The Mortgage Melt Down, other than a catchy phrase what do it really mean. We have to go back to the Bill Clinton Administration days. Clinton wanted to make it possible for almost anyone to become a home owner. This is great in theory but it is not realistic. Fannie Mae and Freddie Mac soon began purchasing mortgages with no money down, 100% financing. If you have no down payment then you had nothing invested so who or whom is carrying all of the risk? That is correct, Fannie Mae & Freddie Mac are and by direction of the Clinton Administration.
Let’s move forward, I am sure remember all of the radio ads claiming 100% financing, 520 credit score and no income documentation. I could not believe my ears when I used to hear these ads day after day. So Fannie & Freddie made the loans possible the Lenders offered the loans to Brokers and brokers found people who wanted the loans. And we all remember how the Media turned on the Brokers when the wheels came off. It’s the Broker’s fault that we are in this mess. The Media clearly was told what to say and not I reporter ever interview me or anyone in my office even after countless request from us.
With the HVCC now proofing to be more corrupt that the old appraisal processes anyone that can read can now see that the problem was never the Brokers. Getting the Brokers out-of-the-way would create a monopoly for the banks. We will talk more about this later.
Countrywide, New Century, Wamu, and countless other banks made billions while the real estate run up was on. There was free money flowing everywhere. So how did this happen?
What made it possible?
- Fannie & Freddie offering 100% financing with reduce qualifications
- Investment funds, 401Ks, Equity Funds, Portfolio Managers, Ect, Ect bought up all of the mortgage bonds that they could find because real estate values where sky rocketing.
- Everyone wanted a home of their own and the bidding war was on.
- Investor wanted properties and often had up to 10 properties financed.
What caused it to stop?
- The cost of the war in Iraq was big as human emotion began to swing.
- Families of service men began to tighten their belts as the unknown is a reality.
- The Media begins to cover the cost of the war and people begin to focus of the money that the Fed’s are spending.
- Servicemen are now staying longer on the front lines and their wife and kids are moving in with other family to cut cost.
- Rental properties begin to take longer to rent.
- Layoffs begin in the service business as these businesses slow down.
- New Century recognizes the trend reversal and closes down. The first big subprime lender to close.
- Small time Investors without reserves begin to lose their properties because they have no renters and not enough money to cover everything without the rental income.
- Home values begin to fall.
- The Mortgage Melt Down begins.
- The Presidential Election is nearing
- The Media begins its coverage of the meltdown, blames Brokers for it and continues to this day to talk about real estate values falling.
- People listening to the Media begin to hold money even tighter and stop buying houses.
- Banks begin to fail because their reserves drop below minimum FDIC levels.
- Senator Schumer makes his cowardly remarks about IndyMac Bank and then hides behind his Senator position to escape legal responsibility.
- The Bank Meltdown begins and over 100 banks have failed to date.
So where are we now?
- Bush request and receives 700 billion in TARP fund to help the banks and gives out 350 billion to many banks.
- Obama wins the Presidential Election and immediately changes the rules on the TARP funds; he wants to control any entity that received the TARP funds by why of a “Czar.”
- The Banks suddenly start charging more on the credit cards, service fees, mortgage rates, loan cost and I am sure most people have experienced the banks are cutting your credit limits.
- The Fed’s put pressure on the Banks to reduce their credit card fees but allow the Banks until February of 2010 to make it so. Just enough time for Christmas spending. Imagine that!
- It is now harder to get a home mortgage than ever. Over 60% of current home owners can not refinance under the current guidelines.
- The Feds roll out the HARP loan program to help existing home owners take advantage of the current lower rates. Then than 2% of current home owners will benefit from this program.
- The Fed’s had a closed-door meeting with banking Executive Officers and directs them to reduce their Executive Compensation. If they do not they threaten a FDIC audit.
- Banks continue to raise their fess in order to raise enough capital to pay back the received TARP funds. This way they can run their banks the way they want to.
- The Fed’s continue their assault tax all business and they act surprised as they close down one by one.
- The Fed’s continue to tell us that “thousands of jobs have been saved or create.” That sounds nice but without money in my pocket it is difficult to believe.
- The White House begins to pick and choose which media outlet they will allow to cover them. Are you kidding me? This is censorship!
The TARP funds were intended to offer the Banks some additional Capital to ride out the down turn in Real Estate values. Every Bank under the FDIC guidelines experienced reserve issues and if you think different then stop, you are just kidding yourself if you think any different.
Did the Banks take chances, yes they did. They took a chance on us the people. Every business takes a calculated risk on every deal it does. This is just simple business 099. Banks calculate their lending limits based upon their reserves and real estate values are part of those reserves. Just as home values fell so did Bank reserves.
The Media reporting on the so-called bad loans that were done are seriously misinformed. At the time the loans were done the values were what they were. Did the Media have a crystal ball and knew the values where going to fall? What about the other sides of the story, if the Banks thought the values were too high and they did not want to do the loan then the Media would have been reporting that a Lender is refusing to offer mortgages to people who live in whatever city.
The truth is this, there was tons of easy money flying around and as long as everyone was making money then we looked the other way. The FCC, FDIC, The Banking Committee, Federal Reserve and countless others did not do their jobs. They is already laws in place to address all of this just no one enforced them as we were all making money. The sad reality it that this real estate run up was much like a pyramid scheme. Those left holding the hot potato are paying the ultimate price.
FYI – Definition of czar on the Web:
- a male monarch or emperor (especially of Russia prior to 1917)
- a person having great power
Usage Note: The word czar can also be spelled tsar. Czar is the most common form in American usage and the one nearly always employed in the extended senses “any tyrant” or informally, “one in authority.” But tsar is preferred by most scholars of Slavic studies as a more accurate transliteration of the Russian and is often found in scholarly writing with reference to one of the Russian emperors.