Home sales and property values continue to bottom out, and
ultimately, who's to blame? What could have been done to prevent this?
How do we make sure this doesn't happen again, or at least as bad as
what it's been? Truly, what was the root cause for a housing slump
worse than the one during the Great Depression?
Let's start at the pressure point: the real estate agents.
Real estate agents are salespeople. Real estate agents don't care what you buy as long as you buy something (especially after carting you around to 25 different houses paying $4 a gallon for gas). Whether they represent the buyer or the seller, they do not make a dime unless a property is sold. "Sure you can afford this. Come on, it's the home of your dreams, right? So you brown-bag lunch it during the week instead of Applebees and Starbucks." We can handle that, right honey?
Mortgage brokers are salespeople. Stated income mortgage loans? How was that concept sold to any self-respecting bean-counter? "How about I just TELL you what I make and you believe me?" The mortgage broker is under as much pressure as the real estate agent. Again, no loan = no moolah. Let's ASSUME a scenario where there is no impropriety whatsoever on the part of the broker and the conversation might go something like this: "Mr. Lender, this couple is good for the money. It's the home of their dreams. They're going to raise a family and retire here. Under no circumstances would they let this home go into foreclosure." I personally know individuals that were making $50k per year who were convinced they could afford a $500k house with no money down. Throw in the hyper-competitive nature of a good salespeople (times a million) with a little exaggeration and you can see how a mushroom cloud of bad loans can suddenly appear out of no where.
Lenders got caught up in the hype generated by their front-line soldiers, the salespeople. It's a good time to be a real estate investor.
Comments