Sharing Blame for Economic Downturn

Over the last few months, we have heard over and over how the banks have been at fault for loaning money where risk level was high. All along, I have said - those buyers signed for those loans. There is always TWO ways you get approved -- one, the bank says how much you can qualify for. Two, is what YOU are comfortable with. Usually if you purchase ALL of what the bank approves you for, you will not be prepared for any "setbacks" that may happen.

Being a homeowner, will provide you will an endless list of home repairs. These can range from minor to very major investments. If you have financed all of which you can afford, these setbacks could send you into foreclosure within months.

Many financial specialists profess we should have up to six months of disposable income available at all times, just for those setbacks. With a good economy, we as Americans have purchased multiple homes, more expensive cars, and have primary mortgages higher than we can easily afford.

With homeowners refinancing and taking equity out of their primary residence, mortgage debt has grown from 69% to 100% today. (As quoted in the Denver Business Journal 12/1/08) Since the mid 90's, our steady debt accumulation by both households and financial instituions has been a concern. Between 1977 and 2007, the U.S. debt rose from 1.6 times gross domestic product to 3.5 times. When a home has been refinanced up to 100% of home value, and with home values decreasing, the only way to get out of debt, is to have a "fire sale", or go into foreclosure.

Hopefully, over the next few months, foreclosures will slow down, and values will again be visible. Over the last month, lending requirements have increased and should help in the coming months to help strengthen our economy.