There are questions that have been continually ignored by those who are meant to protect our consumer rights. One glaringly obvious one is why wasn’t the train driver slamming on the brakes on the runaway easy liar loan mortgage money train?
Government departments, politicians, universities, economists, and various industries like tourist and financial all have state-of-the-art fiscal prediction programs. They can input and run any financial scenario. Politicians in particular who are coming up for elections know that tax increases won’t sit well with voters, so the numbers are inputted into software which not only projects the expected income revenue but can also forecast the potential loss of votes. What’s incredible with the boom and bust of the real estate market is that you did not need to input any data into an advanced computer program to forecast the nation’s real estate outcome. Mentally run the plan of what was happening and common sense alone delivers the answer. In essence, the financial industry decided to give mortgages to unqualified buyers based on stated incomes, and some lenders further sweetened the pot by offering cash back at closing. In Miami, it was common for the house price to close at $500,000 when its actual value was $450,000, but the mortgage was based on the $500,000 and at closing the client got $50,000 cash back[i].
So was any common sense of the consequences applied to this new mortgage qualification process? Nope, and this article is not an exercise in being wise after the event. It’s an exercise to show there is no system in place in the American government to prevent national financial suicide. Fannie and Freddie are in still in hock to the tax payer of nearly $160 billion[ii] and have $4 trillion of loans on their books[iii]. The problem for all of us is the numbers being bandied around are so large they have little meaning or impact to us and so they quietly remain in the background being ignored. CNN, Fox, NBC, ABC, CBS and PBS show more interest on Paula Dean’s latest Summer recipes than they do on the pathetic and incredibly low new monthly job figures.
No matter what the product, if it requires financing and the normal financing safeguards restrictions are lifted, then more unqualified people are given the means to buy the product, then the more the price starts to become super inflated. One does not need to be a Mckenisan economist to come to this conclusion. Austerity measures are impacting every nation yet I’ve yet to hear one “TV commentator expert” ever drill a politician of bank CEO as to the financial demise they openly allowed to happen. If any of us overdraw on our bank accounts or fail to pay our minimum monthly credit card payment, we do not have the luxury of going to the IMF for a loan.
Did it never occur to the financial decision makers that when the most expensive purchase any of us ever makes starts to rise in value at 20 percent per year, there is going to be a problem? What would happen to the hotel and car industries had they raised their prices by 20 percent a year for eight years? When a gallon of gas went for $2 to $6 dollars the impact on our lives made the news headlines on a daily news basis, but I can’t recall home prices ever being scrutinized the same way.
Today, I see the insane but predicable liar loan consequences. Just as an example there are the foreclosed homes for sale in Miami. When I look at their pricing histories I wonder how the 2005 sales price ever happened. In 2005, a 2000-square-foot 1926 built box closed at $515,000 and now it’s $240,000. Or a 980-square foot-condo that closed at $295,000 is now an REO at on the market $89,000.
Common sense dictates this financial model works providing the cash taps are always kept open. The problem was that there more hands keeping the taps open than there were trying to close them. As greed has no conscience, the financial industry profits over-rode any rational thought of the consequences and while millions of home lives are in financial ruin. The bankers and the politicians still can’t spell recession because they have all been allowed to walk away from the junk pile of the human tragedy they caused.