Why Did Housing Take a Tumble?

This question has been rehashed by the talking heads on T.V. time and time again. We all have our theories as to why it happened and who are the villians. Some say it was the fault of the banks. Some say it was the predatory lenders. Some say it was investors buying up property causing inflated values. Others say that it was the "perfect storm."

According to a study recently released by the Mortgage Bankers Association and conducted by the University of Maryland, poor data, incomplete performance metrics, short-term focus, and unrealistic optimism among senior business managers contributed to the housing downturn. The study analyzed the risk management processes employed by mortgage lenders leading up to the housing crisis and discusses lessons learned for future risk managers.

Key findings from the study include: Subprime loan underwriting criteria expanded between 1999 and 2006 and a false sense of security with new products originated prior to 2007 occurred as a result of better than average economic conditions.

Hmmm. Sounds like a perfect storm and few heeded the warnings because so many were getting what they wanted - finally! Investors were making money. First-time homeowners were getting a home for no downpayment, with expectations that in a few years, they could sell that starter home and make money that they could then put down on a BETTER home. Lenders were of course making money.

What those of us on the ground saw happening during those good 'ol days were too many buyers risking basically only their credit scores for those expectations because they had no "skin in the game." No money of their own was sunk into their investment. Human nature requires some accountability, without which it is that much easier to walk away and leave the mess to someone else: you and I. The homes that these buyers left behind were indeed messes. Browned, unkempt landscapes and ill-used interiors needing to be labled, "mild fixer."

Of course, caught up in the storm were very responsible homeowners who did manage to refinance and hang on for as long as they could to their very well maintained and loved homes. A lost job or scarce contracts for the self-employed put these homeowners in the very same position as the risky buyers, and the stigma of foreclosure. It has been painful to watch up close.

A one-size-fits-all bandaid cannot work for even these two scenarios. That is why I am pleased that California has passed a bill to protect responsible homeowners from having to pay income tax on their forgiven debt! These homeowners should not be lumped into the same box as the risky buyer who easily walked away from a mess.

A perfect storm does best describe the housing downturn. And in any storm of life, we must learn something as individuals and as a community and as a State. You can't get something for nothing. If you have, beware of the strings attached.

To obtain a copy of the report, please visit the RIHA Web site at http://www.housingamerica.org.

Senate Bail-Out Bill - What the New York Times Says About It

As housing bill evolves, crisis grows deeper

Most media loves really bad news. It's always sold papers and always will! Here is their current doomsday message about the Housing Bill:

"The mortgage rescue plan currently before Congress, which was designed to help only about 400,000 of the 2.6 million homeowners needing assistance at the time it was created, may fall far short of bailing out the thousands of additional Americans each month who join the ranks of mortgage borrowers in need thanks to an increasingly troubled economy, analysts say."

Let's try to make some sense out of this for us every-day folks:

• The Senate is expected to consider a bailout bill after the July 4 recess. That bill would allow banks and borrowers to refinance troubled adjustable-rate mortgages into 30-year fixed-rate loans backed by the government. Lenders would lower each loan amount to 85 percent of its current value while borrowers would pay a 1.5 percent annual mortgage insurance premium, and any gain in value would be shared when a home is sold.
• An estimated nine million homeowners currently owe more than the market value of their home. To qualify, borrowers would have to demonstrate that they can’t afford their current mortgage payment but have the financial wherewithal to make payments on a new loan with new terms.
• Critics of the proposal suggest that the real estate market will correct itself without Congressional intervention, and that a weak economy, rising unemployment and higher mortgage interest rates could derail the usefulness of the program, which would be managed by the Federal Housing Administration and funded by the mortgage insurance fees, a 3 percent lender fee, and a tax on Fannie Mae and Freddie Mac.

To read the full story, please click here:http://www.nytimes.com/2008/06/29/washington/29housing.html?_r=1&th=&adxnnl=1&emc=th&adxnnlx=1214794471-1wPUSlKP4CUyMb8ECvTjAg&oref=slogin

Historically the United States has had its good economic times and its not so good economic times. This too will pass, and many of us will be stronger for it, though not wealthier! Most of our great-grandparents would roll over in their graves to see the spending habits of our generation, and this current real estate climate is a giant wake-up call for many who have thought of home equity as an ATM machine.

Panic and fear will drive the economy down fast. It is important to realize that this, too, will pass. It is time to revert to thrifty economizing as our grandparents and even our parents did. We will all get through this!