution and Bill of Rights. The freedom of speech, religion, and assembly, the protection against quartering of troops, protection from unreasonable search and seizure, all of these can be associated with the privilege of acquiring property.

If home ownership provides such a tremendous benefit, then wouldn’t it be advantageous if more people could buy houses? Increasing home ownership was a win / win for all concerned. Offering incentives to prospective home buyers became commonplace. Our financial institutions developed new products to meet the needs, (or create the needs) of almost anyone who wanted to apply for a mortgage. Buy now, pay later. Don’t worry about meeting the monthly payment, home prices are going up. Refinance later and defer, allowing your equity to grow. As Bud Fox said in the movie Wall Street, “Everybody is doing it now”….”Nobody gets hurt”.

It became more advantageous to own versus rent. It was easier to obtain a mortgage than it was a department store credit card.. If you cannot qualify based upon your current annual income, then use our special application and state what you think your income is (hint, it needs to be “x” amount). When the money supply is readily available and credit is easy, people didn’t seem to worry about the price they paid for a house. The market spawned many new real estate investors (actually speculators). Buy a house today, add new carpet and repaint, sell it 4-5 months later for a quick 20% gross profit. Fast money and the guaranteed key to riches. Little did we know the American Dream would soon morph into a financial catastrophe of unseen proportions, toppling the most respected institutions including Bear Stearns, Lehman Brothers, and Countrywide along with Fannie Mae and Freddie Mac. Not to mention the thousands of people who will become unemployed as a result.

Many years from now human behaviorists will study the causes of the housing crisis. It will become case studies in our universities. Did government become overzealous in its commitment to increase and encourage home ownership? Did financial institutions turn a blind eye to the realities of mortgage defaults simply because the housing market reached historic highs for several years and the constant wave of refinancing was able to postpone the inevitable wave of foreclosures? And to what degree were prospective home buyers willing to commit mortgage fraud so that they could obtain their piece of Americana.

It seems strange to me that good old fashioned GREED could be the foundation of our financial demise. Bankers after all are some of the most conservative and risk averse people I know. It’s part of the job description. Pricing risk with the appropriate return on investment is how they make decisions and money. How did they make these career ending, company liquidating decisions, based upon not appropriately assessing the degree of risk they were assuming? I have a hard time believing these decisions were soley based upon the fact that everyone was doing it and nobody gets hurt.

Tags: housing crisis, real estate housing crisis, real estate market

After many months of wrangling and speculation it now appears that we will have a new housing bill. While congress and the President slap themselves on the back in congratulatory applause, one overriding issue comes to mind. Will this legislation really be effective?

If we look at the components of how this is to be structured it is largely dependent upon banks willingness to reduce the principal amount of the mortgage, thereby taking a loss which would enable the borrower to reduce their liability resulting in a more affordable monthly payment. That’s pretty darn altruistic of our government to strongly suggest that banks need to pony up and help bail out the unfortunate homeowner. Barney Frank, the Chairman of the House Financial Services Committee stated in the Wall Street Journal this week that he just might introduce additional legislation if loan servicers and investors don’t work together to prevent foreclosures. Is his title House Chairman or House Thug?

First of all, if the homeowner acquired their mortgage through the stated or liar loan process, they need to go back and provide the supporting documentation showing that they indeed earned the income that was indicated on the loan application. My guess is that many of these people could not produce the required evidence, and thus took out loans for much more than their income could support.

Since we are supposed to be a nation of equal protection, with blind justice and no impartiality, I would suggest the Congress also notify all of the consumer credit card companies and immediately instruct them to reduce everyone’s balance by 25%. Before you make that MasterCard or Nordstrom payment this week, give customer service a call and let them know that in the issue of fairness, you feel you are justified in having them take the burden of your irresponsibility. After all, it’s becoming the accepted American way to deny any responsibility you might have.

Consider the following scenario. Since this bailout is costing the American taxpayer $4 Billion, wouldn’t it just be easier and cheaper if the government issued every homeowner a 30 year fixed rate mortgage at 5% interest? Home ownership would increase, due to rising affordability, there would be fewer foreclosures, we would eliminate adjustable rate mortgages and also secure our banking system. This just could not work, it is far too simple.

There is one salvageable provision in the new Housing Bill. First time home buyers can qualify for a credit up to $7500. However this must be repaid over the next 15 years. It’s only a loan.

Too bad first time home buyers do not have the opportunity to overstate their income. They would be receiving a much bigger piece of cheese.

Tags: Foreclosure, housing bill, housing crisis