To put it bluntly, the real estate market cannot get back on track as long as there are foreclosed homes all across America, being sold for pennies on the dollar, bringing the value of median home prices down. There are so many defaulted mortgages that have resulted in foreclosures and short-sales that it has affected the overall condition of our economy. In a significant way, we have a colossal Catch-22 situation going on.
How did it all start? Who is to blame? Let's start with the Bush Administration's idea of the “American Dream Down Payment Act” of 2003. That is what lit the fuse for the disaster that followed. With this Act, basically anyone who could fog a mirror qualified for a mortgage. There were even methods around having to make down payments and closing costs for most.
Banks soon began seeing the value of writing mortgages in sheer volume which, on paper, appeared to show huge profits. It was then big banking greed that took over from there. I remember seeing billboards along I-75 in Southwest Florida in 2005 stating “Think you can't afford a million dollar home? Think again!” Banks were financing high end million dollar plus homes to basically anyone who wanted one, with ridiculously top heavy Jumbo Loans and impossible Adjustable Rate Mortgages which, in many cases, were constructed whereby payments would quadruple after 24-48 months leaving the homeowner with an inevitably impossible situation.
It wasn't just limited to high end homes with impossible terms. Average people buying average homes were affected too. It became very disheartening for families who bought a median priced home, ranging approximately $200,000.00 in 2003 to find out 3 years later that the value of their home was now about half of what they paid for it. Due to the real estate down spiraling, millions of jobs were lost in the finance, real estate and construction industries. Incomes had ceased for many Americans. Millions of mortgages were quickly in default.
Again, Bush, a man who has now proven himself to be nothing more than a functioning moron, came up with yet another ingenious plan. Bank bailouts! Any bank that wanted money to cover their greedy mistakes got all they needed. And there were practically no conditions set to qualify for this money. I would think that a mandate should have been invoked in that any bank who accepts bail out money must place an immediate moratorium on foreclosures, and all existing mortgages in default must be recalculated and re-written. In other words, it should have been a condition that if we bail the banks out, then the banks must in turn bail out the poor homeowners to prevent them from losing their homes.
Instead, the banks got all the money they needed, after which they began the biggest wave of home foreclosures in American history! For the past 3 years home foreclosures exceeded the year before. The banks took their bailout money and socked it away and then began yanking homes out from under American families who fell victim to the fractured economy. Banks are taking these foreclosed homes and selling them for pennies on the dollar, causing every other home in America to plummet in value. In perspective, why should a prospective home buyer pay full market price for your home if the one just down the street is selling as a foreclosure for about half the price?
So with all their losses made up for by bailouts, any money that banks get for these foreclosures is just gravy money for them. The banking industry is the only industry in America that has profited so heavily from this recession/depression, and they will continue to do so! 2010 had more foreclosures than the preceding two years and 2011 will see more yet. The housing disaster has affected every industry in America and there is no end in sight. So, unless and until the federal government steps in and forces these banks to cease foreclosing on American homes and begin rewriting existing mortgages, the real estate market will not only not improve, but will only continue to get worse.
Copyright © 2006-2011 Dusty Frank. All Rights Reserved
