All over Active Rain right now members are discussing mortgage abuses, impending avalanches of mortgage foreclosures, predatory lending practices, excessive pressure on appraisers to 'make transactions work'! See Lenn Harley's Blog and Ed Rybczynski's Blog!

Many of the lenders who participated in these abuses are no longer operating. The vast menu of mortgage products has already been whittled down to the programs of the eighties. Property values are declining in most places, housing sales are stagnant, in the greatest 'buyer's market' in many years there are virtually no buyers, consumer confidence is almost non existent, the dollar is falling fast worldwide, the stock market is mirroring all this bad news, and if you can think of any other negative news feel free to add them in your comments.

All slippery slopes end in a valley!!!

We need to go back and see where we went wrong. Let's examine some factors. In the Carter administration, inflation had spiraled almost out of control...even with excessive government regulation and control.

During the Reagan administration, free markets, competition, and retracted government spending were stressed and resulted in inflation being brought under control. Welfare programs among others were virtually eliminated. Interest rates on home mortgages began to decline from their 17% & 18% and higher levels. As these interest rates declined, property values were rising, and competition spurred the growth of new and 'creative' financing in the real estate market.

Peaks don't last long...slippery slopes can follow them!

One of the old segments to suffer was the 'private mortgage insurance' sector. Loans with LTV's above 80% were typically put through a 'dual' underwriting and/or approval process...just to digress a minute...I remember loans at say 90% LTV's being approved by the lender only to have the 'PMI' company reject them...the 'loan' would then be 'shopped' to another PMI company...or another...until one PMI company would approve the loan.

I'm going out on a limb and sighting this practice as the 'beginning' or genesis of 'the slippery slope' from which we are now suffering. Think about it...Stressing 'free markets' and 'competition' to control inflation we got carried away ...we threw out the baby with the wash water. It is now the late 80's and we all know what happened with RESPA and the real estate industry. They opened the 'floodgates' and allowed previously illegal controlled business affiliations CBA's, now ABA's, to flourish and proliferate under the 'guise' of reducing closing costs...get real...we all know that there were no closing costs reduced as these 'bundled services' and 'one stop shops' were permitted free reign to grow and operate as they pleased...with hardly any consequences...we all saw and were witnesses to these excessive abuses...created for one purpose...to generate income, cash flow...and what did many if not most say...Well, everyone's doing it, we might as well jump on the 'bandwagon'...and so many did.

To digress even further, In 1970 I sold real estate, and after 52 transactions in a year and a half, during which my highest sale price was $37,500 dollars, I received 25% of a 6% commission from that sale. Today that same home will sell for around $350,000 dollars and if I worked for a 100% commission operation...you do the math!

In the nineties Baskin Robbins not only sold in excess of thirty flavors of ice cream but became the 'model' for mortgage lenders as programs proliferated at an unprecedented rate. PMI was all but eliminated...in fact any previously existing entity which could have had a deleterious effect on the approval and final closing of a real estate transaction was quietly and judiciously eliminated...instead of 'increased competition' causing free market benefits, competition was eliminated or 'absorbed' into the new model of 'greedy real estate entrepreneurs'. Transactions were steamrolled quickly and expeditiously through the process as many winked in 'back rooms' at their financial successes...in some cases their illgotten gains...we are now reaping what we have sown!!!

We went from the seventies where it was advisable to 'buy the home you could least afford' to this new millenium where the mantra became, 'buy the house of your dreams at all costs...you'll be able to afford it in the future'. There is a lot more to this evolution than going from 'vanilla' mortgages to 'many flavored ones', but space and time do not allow it in this post!

Let the debate and discussions begin...but please, I plead with you...let's not try to attribute 'blame'...let's rather seek solutions!!!