The Housing Crisis (Who Is To Blame?)

The housing market has taken a nosedive, and in doing so, it has taken a hard hit on other segments of the economy, causing companies to start laying off workers, making it necessary for some to file for bankruptcy and others to go out of business completely, and causing the stock market to plummeted to lows that have not been seen since the great depression era of the 1920's and 30's.

The housing market is the engine that drives many segments of the economy. Many people don't realize the impact that it has on all of us and we tend to look at the real estate market as just another industry where people buy and sell homes. In reality, when the real estate market goes bad, it causes a ripple effect that stretches around the world.

One of the biggest questions centers around what happened. Why are so many people struggling with their mortgage payments and why was it that no one saw the collapse of the housing market as it was getting overburdened a few years ago? This is a valid, and very good question!

The reason there are such a large number of mortgage defaults and foreclosures is because both lenders and many borrowers got caught up in the greed of the time. Lenders started making huge amounts of money selling their loans in the secondary mortgage market. There are certain catch phrases that you hear about such as "securities" and "blocks of mortgages" that are bought and sold in major brokerage houses on Wall Street and other financial districts.

There were either limited or no oversights by the federal government to control dishonesty and greed, so lenders on Main Street were encouraged to make questionable, deceptive, and in many cases, illegal loans to keep the big money flowing.

During this period, you often heard the phrases "stated income loans," "no money down loans," "100% loans," "120% loans" and other phrases that made no sense to anyone but those who were promoting those types of loans, and many lenders actually encouraged borrowers to take on such risky mortgages.

With stated income loans, all a borrower had to do was "say" that he or she made enough money to qualify. Lenders approved them without checking employment or, in some cases, credit.

People were given adjustable rate mortgages, just low enough for them to make the payments the first year or so on the premise that they would get raises or better employment opportunities. Naturally, this didn't happen for many borrowers and they were stuck with an every increasing interest rate and rising house payments.

On Main Street, many lenders, loan officers, realtors, appraisers, escrow, and title companies realized that they could make huge amounts of money underwriting and selling those types of risky loan products and they went for it with total disregard to ethics and, in many cases, the law.

There is enough blame to go around, but there are certain people in government, and in big business, who should shoulder most of the blame. They caused the mess, they didn't control it, and they let it get out of hand.

About the author

John M. Roberts is the owner of John Roberts Realty located in Long Beach, California. You may contact him at jrobertsrealty@yahoo.com.

Finance Topic of the Month: Bank Failures