Who Caused This Mess? Main Boise Home Loans
No one person or entity caused this problem by themselves...the blame has been spread widely.


Dear BuildingCredibility.com Reader:

Unless you've been on an island or under a rock, you are aware (probably painfully aware) that we are effectively in an economic recession...and if you're like the majority of people I've talked to, it is a painful one. Job loss and unemployment is accelerating, inflation (although much tamer as of late) is hitting your pocketbooks, your 401K is hemorrhaging money, and your confidence in the country and economy has been shot.

But you still may not be seeing the BIG PICTURE on how we got to this point. No one argues that it didn't start in housing anymore. So...who is responsible?

The Federal Reserve --interest rates were too low for too long. This helped contribute to creating a housing bubble.

Regulators were asleep -- the toxic mortgages that are hammering the balance sheets of financial institutions were largely unregulated

Greed and excessive risk taking -- on all fronts. Homebuyers getting into homes that were too expensive or cashing out equity to live a lifestyle they otherwise couldn't afford. Wall Street's attempts to profit from these exotic mortgages. Mortgage originators and brokers basing their business solely on these (they are all now no longer available) toxic mortgages because of the easy money that could be made.

Rating agencies had major conflicts of interest -- the bond rating agencies that apply risk ratings to mortgage backed securities were being paid by those that they were supposed to be rating.

If you are a homeowner, and are in a mortgage right now that is hurting you, please keep in mind that YOU are also partially responsible for your present troubles. I completely understand and believe that you may not have fully understood the terms and conditions of your mortgage when you signed...but you still signed the documents. I also know that you probably did not see the housing bubble and collapse coming...neither did a lot of so-called "industry professionals." But I redirect and ask you...were you one of many that was cashing out this quick equity in your home so that you could live beyond your means? Your home equity is not a savings account or a means to supplement your income...it is an investment and security, so why would you use it to buy boats, new cars, and take vacations?

Rest assured, more regulation is on the way in the form of the SAFE Mortgage Licensing Act that passed as part of the larger Housing Bill (HR 3221, Title V). There will be many changes to oversight of the industry at the Federal level; the deregulation that happened in 2004 will be reversed.

We aren't out of the woods yet; I feel very strongly that this recession will last at least two years. Cash savings and getting out of debt are very important right now. Keeping minimal to no debt will help your credit scores, and in turn, will help you stay "lendable" should the need to apply for financing come to you.

If you have additional questions about your personal financial or mortgage situation, or are interested in talking more about this post, feel free to call or email me at (208) 880-0316 and [email protected]. You can also visit my website at http://www.ericsloans.com.

Warm Regards,

Eric Leigh, Mortgage Consultant
2965 E. Tarpon Drive, Ste. 150
Meridian, ID 83642
(208) 880-0316
[email protected]
Posted by Eric Leigh at 11/14/2008 4:00:00 PM
Comments (10)
Re:Who Caused This Mess?
Eric, GREAT summary! I think you provide a very fair and balanced assesment of things! (applause!)
Posted by on 11/14/2008 8:21 AM
Re:Who Caused This Mess?
Eric, Good Read. Thanks.
Posted by on 11/14/2008 4:49 PM
Re:Who Caused This Mess?
I know this is a big one but what does it take to get a mortgage in today's market. All home sales hinge on a home loan but I hear many stories of people going to close and the bak says no at the last minute.

What are banks looking for now? What are the biggest "deal breakers" that happen?

Do you know much about new construction loans. I am hearing they are getting really difficult to get? Any advice on construction loans?
Posted by on 11/14/2008 4:58 PM
Re:Who Caused This Mess?

What do you mean loans are hard to get. If you go back to no fraud years (anything pre-2000) we have lax standards now....

If you have 20% cash down, <36%LTV and good credit there should be NO problem.

If you don't you should rent and take a basic personal finance course.
Posted by on 11/15/2008 2:36 AM
Re:Who Caused This Mess?
Can you recommend a course or site?
Posted by on 11/15/2008 12:49 PM
Re:Who Caused This Mess?
Good comments, if you missed something, it was congress chastising the mortgage industry 4 or 5 years ago because the percentage of minorities getting approved for loans was way too low as compared to whites. I still remember Barney Frank expressing his displeasure of that kind of inexcusable business practice. Then they gave the tools to Fannie and Freddie to buy loans that had been given to that group, which included a lot more than minorities.

