Thursday, August 16, 2007

Unfair housing crisis hitting close to home

Reading stories about the effects of the housing crisis in this nation is heartbreaking.

There was a story in the Washington Post this morning about a Maryland family who had bought a house and had received a mortgage commitment from a mainstream mortgage institution. They were on their way to the closing when the mortgage lender said it would not fund 175 mortgages, including theirs.

To make matters worse, the sellers of their potential new home were counting on the Maryland family's purchase to be able to afford the house to which they were moving, so the lender's retraction had a domino effect.

Fortunately, their broker was able to place their loan with another lender within 36 hours, so all they lost was some time.

At the same time, one of the nation's largest mortgage lenders may be in trouble and approaching bankruptcy, according to a Merrill Lynch report quoted in the Post.

This isn't just a problem for the fatcats and people who want to buy homes. Its effect on the stock market affects millions of people, including medium income folks whose pensions rely on 401(k) investments. A crisis like this affects all segments of the population...probably only the super-rich and the poorest are less affected.

What brought us to this situation? People wanting to do better for themselves and their families and those who took advantage of that dream.

Last August, I did a story for the Norwalk Hour and its weeklies in which economists, bankers, mortgage guarantors and consultants, as well as real estate professionals and bankruptcy lawyers, said mortgages were being marketed to people who could ill-afford them.

Even though some of the people who spoke in the story were in the mortgage business themselves, they said that some home buyers were skating on such thin financial ice that any event -- the loss of a job, a serious illness of any family member a pregnancy -- any negative change of financial circumstance would send them crashing through that ice.

The real estate professionals in the story and others I did at the time said the price of houses were not rising as fast as they did, and that if many houses came on the martket because of foreclosures, the price of houses could actually go down. People who depended on selling their houses in order to satisfy a loan they could no longer afford might be stuck.

I wasn't the only voice howling in the wilderness about this potential problem. A couple of weeks after my story ran, the New York Times carried a simiar warning. USAToday ran stories saying nearly half the mortgages being closed called for no down payment. The Washington Post said many mortgages were being refinanced in order to cash in on equity, which would be used for non-home purchases.

Equity is the value of a house minus what is owed on it.

So why did people pursue this financial course that had such a risk to change dreams of home ownership to fiscal nightmares including foreclosure and possibly even bankruptcy.?

They probably did it for the purest of reasons -- they wanted to improve their lot in lives and get in on the American dream. I remember, back in the 1950s and early 1960s, beloved sportscaster Curt Gowdy, in ads for the American auto industry, talked about the American dream of going "where you want, when you want." In other words, buy a car and you buy freedom. from the need to wait for a bus or train. Just hop in your car and hit the open road.

The people who are now in financial trouble heard and saw that same message about home ownership. All the way from the Andersons in Father Knows Best to today -- everyone who is truly happy owns his or her own home. It's the American dream. "Why not me?"

The mortgage pushers took advantage of that dream and sold people houses they had no financial right to buy at terms they could not really afford. These ads are still filling the airwaves from mortgage pushers and car-credit pushers (bad credit, no credit, no problem, buy a new car now).

The frustration of being in that situation must be staggering -- why not your family? You see it on television, the ads that come over the TV, the radio and even in e-mail talk about the good life on your own patch of ground. Don't drive an old clunker.

That's how we got here, I believe. It's really everybody's fault and nobody's fault. The mortgage pusher wove a happy picture, but the buyer had to know his or her own circumstance. It's not fair. I mean that, it really isn't fair.

But it's also not fair to those who scrimped and saved and bought stock and went without to contribute to their 401(k)s. It's not fair for this preventable crisis to cost them tens of thousands of hard-earned dollars.

People are depending on this money for their retirement, to carry them through the inevitable illness and vagaries of advanced age, and it is unfair that their savings are being eroded by those who would not realistically see their own circumstances and could not accept that they just could not afford to own that house.

It is also not fair that the mortgage pushers who sold them that pipe-dream are going to come out of this unscathed. They deserve to lose big-time as well.

Until next time....

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