ENOUGH BLAME TO GO AROUND

Trying to Explain the Housing Crisis
by Victor M Adamus

I was wondering a lot about the AP story that quotes the Feds on the real estate bubble and lays a good portion of the blame for the housing crisis on local investors.  They singled out states like Nevada, California, Arizona and my state of Florida.  The report shows that greedy investors made multiple buys, using their credit at major banks, to purchase a host of properties with the intention of flipping them for more money if the bubble had kept expanding and prices increased.  It was a way to make big dollar returns fast and they were using other people’s money to do it.

The research was done by the Federal Reserve Bank of New York.  They blame investors for scheming to inflate already inflated prices which led to the recession.  The investors lost their investments in multiple properties which led to the recession.  Typically banks work to deal with how to get out of the recession, not what caused it.  This is why a stunning report, like the one the AP filed, got me to wondering if, in fact, there was greed on both ends: Wall Street selling off junk as AAA rated certificates knowing the junk was backed by undocumented loans; and greedy investors who saw an opportunity to run out their credit limit with local banks who verified they were good for it.  At both ends of the real estate crash there is enough blame to go around both from an investment standpoint and then batching these loans to sell overseas as a quality product.

The house of cards came crashing down.

Prior to the bubble burst a huge segment of our population owned more than three properties.  They would buy fixers and fix them; buy land at rock bottom prices; apartment buildings that needed rehab; anything in the single family market at appraised value and then wait for a 10% bump in equity to sell out for twice what a Realtor would make on a commission.

When the bubble burst and the house or property was worth less than they borrowed against it, foreclosures skyrocketed.  The people who bought at the same time, a home to come home to person, found themselves underwater too and it didn’t take long for a segment of that group to drop out because of anything from job relocation to health issues.

“Investors defaulted in large numbers after home values began to drop in 2006. They accounted for more than 25 percent of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida and Nevada from 2007 to 2009”.

Those are huge numbers. The false economy wasn’t realized until banks were heading into default and had to be bailed out by taxpayer funds, an unlikely resource since businesses go broke all the time in a Capitalist type economy but of course, these banks were too big to fail.  By a lack of regulations, controlling these no doc loans, the people on Wall Street went crazy, as did the greedy investors who thought they had struck gold.

A check at my local courthouse shows that people with multiple foreclosures are 31% of our foreclosure population.  This is similar to the numbers reported by the AP.