The Mortgage Crisis Morphed into The Foreclosure Crisis

The real estate boom was real. Let’s forget for now, that it was artificially manipulated by the artificially made historically low interest rates coupled with runaway appreciation. It wasn’t a dream. Those were heady days, weren’t they? Anything seemed possible. Personal wealth grew overnight when the house next door sold for double what it had been bought for only two years before. So my house doubled in value too. That sure was fun while it lasted.

Then the subprime mortgage crisis set in. The subprime companies fell like a city made of cards behind a wall of dominos. One after the other, they went out of business. I don’t know what happened to the homeowners who had loans with those companies. I refinanced my home through New Century, one of the first to go under. It didn’t matter to me, though, my loan had been quickly sold and passed on to Countrywide. Countrywide seemed like a solid company. This was long before Countrywide got into it’s own financial trouble, laid off 15,000 employees and was bought out by Bank of America.

The mortgage crisis became real when it wasn’t just the subprime mortgage companies, the ones no one had ever heard of, but big names, that got into trouble. The big names, that would only lend to prime borrowers, were offering all kinds of creative loan products. It was a different world. Someone with a credit score in the mid 600’s could buy a home with no money down and little or no documentation, which in many cases translated to little or no income. There were 2/28 ARMs, 3/27 ARMs, Option ARMs, HELOCs and more. It doesn’t matter what those acronyms stood for anymore, because those loan types are all dinosaurs by now. They are all still hawked, touted and advertised these days, but are now so hard to qualify for, I don’t know why the mortgage companies bother. Not to mention, who would want any of these loans now. Now that the runaway appreciation has given way to sinking home values.

The mortgage broker’s pitch was - don’t worry that your loan is going to re-set to a crazy adjustable rate in two years; your property will have appreciated a whole bunch by then and you’ll be able to easily refinance into a fixed rate mortgage and live happily ever after. The mortgage broker generally failed to point out that the timing was going to be tricky, to time the refi to coincide with the expiration of that hefty six month interest prepayment penalty. But it sounded good at the time. So we signed on the dotted line, I signed, a lot of people signed.

And now that the party’s over, the hangover is crushing us. Those giddy days are long gone. The real estate boom has morphed into the foreclosure crisis. Those mortgage companies that once would approve a loan for anyone that could breathe are running scared. Now they don’t want to lend money to anyone, except those few with pristine credit, lots of cash, and a steady well paying job. So many of those unfortunate people that had counted on being able to refinance their adjustable rate mortgage are out of luck. They can’t refinance and they can’t sell because no one wants to buy anything at a reasonable price. Plenty of scavengers out there, though, ready to strip desperate people of their property equity. Can’t blame the homeowners completely, for trying to make a buck, take advantage of an opportunity. I put more blame on the mortgage brokers and the mortgage companies for being so free and loose with the money. They had to know that many of these people could not afford the future payments. They had to know if the real estate boom fizzled out many of these people would fall into foreclosure.

The rest of the story is that these mortgages, written during the real estate boom were bundled into groups and sold as securities on Wall Street. Many times foreign banks have bought these securities and don’t give a second thought to putting American families out of their homes. It used to be said that banks don’t want to foreclose, that banks don’t want the property. That isn’t true anymore. Banks want the property and they want the money.

I want to urge people that find themselves in foreclosure to stand up and fight. There are defenses to foreclosure. You may have been a victim of predatory lending. Judges have the power to apply 100% of your mortgage payments to the loan principal if they find that the loan was predatory at origination. Contact a sympathetic attorney. Do your own research. There are things that you can do to save your home. Don’t be victimized twice.