THE MORTGAGE MESS AND THE GOVERNMENT FIXES.
Fellow ActiveRain member Ken Montville speculates on the likelihood of significant losses in market value for home owners. Of course, it's all speculation. We can't see into the future. We can, however, speculate and the 30% decline in market value doesn't seem out of range to me. Further, the speculation that the government can prevent such a loss of market value by "saving" home owners from foreclosure or loss of their home through short sale, is, I believe, unlikely, simply because there just isn't enough money for them to do so. Any government fix, I believe, would simply do what all government "fixes" do, they favor some groups over others. For one thing, the government still has some "fixing" to do in Iraq. That's the classic example of "You break it, you fix it".
So far, all of the government "fixes" have reminded me of the proverbial "Gnat on the Elephant's back".
DON'T UNDERESTIMATE THE DEPTH AND REACH OF THE MORTGAGE MESS. The reach of the mortgage mess is wider than the government can handle. Unless the government is prepared to take over the financial houses that traded those securities designed to finance the exotic loan instruments to permit unqualified home buyers and investors to buy properties, there is little the government can do except drag the corporate officers to Capitol Hill and make speeches to the TV cameras.
LET'S GET A HANDLE ON THE NUMBERS. These financial houses are in the process of writing off, by some estimates, $300,000,000,000.00 in losses. Individual home owners loosing their properties to foreclosure or short sales are loosing, by some estimates, upwards of $50,000-$100,000 each. I believe it's a lot more. The predicted 1,000,000 foreclosures over the next five years will produce a loss of market value of about $100,000,000,000.00. The government proposes a $15,000,000,000 "bail out". I believe that predictions of a 30% drop in market value is quite conservative. Many markets have already experienced a loss of market of that magnitude. Goodness, read Bryant Tutas's blog and see a classic example in Central Florida.
THIS IS NOT THE FIRST TIME, JUST THE WORST. Northern Virginia home owners lost 20-25% of market value in the banking messes of the early 1990s and survived. The persons that will suffer in this present mess are not the persons whose home value drops. It's the person who has to sell because of job transfer, illness, loss of income, family emergency, etc., and can't sell because he owes more than the home's market value. If the home is simply a home, they can ride it out. The home owners that will be harmed will also be those who have mortgages with accelerating payment amounts and the home owner is unable to meet the new payments. Many of these owners defaulting property owners purchased for investment purposes and then found that the market stalled when they needed to sell and they have no equity with which to refinance. Many defaulting home owners are home owner/occupants who spent their equity when the market was accelerating at a fast pace and the home owners thought that the market always went up and never down. Now that they need to refinance out of short term ARMs, they have no equity and are stuck with resetting payments far higher than anticipated.
However, many market watchers believe that the problem of consumer defaults is far too large for the government to be able to fix. Like the gnat on the elephant's back, they can only chew around the corners. In time, the market will correct itself. It always has. It always will. It's called Capitalism.
PROSECUTIONS WILL COME. Many of those that profitted from gross mortgage profits will bask in the luxury of their ill found gains. The easiest to catch are the ones who are still pushing ill-advised mortgages. We know it's still going on. ActiveRain members have reported attempted mortgage fraud on their blogs and I hope they will continue to do so. We can help with awareness of what constitutes mortgage fraud. Agent involvement in their client's mortgage process can accelerate the demise of mortgage fraud.
Prosecuting the profiteering purveyors of piggishness takes time.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.