One interesting sideline in yesterday's short sale seminar was an overview of how the real estate market reached this point too start with. No really new information, but a good reminder for us, so that this doesn't happen again.
1. Homes used as piggy banks, with the assumption that values would continue to rise indefinitely.
2. Adjustable rate mortgages.
3. 100% financing.
4. Over construction.
5. The "option" ARM. Who paid $5000 or $6000 a month, when there was a chance to get away with $1500?
6. Stated Income Loans, often called "Liar Loans."
7. Inflated Appraisals.
8. Predatory lending practices, especially to minority buyers.
9. Sellers forced to sell because of personal circumstances...death, illness, divorce, transfer, as well as job loss.
1 comment:
I’d add a bit to your list
You need to add:
The rise of securitization and the derivatives credit default swap fault market that allowed banks to slice up pools of dodgy loans into different tranches and dump them on investors.
The bond ratings companies whose rated this garbage AAA.
The rise of brokered loans – that facilitated some of the predatory lending tactics described.
Massive and systemic deregulation and lack of oversight by the federal government of the financial system. This includes having federal agencies like the Office of the Comptroller of the Currency preempt state and local regulators that were trying to stop predatory lenders (see http://www.msnbc.msn.com/id/27121535/ )
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