There’s been a lot of finger pointing about who’s to blame for the fall in housing prices and, by proxy, the economic slump the country is in right now.
Was it lack of government regulation? Was it greedy mortgage brokers? Irresponsible lenders? Mortgage investors? Or was it us…the American homeowner?
According to Zillow and other sources, 1 in 6 homes in America that have mortgages are in default. That’s about 18%…and way too many for one thing to be the cause. So was it the ‘perfect storm’ that got us here?
Kind of…
My opinion (for what it’s worth) is that greed got us here. And, for that matter, greed is what’s going to get us out…but more on that later.
What do these have to do with one another?
- When you bought your house, you tried to get the best deal you could on both the house and the financing, didn’t you?
- When your loan broker searched for your mortgage, he probably looked for the loan that made him the most money and got you into the home for the cheapest monthly payment.
- When you contact your servicer for a workout, it costs them to work with you and they don’t get reimbursed by the bank for the work. But when they foreclose on your home, they get reimbursed.
- A first mortgage holder doesn’t like to negotiate when there’s a second lien on the home because they don’t want to lose their first position or free up money in your monthly budget to pay on your second when you could be paying them.
- A second mortgage holder typically won’t negotiate if the first lien holder isn’t willing to as well.
- Lenders that have mortgages that are part of mortgage-backed securities are afraid to negotiate too much because they might be sued by investors.
They’re all based on greed!
Everyone’s trying to make sure they make the most or lose the least amount possible.
It’s natural for all of us to do what’s in our best interest…which is why we have government. They’re supposed to deconflict between all the competing interests and do what’s best for the people as a whole. Of course this assumes government officials are unbiased and uncorrupted, which could definitely be questioned.
So if everyone’s greedy how do we fix it?
Obviously, there’s no way to get out of this situation and have everyone profit…it just can’t happen.
We need to incentivize lenders, investors, servicers, and brokers to keep you in your home.
Your incentive will be that you get to keep your home and possibly have your principle reduced to closer/under what your home is worth.
By giving servicers incentives to mitigate losses rather than foreclose, they’ll be much more likely to do so. The Center for Responsible Lending estimates this would take a $1,000 per home saved incentive.
By regulating that banks modify loans and that second mortgagees modify their loans in proportion to the first mortgage, Congress can remove the law suit concern for lenders.
The end result would be what everyone wants…you stay in your home, the bank turns a non-performing loan into a performing one, and the economy begins to rebound. People will be more willing to spend their disposable income because they’re not concerned about losing their home. Stability returns to our neighborhoods.
And world peace will break out…
No, not really, but we can always hope.
Please post your thoughts and comments below
Tags: government regulation, lenders, mortgage backed securities, second mortgage, security instruments
February 11th, 2009 at 7:04 pm
How about the Home Builders who are the freaks who raised up the home prices without any type of regulation but only as the lenders dictate…. and we thought it was the market who’s dictating the price. I believe it is the many group of investors that are in the Home Building industry; Lending Industry; SEC and some US regulators are the culprit and made this big “almost” catastrophic” event happened which made our Housing Market collapse and resulted to our current economic downturn.