( Follow up to Reality is like a beignet without the powdered sugar )
It would be nice, if lenders realized that they have been a large player in our current housing market. Sounds rather simple, one would imagine that they are aware of their position. Maybe I should phrase that; it would be nice if lenders accepted responsibility for their role in our current housing situation and actually offered some solutions. If you merely circle the wagons until the dust settles, you will have made no progress. You will be going in circles and never reaching a destination.
There are several factors at work today.
There are some bad loans that will have to be dealt with. Lenders can either reconstruct loans for credit worthy consumers or they can foreclose on property. At some point, someone in power will have to admit – those holding bad mortgages are not going to get all the money back. It is not going to happen. You are going to lose money. In the interest of everyone involved, will someone please understand the magnitude of your losses and act to minimize them.
Reconstructing loans for credit worthy consumers seems on the surface to make practical sense. If the loans are in danger of going into default, debt reconstruction should take place. It does no one, not the borrower, not the lender, not the community and surely not the economy any good to wait until someone is three or four months past due before addressing the problem. Lenders waiting for the final shoe to fall in hopes of garnering a few extra dollars are risking losing thousands. Does the phrase “pennywise and pound foolish” ring any bells? Some lenders are actively seeking to re-finance some loans. Some is not enough. A comprehensive review of all new loans made in the past five years should take place. If lenders are pro-active it may put to rest the mud slinging that is occurring regarding predatory lending. Most people understand that there were some cases of bad loan officers but their number is dwarfed by the large number of honest professional lenders all across America.
It is high time that our elected officials addressed each problem facing the housing industry separately. There is a crisis created by the implosion of sub-prime loans. There is also a crisis created by the 100% financing. There is also the issue of competition within the real estate industry.
The sub-prime loan crisis is the result of many people involved in transactions seeking to garner their personal piece of the transaction pie. This chain of folks begins with those that sought the loans, travels through real estate agents, those taking loan applications, those appraising houses, those underwriting loans, those packaging loans for sale and those purchasing investments that included the loans. Everyone had a hand out. The majority of them were following the rules that existed at that time. Yes, there were cases of loan fraud. There have always been cases of loan fraud. The issue here is greed, not fraud.
In my humble opinion, it is not the responsibility of the government to bale out those that made bad investments. The chance for great reward in investments usually includes the risk of great loss. We have seen the losses. We have seen companies fold. None of it (beyond the investigation of any loan fraud) requires the intervention of our government.
People, whether at the beginning of the chain or at the end of the chain, should be allowed to live with the results of their decisions. Those that have chosen more prudent behavior should not be indirectly compelled to pay the price to offset others losses. The role of the government should be focused on controlling inflation and reducing the risk of a deeper recession.
It has been shared in many places that the National Association of Realtors has lost their way. In the course of growing into the large lobbying organization it has become, it has lost the support of the rank and file members. Realtors across the country are members only because it is required to be a member to have access to the multiple listing service and it is also required if one is to refer to themselves as a Realtor. Access to listings (which could be blown up if anyone comes up with a national plan that includes all listings) and the use of a trademark are the main reasons they can claim 1,000,000 and growing. Their inaccurate remarks and press releases have created a situation where agents everywhere are left trying to explain what they have shared. The bottom line, each member has the responsibility to become more active and attempt to correct the course this ship has taken before it joins the Titanic at the bottom of the sea.
The news industry has changed. There will be no in depth analysis of any industry because in depth analysis is boring. Sensationalism draws listeners, viewers and readers. If a full explanation of the housing market is going to be shared, it will have to be printed on the backside of O.J.’s next confession. The best source of information about the market continues to be the agents that work in it every day. If you have a conversation with an agent and everything they share is in direct conflict with what you perceive around you, find another agent to speak with on the subject.
In a nutshell ……
It is not a time for despair. The market will adjust. Those selling will have to accept the new market value of their home. As housing costs recede, their will be a positive impact on the cost of living in any area. As housing becomes more affordable, the path to the “American Dream” will re-open. There is a better tomorrow….we have just to wait and accept tomorrow will not happen today. That is not an artificially sweet statement.
Tomorrow will be better and that is as sweet as the purest sugar cane growing in Cuba.