Silver linings in mortgage crisis of 2008
Anyone who's been anywhere near a newspaper over the last year has been inundated by stories of the meltdown within the mortgage industry. Countless families have lost their homes, banks have imploded leaving thousands out of work, and the stock market correction, largely precipitated by corrections in the financial stocks, has seriously aff ected the retirement savings of millions.
Certainly no rational person could be unsympathetic when it comes to families losing their homes. I've dealt with clients in that situation first-hand and it's been absolutely heartbreaking. That said, I speculate that perhaps a silver lining can be found somewhere in the midst of it all, and that while it's been an agonizing process, it will ultimately make our economy stronger … as a forest fire burns off the underbrush, nourishes the soil, and enables the remaining trees to thrive.
As the pundits look back on how it all happened, and try to delve into where we went wrong, they seem to be slowly finding out what I've been saying all along. The problem was caused by people with no money, overextending themselves, and with banks – greedy to lend to anyone – putting their short-term profit ahead of longterm common sense.
I remember all too well sitting in my office while streams of newly minted "mortgage brokers" flooded into the industry, and regaled me with stories of how the "interest only mortgages" were the only way to go. They went on and on about how people could buy with "no money down," "no cash reserves" and of course, no verification of income or assets. I questioned whether they felt that loaning money to people under those circumstances was the wise thing to do, as well as whether the mere existence of "no income verification" mortgages was a recipe to commit bank fraud … but they all thought I was crazy. How could I be so "short sighted," they implied, to not realize that this was the "wave of the future." Well, they were right, it was the "wave of the future." Unfortunately, the wave was 100 feet tall and swept away everything in its path.
The funny thing is that while many lenders have tightened up their standards, much of the phenomenon is still going on today. In fact, I received a call the other day from a potential house buyer who was looking to purchase a home in Grafton. They had $900 in the bank, and had been preapproved for a no-money-down loan, with a high debt ratio. They were currently paying $650/ month in rent, and the home that they were looking at would have resulted in a $2,100/month mortgage payment. Since they were barely able to make the payments on the apartment, I'm not sure how they expected to be able to pay three times that on a mortgage, or how they thought they were going to leave the closing with no money in the bank to buy food – but I don't think they were worried. Sound like a familiar beginning to the story? How do YOU think it'll end?
Don't think for a moment that I'm unsympathetic to families who lost their homes. That's absolutely not the case. In reality, however, 90 percent of the cases were likely caused not by "evil predatory lending" but by the simple fact of people spending money they didn't have, buying more than they could afford, and getting loans they couldn't repay.
Now, people in the government are speculating as to how we can "bail out aff ected homeowners" and I pose the question as to whether that's what's really in the best interests of anyone. For starters, it seems totally unfair to the 90 percent of homeowners who bought what they could aff ord, and didn't take chances on risky adjustable rate mortgages. Why should the people who gambled and were wrong be handed a low interest loan at the expense of the American taxpayers who took no such chances? We don't hand money back to people who went to Mohegan and put money on a roulette wheel thinking they'd win.
Moreover, in my experience the homeowners who did get a lower rate from their mortgage company as part of a "loan workout process" haven't kept up the payments on their new loan anyway – and still wound up losing the house in the end.
As painful as the situation has clearly been, I think it'll make us stronger as a nation and make our economy more stable. In the past, we were a castle built on quicksand. Now, with much of the brush cleared out, we will be able to build upon a more solid base where people will buy property when they have the money and equity to do so. The recalibration in prices has opened up a world of opportunities for new, and qualified, home buyers, and as the market goes up (which it will) they will reap the build-up in equity that they deserve as a result of their hard work and sound investment strategies.
The key now lies in helping to care for families who need our help, but also navigating the rest of the nation through it as quickly and thoughtfully as possible – recognizing that we will all be part of a better nation when we make it through these rocky waters.
Steve Levine is President of Steve Levine Inc., and an agent for REMAX First Choice. He has been ranked as the top REMAX Agent in New England for nine years, and can be reached by phone at 508-735-4663 or online at www. stevelevine.com.
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