The countdown begins...

It is now December and the countdown to the Christmas holiday is here. There are messages everywhere begging for your hard earned dollars. The request to spend and charge and spend more. They remind us that if there is no money in the till, then bring out the credit. If that's what it takes to keep the wheels of our country turning...

I find that the negative growth fears permeating our society were self fulfilling. I will not say that they were unfounded. There are reasons to be aware and concerned. The press began to express the concern long ago helping to inaugurate a fear based mentality to various aspects of our economic society that I feel did not need to take the hits that are happening. The unemployment numbers were low, the overall economy was rather healthy excepting a few items in its menu, but the press kept pressing on.

As other "experts" jumped into the fray for their 15 minutes more and more people became fearful of their situation, and perhaps many did so without necessity. With people beginning to hear and fear the news and the trail of tears they spewed more and more jumped into the fear based bandwagon. All of this began to snowball and within a few months the economy went to hell in a hand basket.

Yes, there are and will be foreclosures. This happens in every market, all of the time. Yes, we have more than normal, although when one listens to the news today, it seems the way they portray the situation in the press is that 8 out of 10 homes will be foreclosed on. On a national scale the foreclosure rate is at 1 for every 555 homes. Although this number is up substantially than normal and is up more in some areas than other nationally, it still is not the percentage that can crush an economy. Te aftermath of a fear based economic system can and reckless charging can.

It began something like this. All of the turmoil in the subprime market has come about due to a pretty simple reason that being an inordinate number of recent home buyers will begin or have been defaulting on their mortgages. Much of this reason is due to the fact that most of these are the folks who historically have not been home owners due to their debt obligations, low income, and/or poor credit. In the past, they were known as renters.

The ultra-low rates that previous market guru Alan Greenspan put into place when he dropped the Fed Funds to 1% started an entire chain reaction of events. At the time he was lauded by many as the high priest of finance. Now, he is being touted as the creator of the doomsday effect. If high rates keep home prices down, well you can guess what ultra-low rates do. Home prices rose due to more people being able to enter the market and buy homes due to the lower monthly carrying costs, and we were off to the races. This brought out bidding wars and price increases not seen in our lifetime, or any other for that matter, in most areas throughout the United States.

This boom begat a feeding frenzy. Generally, what happens next and did is the corruption that soon followed. The financial institutions created products never seen before in the business of 110% financing or 40-50 year fixed rate mortgages. No Doc, Stated Income, Pic-A-Pay loans, and more offered borrowers numerous products to get into a home or investment. The appraisers jumped in and faked values to get loans approved (making a 100% LTV look like a 80%) for the financial institutions. Banks and mortgage brokers quickly learned how to get nearly anyone approved. There are reasons for these loans and a good purpose if used rightly. Those being Interest only ARMs, LIBOR based, etc. However, if these were used by borrowers without Real Estate experience, and many were, and advised to do so by Realtors, Brokers, the press and more. What happened was that they got people into homes THEY COULD NOT AFFORD.

Then, when the fear began and prices stopped rising the rates ticked up. Soon people could no longer bootstrap paying their mortgages by taking out more home equity loans, the foreclosure rates began to rise.

All of this is self perpetuating. Again, not unfounded, although, there was no slowdown, but a halt. There is only a small number of people in the broad scheme of things that will be going down the path of property foreclosure. The banking industry should be held responsible for their part in handing out so many loans using a products basis which holds no financial weight. Why would a bank issue a note for 1% teaser interest to someone who will not be able to afford this payment when it comes time to roll int into it's conventional financing? The tax breaks that these institutions will receive will help cover their losses, this is simply the process of doing business in a free market society. Although the market will and has fallen substantially for their mishaps and miscalculations. The irresponsibility of the financial institutions should be held liable.

As all of these circumstances are different there is still room for liability for all various parties involved. If a mortgage broker gave out a difficult to understand teaser loan to a bad credit or first time home buyers with no experience there should be some repercussion's on their end for these actions. If a property owner with a history of real estate experience purchased a property that is going to have them fall into the abyss due to the loan they received, or because they purchased too many homes in the past few years using these loan techniques and are now needing to pay the piper, they too should be held liable for their mishaps and misfortunes. In situations such as this, their credit history will prove their prior experience.

The challenge is to stave off the market in the meantime, while these parties involved weed through their situations.