Short Sale Chicago

Avoid Foreclosure. I Can Help.

* EQUITY LOANS – ROOT CAUSE OF FORECLOSURES?

 

Excellent article by Judy Chapman of Coldwell Banker:

Ever since real estate began to melt down in late 2006, we’ve been digging around for the reason. Hunting for clues like detectives in a mystery novel.

It would be nice, wouldn’t it, to put all the clues together and find the one culprit out of the many. Then we could say with finality, “The butler did it!”

But when Agatha Christie wrote Murder on the Orient Express, she turned the genre on its head with, “They all did it!”

While we know that subprime loans began the something-for-nothing phase in homebuyer scams — yes, scams — it didn’t explain everything.

Thus began the blame game …

Banks, or as we like to say these days, ‘banksters’ – who sold their nothing-down piggyback loans, Alt-A no-income-verification loans, and ARMs with enticing initial interest rates to homeowners who blindly trusted.

Homebuilders – who used granite countertops and stainless steel appliances to inflate home values.

Homebuyers – No, not all homebuyers, but the ‘free-lunchers’ who treated home purchases as auctions and financed them with nothing down.

Financiers (we’re bank to ‘banksters’ again) – who introduced mortgage backed securities (MBSs) disguised as collateralized mortgage obligations or ‘derivatives’ to protect investors from risk (aka losses). See how well that turned out.

So, okay, there’s more than enough blame to go around. But while we were busy pointing fingers every which way like the Scarecrow directing Dorothy down the Yellow Brick Road, we forgot about another disease that brought the real estate market down and continues to sicken the entire economy.

It’s called the HELOC (Home Equity Line of Credit) Loan. Until I read this article in the NY Times, I never thought before about the damaging effects second loans have had on our housing market. If it weren’t for the second loan, many homeowners would not have lost their homes. And if it weren’t for the second loan, the rest of us wouldn’t have seen the values of our homes hit the skids.

In the early to mid-2000s — those halcyon days of homeownership that lead right up to the real estate crash — homeowners who saw the values of their homes skyrocket into the stratosphere were enticed, even encouraged, to ‘cash out’. Banks made it easy. In many cases, the very same banks who wrote the original home loan. They shouted it from the rooftops. “Come on in! Free money! Just sign on the dotted line!”

Equity loans are meant to finance new roofs, remodeled kitchens, or backyard pools. But in the 2000s, there were no rules. Homeowners entered the doors of a bank empty-handed and came out through the revolving door with a hundred-thousand greenbacks clutched in their sweaty hands. Did they use those loans to improve their homes? Some did. Most didn’t. And here’s why.

All anybody had to do was look around. The real estate market was booming. ‘Flipping’ didn’t just mean making pancakes on a Sunday morning. Astute investors were turning handsome profits. Most had been doing it for some time. Some were contractors who used their spare time to bring in extra money. They used their smarts and their own hands. They knew how to recognize those diamonds in the rough, applied the tools of their trade, and turned a profit at the end of their hard work.

Along came the new investors who didn’t want to get their hands dirty and couldn’t recognize those diamonds in the rough. They purchased anything with a roof and paid top dollar. Who were they? They were your neighbors. Or the guy who cut your grass. Or your sister.

Hey, why own one house when a second house would do just as well?

Why not buy a McMansion, then rent out your modest ranch, wait a year or two, and sell it for more money than you ever dreamed of?

Or why not invest in a house, put in new carpets, paint the walls, and flip it? What’s so hard with that? And why stop with one? The go-go real estate market was bound to go on forever. Well, wasn’t it?

And then the market turned on a dime and came crashing down. And all those ‘investors’ were stuck with white elephants they couldn’t unload unless they lost a bundle.

If you want to blame those folks who had their greedy heads in the clouds, please do. They deserve every single rebuke. They weren’t prudent. They weren’t wise. They didn’t do their homework. They were suckered into ‘free money’ that wound up costing them more than they ever dreamed possible.

But even while you cast blame, don’t say good riddance. Because those ‘suckers’ could very well be your brother, your sister-in-law, or your son … coming back home to live with you … because they have nowhere else to go!

Some of us were wiser and didn’t fall for the ‘free money’ ploy. But we shouldn’t feel smug. Had we been truly wise, we would have sold our homes when values soared through the roof. We would have squirreled away our profits, hunkered down, and waited. Waited for the crash we all knew … in the darkest chambers of our hearts … would happen. Had to happen. Like Newton’s apple falling from the shady tree we were sitting beneath.

In a way, most of us were suckers. Thinking the free ride would go on forever. Thinking the Great American Dream was a pot of gold at the end of the rainbow.

But now those banks who enticed our friends and relatives and neighbors with all that ‘free money’ are turning the screws. By robbing them with one hand and taking away their homes with the other. Yes, by working two ends against the middle.

Go on now and read this article in the NY Times. Find out how your local Wells Fargo, Bank of America, and JP Morgan Chase are turning the screws on the real mortgage investors — Fannie or Freddie (yes, us, the American taxpayer) — while holding homeowners hostages for those banks own equity loans. Two ends against the middle. And the rest of us losing in the bargain.

*  *  *  *

by Judy Chapman

Coldwell Banker Residential | 521 E Mitchell Hammock Rd | Oviedo FL 32765
© 2007-2010 www.activerain.com/blogs/OrlandoforSale by Judy Chapman ALL RIGHTS RESERVED. Portions of this content may be used with attribution. Listings on this blog may not be used anywhere else or linked back to this blog.

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August 23, 2010 - Posted by | Uncategorized

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