Kirk M West's Blog

It is a new day in America and here in California compared to just 24 hours ago.  Before I share with you how I see our new political climate should bring on meaningful change for homeownership I feel it is best to first give a brief history lesson.  

The roots of the housing crisis actually started back in the 1970's with the evolution of real estate investment gurus such as Robert Allen who's book Nothing Down started a frenzy for buying real estate that continued to grow. The only constraint was qualifying for loans.  By the 1990's, a push was on to open the "American Dream" of home ownership to everyone. But, if they couldn't qualify for a loan, how were they going to buy a home? That was answered in the late 1990's by Federal deregulation of the financial markets, opening up Fannie Mae and Freddie Mac to buy the loans, and the creation of supposed insurance programs called "credit default swaps".  Remember from my previous posts that Fannie and Freddie are actually Government Sanctioned Enterprizes (GSEs).  This means they are ran/controlled by our government.  Banks now were happy to lend because they could get the high-risk, "subprime loans" off their books and they had a ready supply of money through Wall Street investment firms which packaged these loans as securities and passed them off as safe investments. The problem was that they were never really safe investments. But, as long as there was a buyer, no-one cared.  So we ended up with the perversity of lenders offering nothing down, no payment required loans, to unemployed people who were destined to fail.  These available loans also manifested a greed in all of us a s potential homeoweners.  I too was guilty as charged. Just like you I don't remember anyone standing over me with a gun or knife making me sign on the dotted line.  So the loans drove the demand higher and the prices higher and the sales and loan commissions higher, inflating the bubble.  We didn't think it would ever end.  But then came the crash.

By late 2006, loan defaults were increasing as original "teaser" interest rates reset to full payments that buyers could not afford. The bubble was popping. By 2007, as defaults and foreclosures started skyrocketing, the housing bubble began deflating but this was still lost on Wall Street which did not realize (or had ignored) that these sub-prime loans now made up the majority of their investments. By 2008 however, Wall Street was in a panic as they realized that hundreds of billions of dollars of investments they had sold the American public was backed by worthless loans.  They had no money to operate and no more money to loan to banks to make more loans. The market finally collapsed and the entire economy was threatened.  In came the U.S. Treasury in 2008 with a series of (failed) bailouts and buy-ups to stop the damage. When the dust cleared, many Wall Street investment firms were gone anyway, banks went under, and you and I, the American taxpayers, were on the hook for 80% of the sub-prime loans which by now were held by Fannie Mae and Freddie Mac.  The only thing left was to clear out the bad loans and that led to the housing and foreclosure mess that we're still going through today.

So what should we expect going forward?  Here's my thoughts on this:

1.   Don't expect help from the Government - I am not saying there won't be relief.  However, preserving bad loans is not on anyone's agenda and with the increased Republican control nationwide, the push will be to strengthen the economy and provide incentives to create more jobs.

2.  Expect the pace of loan resolutions to increase - While loan modification success has been dismal, Government financial incentives for principal reduction kicked in October 1st and may improve these numbers.   However, news as recent as this past Monday already shows Fannie has rejected the principal reduction policy. But again, preserving bad loans is not on the agenda.  I do expect short sale success to improve as lenders finally seem to be getting it that a sale yields a better return for their investors than a foreclosure.  But all those HELOC second loans may get in the way as they demand full recourse or substantial payoffs.  The most likely scenario is that foreclosures will increase as lenders seek to get what they can and move on.  We're already seeing a faster recording of Default Notices, even by the highly publicized BofA.  You should expect this to continue.

3.  Prices are not likely to rise soon - According to the US Census Bureau, in 1900 less than half of people owned their homes. By the start of the housing bubble in 1999, that number had increased to 66.9% and, at it's bubble peak, the rate reached 69.2% nationwide and much higher in some States.  Today, that ownership number has returned to pre-bubble levels.  Over 18 million homes stand vacant or are in default.  This supply, plus harder to get loans, will keep a lid on any upward price pressure for many years.

4.  Credit Challenges will continue to rise -   The chain of events has left many of us facing increasing issues with our credit and credit reports.  It could be job losses, short sales, foreclosures, furloughs, divorce, stress induced illness, or any life changing event that has forced many to make choices that have negatively impacted their credit reports and scores.  This will be a growing concern for everyone as the availability of credit cards, loans, etc will remain short.

One thing is for certain, we still will have problems to deal with over the next several years as this housing crisis continues.  So, if you, your family member, coworker, neighbor, parishioner, or your clients are upside down on a loan and facing foreclosure, this is a time to act to seek that modification or complete that short sale. Whatever the challenge we offer customized solutions at no cost.  We understand both the practical and emotional aspects of your situation and have the experience to help you navigate your tough decisions. 

Keep in mind that the information presented in this post is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan(s), especially if you're facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 

Look forward to hearing from you.