But in the end, it is the lack of personal responsibility, personal greed on all levels, and the general feeling there was no risk.

I think we are now entering a period where people are going to have to live within their means. The one thing that will run against that needed trend, is the government bailing out businesses, especially failed business models like the automobile industry. They feel like they deserve taxpayer dollars to sustain their living beyond what they can sell their cars for. I hope that doesn't happen, but I think the party in power will try to reward the unions, at the expense of everyone else.
Posted by on 11/15/2008 7:46 PM
Re:Who Caused This Mess?
Way off topic- sorry

Eric- I was hoping you could do a post on what to do/ what happens when you pay off your mortgage. Yes, I am a bit embarressed to admit that I have home debt...but I actual wasn't aggressive with the last bit since I liked them dealing with the taxes. Well, now if I keep up my automatic payments, it will be done in Feb or March.

So what happens...do I need to go to the Ada office and record the payoff---how do I get the lien removed??? My bank has 4,000+ web pages on how to get more deep into homedebt, but I can't find a single reference on what happens if some fool actual desides to become a homeowner.

Thanks in advance...
Posted by on 11/16/2008 8:18 AM
Re:Who Caused This Mess?
How it now works emdeplam, is that when the government finds out you don't have a monthly mortgage, you will be required to do your part in helping those less fortunate than you.
Uncle will divide the amount you were paying on your mortgage into three parts, they will give two parts to those who have payments that are too large for them to handle, and they will give you the other third. The third they give you will be taxable of course.
There, now you have it : )
Posted by on 11/16/2008 6:16 PM
Re:Who Caused This Mess?
I can't believe the weekend trafic on my blog! Gosh, I take a few days off to watch football and spend some time with family and the blog blows up! What a great surprise on a Monday morning...great thoughts and posts to all...thank you!

Emdeplam...when you pay your principal balance to zero, your mortgage lien's reconveyance will come to you within 90 days at the absolute most. It typically comes in 45-60 days, but if you haven't received it after 90 days, immediately make a call to the loan servicer. Once you get your next mortgage statement after you pay off to zero, hold that as proof (showing a zero balance) before the reconveyance comes to you from Ada showing the lien being removed.

Congratulations on being mortgage debt free very shortly! I'm a proponent of people getting out of debt, but feel strongly that if you have to have any debt, then it should be mortgage. Cash is the best way to go for anything we need outside of a mortgage in my eyes...you and I are on the same page there. I personally wouldn't wait to buy a home with cash...but I would SAVE enough cash to make a good down payment!

Trey...mortgage qualification isn't much different than it was before...IN GENERAL. The thing that is much tougher now is to get a mortgage if you CAN NOT document income, assets, employment, etc. Full Documentation is the only way to go now...unless you want high interest rates and crappy terms (there are still hard money loans available for people who can't document these things, but you'll pay for it!). There are no 100% mortgages anymore, but there are some lenders who will offer a smaller 2nd mortgage to VERY GOOD CREDIT clients to make 100% CLTV mortgages. The box is tight on qualifying for that though.

Basically, the two most important things in a mortgage application are:

1) Your Credit Report and Score
2) Your Debt Servicing ability

If you have present or past credit trouble, and/or your debt/income ratio is too high (more than 50%), chances are you will not be able to qualify for a mortgage. FHA still allows purchase mortgages with a minimum of 3% into the transaction. However, that will change in January of 2009.

Anonomys -- sign in and create a LOGIN so we can identify you in the future. You have some good insights, but I wonder if you meant <36% DTI on your comment rather than <36% LTV? :-)

Thanks to all for the great posts and discussion!

Posted by Eric Leigh on 11/17/2008 9:07 AM
Re:Who Caused This Mess?
I talked to a friend of mine today who was the top loan executive for Security Pacific Bank in California a few years ago. We were talking about "this mess" and he told me that 20 years ago when Security Pacific wanted to open some branches in Southern Cal, the regulatory agency demanded that they agree to loan at least $500 million "red line" loans in the areas they wanted to put new branches in. Red line loans are now called "sub-prime". They told the regulators they couldn't do that and stay in business. The local regulators went to the feds and got some new rules written and came back with the solution. Freddie Mac and Fannie Mae would buy the loans from Security Pacific bank. That is what they did.
Posted by on 11/17/2008 9:34 PM
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