I haven't seen or heard a news report in weeks (months?) that doesn't blabber on about the shocking number of foreclosures sweeping the nation. Frankly I'm getting quite bored with it all, mainly because it's yet another case where the media's right page doesn't know what the left page is saying. How about adding a dose of common sense to the pot?
There they go again, shouting fire in a crowded theater. The more "foreclosure" headlines there are, the more people start foreclosure proceedings. It's a self-fulfilling prophesy, and one that can only bring chaos. Why are there so many more foreclosures this year than there were in 2006 and 2005? Because in 2006 and 2005 people were just getting the loans (many of which were very ill-advised) and they hadn't had enough time to become delinquent on their payments. That's why!
The home loan industry was acting like spoiled brats stealing apples from a fruit cart. But instead of stealing apples they were making questionable home loans. The leader gets away with one. Then he comes back with some friends and they get a handful. Then comes a whole gang, and they rip off the whole cart. And they don't get caught until their pile of stolen apples/ bad loans starts to rot, and they are smelled out.
Little by little, starting earlier in this decade, some aggressive lenders asserted that they could make loans to people with poor credit histories, and they would prove to be perfectly good debtors, thank you very much. Of course, there are huge numbers of borrowers who always make their payments, even if they have to scrape by and sacrifice. Many of them couldn't buy homes because of their poor credit, and in many cases that was a shame.
When Hungry Borrowers Meet Greedy Lenders
The aggressive lenders started to pay less and less attention to credit histories and to borrower's income and appraisals. The hungry borrowers were so eager to get the loans that they agreed to pay extra fees and higher rates of interest. And the aggressive lenders were off to the races. They had struck gold, and they mined it furiously.
In short order---barely a few years---the aggressive lenders had all but abandoned even the most liberal standards, and they were making loans that were doomed to go bad. As noted earlier, it takes a while for even a shockingly doomed loan to go bad. The first few payments are made on time. Then they start lagging in, and the lenders gives them some extra time. Then the payments become nervously overdue. Then the nasty letters start threatening. Then a few payments are made to catch the borrowers up, and the delaying game starts all over again. It's amazing how two years can whiz by as this dance of doom plays on and on.
That brings us to 2007, and the press is roaring about the foreclosures and the bandits who allowed it to happen. Where were these indignant newsies when the manifestly bad lending standards were infused throughout the industry? Why didn't the reporters report the bad stuff then? Could it be because the naughty mortgage lenders were spending a lot of money advertising in those very same media? (Ohhh nooo. That couldn't be. Could it?)
The Foreclosure Industry
Emboldened by the media coverage, foreclosure mentality swept across the land. People who otherwise would have worked their butts off to make their payments started getting wooed by "mortgage workout specialists" who offered ways to avoid the shame and scorn of being foreclosed---for hefty fees of course. Check out "foreclosures" on a search engine. Today, in a nanosecond there were over 33 million sites listed! Seminars. Books. Refi programs. Counseling. All too many of them scams that would just make things worse for the beleaguered borrowers.
People who never would have abandoned their home started hearing how others walked away from big mortgages and, having made little or no down payment, just snubbed their noses at the lenders. So those honest hard-working folks get caught up in the "what have we got to lose" game.
The momentum built, and now we're in Foreclosure Hell. The huge pile of bad loans turned rotten. Some of the aggressive lenders have cut back on their hard-charging tactics, but many are still out there pushing the deals of a lifetime. So the storm is yet to subside. The financial markets are in turmoil. Investors are getting burned. Home values in many areas are plunging. Many neighborhoods are blighted by vacant foreclosed homes. Governmental efforts to bail out borrowers will help only a small fraction of the total.
Want a happy ending to this sad story? Sorry. Not this time. Maybe in a year. Or two. Or three. Stay tuned.
|
