Personal Finance Blog

Why did the housing market FAIL?  GREED, CORRUPTION and IGNORANCE!

In 2003, I was taking some Mortgage Banking courses to obtain my Mortgage Banking Certification. One of the courses was introducing, what they termed  new instruments for financing mortgages. The new instruments were not available in the state of Texas at that time due to the state Homestead Laws.However, later that year they would become effective because the laws would be relaxed allowing homeowners to decide if they wanted the protection of the current laws or wanted to take advantage of one of the new financial mortgage instruments to get more house than current laws allowed them to have with their present income.

I was not new to the mortgage industry.  I had been in the mortgage business for 20 years.  I also recognized that these instruments were not new either.  They were just redesigns of the products used by Savings and Loans during the 1980s for the most part.

I voiced an unpopular opinion at that time.  I said to all who would listen, This is NOT good! There are to many greedy and uninformed people for this to work.  We will see the S&L crisis happen all over again, only worse this time because of the increased practice of securitizing pools of mortgages and marketing them to investors as MBS (Mortgage Backed Securities) investment pools.

I watched as the parent company of the company I worked for went from buying and selling pools of loans in the $100,000 to $1,000,000 range to $1,000,000 to $1,000,000,000 range in a matter of 6 months to a year.

New residential construction sprang up on every vacant lot.  Older homes were bought out, torn down and huge new houses took their place.  Everyone who could identify a hammer from a nail was now home builder.

Older residences were selling on the market for 3, 4, 5 times the actual replacement cost, let alone the actual value.  Everyone was trading up from the home the owned before to one 3 or 4 times bigger, newer and of course better. Greedy lenders convinced greedy and gullible buyers that by the time the ARM (Adjustable Rate Mortgage) they were purchasing to buy the house actually went up, their salary would have increased to equal the adjustment.  Anyone and everyone could own a home now.  It didn’t matter that the end payment was many times more that their income warranted they would be able to sell or refinance when the time came to pay more.

Why should we pay to bail out the housing market? WHY BAIL OUT GREED, CORRUPTION and IGNORANCE?  I don’t know, no one has convinced me yet.

But, I don’t want to see the Economy collapse.

I personally do NOT believe in bailing out companies or homeowners because they made a bad judgment call, and certainly not greedy or uninformed people. I saw too much to even pretend that I imagine that the majority of those involved don’t deserve exactly what has happened, including the investors.

However, (and this need a lot more research, as to bail out terms and conditions) we are dealing with a different age and economic mix than prevailed in the 1980s.  Many of our investors are foreign entities.  The soundness of our dollar on the worldwide marketplace and our economic standing in the world depend on our ability to stabilize the market and regain the trust of the entire world.  We have no choice but to underwrite the investments that are held by so many foreign investors.

This being acknowledged, a very strict oversight committee must oversee this bail out.  Not by backbiting, corrupt politicians, but an honest, trustworthy, independent committee.  Our main problem here, of course, is finding honest, trustworthy, independent and (let me add) incorruptible people that are experts in the mortgage industry.

This article was written by Virginia Ritchie.