The roots of the housing crisis actually started back in the 1970′s with the evolution of real estate investment gurus such as Robert Allen who’s book Nothing Down started a frenzy for buying real estate that continued to grow. The only constraint was qualifying for loans. By the 1990′s, a push was on to open the “American Dream” of home ownership to everyone. But, if they couldn’t qualify for a loan, how were they going to buy a home? That was answered in the late 1990′s by Federal deregulation of the financial markets, opening up Fannie Mae and Freddie Mac to buy the loans, and the creation of supposed insurance programs called “credit default swaps”. Banks now were happy to lend because they could get the high-risk, “subprime loans” off their books and they had a ready supply of money through Wall Street investment firms which packaged these loans as securities and passed them off as safe investments. The problem was hat they were never safe. But, as long as there was a buyer, no-one cared. So we ended up with the perversity of lenders offering nothing down, no payment required loans, to unemployed people who were destined to fail. But the loans drove the demand higher and the prices higher and the sales and loan commissions higher, inflating the bubble. Then came the crash.
By late 2006, loan defaults were increasing as original “teaser” interest rates reset to full payments that buyers could not afford. The bubble was cracking. By 2007, as defaults and foreclosures started skyrocketing, the housing bubble began cracking but this was still lost on Wall Street which did not realize (or had ignored) that these sub-prime loans now made up the majority of their investments. By 2008 however, Wall Street was in a panic as they realized that hundreds of billions of dollars of investments they had sold the American public was backed by worthless loans. They had no money to operate and no more money to loan to banks to make more loans. The market collapsed and the entire economy was threatened. In came the U.S. Treasury in 2008 with a series of bailouts and buy-ups to stop the damage. When the dust cleared, many Wall Street investment firms were gone, banks went under, and the American taxpayers were on the hook for 80% of the sub-prime loans which by now were held by Fannie Mae and Freddie Mac. The only thing left was to clear out the bad loans and that led to the housing and foreclosure mess that we’re still going through today.
So what should we expect going forward? Here’s my thoughts on this:
1. Don’t expect help from the Government – preserving bad loans is not on anyone’s agenda and with the increased Republican control nationwide, the push will be to strengthen the economy and provide incentives to create more jobs.
2. Expect the pace of loan resolutions to increase – While loan modification success has been dismal, Government financial incentives for principal reduction kicked in October 1st and may improve these numbers. But again, preserving bad loans is not on the agenda. I do expect short sale success to improve as lenders finally seem to be getting it that a sale yeilds a better return for their investors than a foreclosure. But all those HELOC second loans may get in the way as they demand full recourse or substantial payoffs. The most likely scenario is that foreclosures will increase as lenders seek to get what they can and move on. We’re already seeing a faster recording of Default Notices, even by BofA. Expect this to continue.
3. Prices are not likely to rise soon – According to the US Census Bureau, in 1900 les than half of people owned their homes. By the start of the housing bubble in 1999, that number had increased to 66.9% and, at it’s bubble peak, the rate reached 69.2% nationwide and much higher in some States. Today, that ownership number has returned to pre-bubble levels. Over 18 million homes stand vacant or are in default. This supply, plus harder-to-get loans, will keep a lid on any upward price pressure for many years.
4. Being a Tenant will no longer be a negative – For many of us, our adult lives have been directly influenced by housing promoters and cheap money that made us feel somehow inferior if we rented rather than owned. That is now changing. As reported by Carrie Bay of DSNews.com, The housing market is over-subsidized. Homeownership isn’t for everyone…. For decades, America has been “over-housed” and “over-consumed.” Not only is renting gaining ground as the most practical means of housing for a larger number of consumers, but some say it could also be the answer to keeping millions of struggling borrowers in their homes and stabilizing foreclosure-ridden communities. Stephane Fitch of Forbes claims that the fading American Dream of home ownership is cause to rejoice: “Fact is, when you look at how much it costs to rent versus how much it costs to own housing in big cities across the U.S., you discover that the cost of renting is likely to be lower. Throw in the fact that rental leases only last a year and that in most places they can be broken if the the tenants move to another city in search for a job, and I see a very good case that America is stronger if more of us decline to own homes.” So as we look forward, perhaps a re-defining of what the American Dream really means will be in order.
We still will have problems to deal with over the next several years as this housing crisis continues.
So, if you or your clients are upside down on a loan and facing foreclosure, this is a time to act to seek that modification or complete that short sale. If you are facing a lender lawsuit, get representation and put up a challenge.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.
If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com. We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.
This home loans crisis is destroying hopes and dreams and families across our nation. If you know anyone struggling with these problems, please do them a favor and pass this newsletter along to them. We have a flat fee $200 consultation that guides you in identifying the problems and risks and creates a strategy to deal with them. Online Consult Form
Sincerely,
Steve Beede, Founder and Managing Partner
BPE Law Group, Inc.
11140 Fair Oaks Blvd., Suite 300
Fair Oaks, CA 95628
(916) 966-2260
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