I would shift #’s 2 and 3 of the ‘Bad Business Practices’ in the ‘Greed’ category. Especially #2, since those folks signed their names on the mortgage contracts (I’m assuming in ink, and not crayon). “…put into…” may not be the most accurate phrasing. IMHO. As for #3, how could they not?

…What pisses me off is that the property tax people suddenly don’t know anything about the values of homes dropping…

I hear ya on that. Our town’s 5 year cycle of property evaluations occurred just before the mortgage crisis. They compensated the supposed 70% increase in housing values by adjusting the mil rate slightly, for now. Within the next 2 years, my property tax bill will likely nearly double over what it was a year ago- while the value of my home will have dropped.

As Max said, my home is a life choice so we’ll be fine either way on the value of the house. And while it is true that it’s all on paper, the paper that pays my tax bill is not fictitious.

Got a nice house for sale, nice neighborhood, good location, priced reasonably. What with the tightening of credit (pendulum swing: tougher to get loans for everybody) and the Air Force five year freeze on moves, we’re muuuuch slower to find a good buyer than the guy down the street the year before.

OBTW department: ISTR one of the board members involved here is Jamie Gorelick, she of the pre-9/11 intelligence “wall”. So much value to our country she’s added.

If you bought a house as a lifestyle choice and not an investment vehicle, you’re going to be fine.

– Max

Unwarranted assumptions:
1. Real estate values will only go up.
They never have before, but “This time it’s different.”
2. You can package mortgages into financial instruments that are as good as money in the bank.
3. You can use said Collateralized Mortgage Obligations (CMOs) as collateral to leverage your investments because they are so “safe.”

Greed.
1. In some markets, primarily Florida, Arizona, Nevada, and California housing prices went steadily upward for several years. As a result, many “home buyers” were actually speculators who were buying houses before the foundations were poured and selling them for a profit when the houses were completed. Easy money, yeah. Even more money if you could carry two or three at one time. And some were.
2. Mortgage money was flowing. (A lot of it was coming from the “carry trade:” Borrow for 1% in Japan and lend it for 5-6% in the U.S.) The mortgage brokers were reaping big commissions and with direction from Congress figured out ways to make it very easy for “non-prime” buyers to get into the house of their dreams.
4. CMO bundlers were reaping big fees from selling the CMOs to banks, pension funds, hedge funds, foreign governments, etc.
5. Financial institutions used the CMOs as collateral to borrow more money to lend in the mortgage frenzy.

Bad business practices.
1. When the Fed began raising interest rates and mortgage rates rose as well, many smart people did not see the end of the housing boom coming. Many mortgage bankers opined that it would take 7% rates to slow housing demand. They were wrong.
2. Too many people were put into adjustable rate mortgages without them understanding what would happen when the rate adjusted.
3. Too many financial unstitutions did not foresee that if the mortgages inside the CMOs began to default it would increase the risk of the instruments.
4. A change in accounting procedures for the financial institutions (banks, investment banks, brokers, insurance companies, etc.) called the value of CMOs into question. The rule called for financial institutions to “mark all their investment instruments to market.” CMOs, because they were normally held to maturity, were carried on the books at cost. The new rule required the institutions to value them as if there was a market for them. When the defaults began to rise some institutions started to wonder just how safe the CMOs were. Some attempted to sell them, but since there is no CMO “market” there were no takers. Suddenly, all these instruments were suspect.

And that my friends is how the panic in the credit markets began. 96% of the mortgages in those CMOs are probably sound and performing, but since there is no “market” for them, all the financial institutions have been writing them down as losses of as much as 80-90 cents on the dollar. This whole thing is insane, but the bears love it and the dems love it. The panic is on and it will take time to restore confidence in mortgages.

The Fannie & Freddie takeover is related to all this because it is absolutely necessary to restore confidence in these entities. The way they did business for the last 15 years was wasteful/profligate. The companies were used as political footballs mostly by the dems but also, I’m sure, by Republicans. They overpaid their managers and spent unnecessary money on lobbyists and political favors.

Anyway that’s the way I see it.

[rant editor ON]:

I’ve played the housing market straight up – 30 or 20-yr fixed mortgages only; sold a house when I had to and took a $40K loss in the process so I could get on with my life in another state. I didn’t take out any crazy pretend-you’re-rich loans. I have an outstanding credit rating, yet USAA says my new home’s value has plummeted in the year since I bought it and they can no longer allow me to keep a line of credit on my house (so far untouched, but I liked having it there “just in case”).

What pisses me off is that the property tax people suddenly don’t know anything about the values of homes dropping and I haven’t heard anyone scrambling to help me deal with the property tax issue or make up the $40K hit I took on the house I sold last year.

I feel this is a personal-responsibility/greed issue – all these people walking away from stupid $500K interest-only (for the first couple of years) loans – what the hell did they think was going to happen??? And the idiots who were writing the loans with no questions asked – don’t get me started on how far they stuck their heads up their own asses. The whole lot deserve each other and they should all be forced to pay dearly for this crappy situation.

[rant editor OFF]

Sorry…got kinda carried away for a minute. This whole situation just sucks.

Probably I better just stick to commenting on sea stories.

Brian