The Social Marginal

I think this is going to be my only post on this topic, and though I wanted to avoid it in the first place, I figure it might give some a bit more perspective.  I could go on about this for pages, but I’ll do my best to keep it brief and summarized as possible, hopefully it isn’t too condensed to express the viewpoint.

For the past five years I’ve worked in positions with Residential Development companies that required me to be knowledgeable and exposed to information for pretty much every facet of the industry for said companies as they owned their own Mortgage, Resale, and even Lending fronts.  I’ve been fortunate enough to work for privately owned companies that were owned and ran by responsible individuals that actually cared about quality and customer service, even as they grew larger.  Still, since 2003 I’ve seen so many things that has made me wince that I’ve become a bit desensitized to the whole situation.

In 2003, it was a seller’s market where I was located, big time.  Prices were skyrocketing, projects were pre-sold before they were even finished (A bank’s dream), and buyers weren’t picky.  Of course, with this came the advent of the widespread usage of interest only loans, irresponsible ARMs, and people buying and just assuming that their house would increase in value and that they could use it as an equity piggy bank consequence free.  I often met with homeowners prior to them purchasing the homes, knowing what loan package they were going into (and them often bragging about it), and always asked them (in a caring way, not sarcastically) if they understood what would happen if the market took a dip; this was usually greeted with a laugh of disbelief that it would ever happened and shrugging off the notion that it even could.  The 115% LTV tricks and such, well, they were frequent and it just made me shake my head in disbelief.

Knowing our mortgage brokers and seeing the loans, meeting with the individuals buying the homes since 2003, I can confidently say that in over 1,000 homes sold, a single home buyer was never ‘pushed’ into a irresponsible mortgage package by them, though I have seen many, many insist on them.  I know there are some deadbeat brokers out there, but it is certainly not the ‘norm’, however, overconfident buyers at many times in the market trend certainly were.  And that’s the nature of the beast when you take a gamble like that, you take a chance at getting bitten, and many did.  I recently drove through a development in an area that ‘we’ sold in late 2003 as a developer and saw nearly 30% of the homes in foreclosure.  The thing is, these homes are still worth more than they were bought for, which leaves three likely options: The first, that the buyer was irresponsible in what they could really afford in the first place and insisted on a stated income loan to squeeze into the development; the second, the home has been resold since, likely at the peak of the market, and the again the new owners were irresponsible in what they could really afford; and the third, the most likely in this particular development given the doubling of price in a one year period after sale by developer, that the individuals used their newly found equity in their homes as credit cards and lived like millionaires until they realized that their piggy bank broke.

The biggest problem during the whole housing boom, in my opinion, were individuals using their rising equity as a piggy bank.  The constant refis, HELOCs, the initial 115% LTVs - they were just absurd.  While there were some people that were mildly ‘victimized’ in this whole debacle, individuals who were trying hard at the American dream and got hit by medical problems followed by a loan reset or individuals who truly were uneducated and really were lied to by their broker and such, the majority of home buyers were not, they were just bad investors trying to get rich quick without working for it or individuals spending way more than they could afford because they felt they ‘deserved’ it.  A lot of people seem to be ignoring this aspect these days and just focusing on the irresponsible mortgages, not that many of these mortgages were actually refis to cash out all that new equity for people that could have originally afforded their mortgage before they decided to do so.

And now the Fed wants to bail many of these individuals out.  Maybe I’m just too desensitized to it all, but I say let them lie in the bed they made and deal with the consequences.  This market, just as it has many times in the past when it took a steep dip, will again stabilize and uptick, and hopefully this time around people will have learned from past mistakes of themselves and others and be a bit more responsible with their home purchasing…

I doubt it, though.

Tags: home equity, housing bust

This entry was posted on Wednesday, April 9th, 2008 at 8:41 pm and is filed under Money Matters, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.