Two Part Series: Who is to blame? The Housing Crisis and the
New Laws Aimed at Fixing It
 A rash of new laws have been passed in California aimed at
curbing the excesses that fueled the housing boom and ultimately led to the
crash of the housing market. Laws
reigning in appraisers, laws reigning in mortgage brokers, laws reigning in
lenders and even laws reigning in lawyers performing loan modification have hit
the books in the last year. I will
discuss some of these laws in Part 2 of this series. In this article I want to discuss the witch that must be
among us that we are determined to find by throwing as many people as we can
into the river to see who drowns and who floats we will find the witch. This
witch hunt, though well intentioned as most witch hunts are, misses the
somewhat obvious but often overlooked point--that the financial industry could
not have run amok unless it was allowed to run amok. So the question is why was it so deliberately allowed to run
amok for so long? I spend a lot of
time researching the market so let me give you a few examples of LA Times
articles that demonstrate that the loosening of standards that fueled the
housing boom did not happen overnight and was not an accident. It was a policy decision to encourage
homeownership. Simple-minded
partisan finger pointing doesn't work either, because it was started in the
Clinton administration and continued through the Bush administration. Fannie Mae, Freddie Mac, the Federal
Reserve, and every major lending institution was on board. Homeowners and investors were happy to
be the beneficiaries.
"Lenders Liberalize Loans for Cash-Poor Home Buyers;
Credit: More people realize the American dream." Dec, 1995
"Payment Option Loans Offer Flexibility" Dec, 1996
"Qualifying for Loan Could Get Bit Easier" July, 1997
Senior Vice President David Andrukonis of Freddie Mac
sends out a memorandum stating "A credit score shouldn't be used as the
only factor in an underwriting decision. A FICO score of 610 may indicate a
weak but acceptable credit reputation that you can balance with other strengths
documented in the loan file."
"Countrywide to Loan to Those With D Credit" Jan,
1998
"Fannie Mae Moves to Loosen Home Loan Credit Rules;
Finance: The agency will encourage lenders to give mortgages to people with
blemished records." Oct 1, 1999
"Zero-Down Loans Tried on Pilot Basis" Sep 17, 2000
"Fannie Mae Cuts Monthly Loan Payments to Encourage
Buying" Apr, 2001
I could obviously cite many more examples from each of
these years and I could continue citing examples for several more years. You will also note that the first
article I cited reviving the hope of the American dream was in 1995 when the
foreclosures from the previous crash were still saturating the market. It wasn't until about 2006 that
you started really seeing a major concerted effort to attempt to curb this
trend:
Mortgage Standards Tightened; U.S.-chartered lenders
are discouraged from qualifying buyers based on low starter rates. Oct, 2006
By 2006, the die had been cast.
In America, we believe in homeownership and we go to great
lengths to get people into homes.
We go to great lengths to encourage people to use their homes to improve
their lives. If you think this
view is likely to change, study the S&L crisis of the 80's that resulted
from the deregulation of the banking industry. Still not convinced, take a look at the market crash of the
70's. Yes, there has been a witch
among us for a couple of hundred years who has cast a most intoxicating
spell-we are spellbound by the idea of land, real estate, homeownership,
dirt. Part of my goal with this
newsletter is to simply help my readership get better at recognizing when this
enthusiasm can be beneficial and when it can be detrimental. I started this research as a result of
my own losses in the real estate market and will continue to share what I
find.
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LOL - Laughs OnLine
"I think the witch convention is this way"
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What's the big idea?
by Dennis Duling
I
don't know anyone who is pro littering. While not as heinous as other crimes,
it is against the law and is universally frowned upon as a socially irresponsible
act. I walk my dog around the neighborhood 3-4 times per week and have made it
a part of that ritual to pick up litter along the way. It's my small way of
giving back to my community. I live in a nice neighborhood, with mostly
well-maintained homes and yards (although we are within striking distance of an
elementary school). As I walk
along collecting refuse, I wonder, so who are these people who feel free to use
our gutters as their wastebaskets? Or put another way, what possesses someone
to drop a bag full of Jack-in-the-box value meal remnants out of their car? Have
they decided dining with Jack was a big mistake can no longer stand the sight
of the remains? Is this another example of an increasingly disposable society?
Maybe a few years from now I'll be picking up cell phones from the gutter.
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Share If You Care
Our goal with this newsletter is simple: Cover every important topic that might help homeowners and investors make more informed decisions concerning real estate. You can help in two ways:
1) Send us any articles or information you come across that might be of interest to other readers
2) Forward this newsletter to anyone and everyone you know that owns or plans to own real estate!
Sincerely,
Kwame J. Granderson
Equinaire
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Upcoming Webinars
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Be on the lookout for upcoming webinars in the "Flipping the Smart Way" Series:
How to Identify a Profitable Flip Project
How to Write a Winning Offer
What to Look for in the Home Inspection
How to Market for Resale
Analyzing Your Profits
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