How The 2007 Real Estate Disaster Happened
For years America's Watchdog has been warning about the implosion of the US real estate "bubble." Wall Street talks like the problem is behind us. In reality the "problem" is just in its initial stages, with more severe hardships that will affect individual homeowners as well as the over all economy. In order to better understand this real estate and economic disaster, America's Watchdog along, with its Homeowners Consumer Center, have assembled the main reasons this disaster happened, along with what citizens can do to position themselves from the storm that is about to come. Retail, auto sales, and many other sectors of the economy will suffer for the remainder of 2007 and 2008 because of the U.S. real estate disaster.
(Americas Watchdog and its Homeowners Consumer Center (Http://HomeownersConsumerCenter.Com) are among most quoted sources in the nation on predatory mortgage lending issues. For over three years Americas Watchdog has been warning of a coming real estate disaster, as a result of greedy lending practices. Despite the warnings, mortgage lending practices did not change, greedy mortgage lenders and homebuilders had their way with unsuspecting consumers, and now the U.S. economy it tittering on the verge of a serious recession or worse.
So what happened to real estate?
1. The single biggest problem with the "2007-2008 perfect real estate storm" was mortgage lenders more concerned about making money "right now"; regardless of the long term impact on the economy. It was about absolute greed. Greed manifested itself in many ways.
One element of the greed was a product called a "pay option adjustable rate mortgage" ( a suicidal mortgage product for the consumer and for pension funds or mutual funds that purchased these types mortgage portfolios).
Another aspect of the greed was "stated income loans", where the borrower, broker, or bank were able to make up the consumers income, in order to get the loan approved, even if the borrower never could make the mortgage payments. The National Mortgage Complaint Center has numerous examples where the borrower was told by the broker/lender, "don't worry about filling in the blanks on the mortgage application (Fannie Mae Form 1003), just sign it, and I'll fill in the blanks for you".
The third aspect of greed was massive appraisal fraud on the part of homebuilders, many of whom were also mortgage lenders. As an example of this fraud; a national homebuilder would go to Las Vegas, or dozens of other major US cities, with the following order to local real estate appraisers; "we want this much per house for our new 500 home sub division". If a local appraiser would balk at the inflated valuation and say, "the houses are not worth it", the homebuilder would find another appraiser who would give the builder the inflated values. Existing local owners then thought: " my house is better located, bigger, so its worth more than the new homes down the street". In the hight of the frenzy (2003-2004-the first six months of 2005), homebuilders & lenders got away with this practice, and valuations in many states sky rocketed. The problem now; the new houses were never worth up to 25% to 35% more than the existing market. According to Americas Watchdog, "our big worry is formerly hot real estate markets-adjusting down 25% to 35%-to pre-frenzy levels by this time next year".
Note: National homebuilders have a second gigantic problem. In the Southwest, Southeast, Northeast, & Texas most national homebuilders used undocumented workers to build the new homes. These individuals were frequently given a 1099 (sub-contractor form/or cash), and no one paid any taxes on them. Adding to the problem, because these workers frequently could not read English, the nation may now have literally millions of defective or unsafe homes & we now have hundreds of thousands of unemployed undocumented workers who do not show up in the Federal Governments "labor statistics" (because the IRS never knew they existed).
100% financing was always a disaster all by itself. Especially if you add the component of inflated real estate values. Now millions of US homeowners live in a house that has lost 10% to 15% of value with another 10% to 15% decrease in value coming in 2008. The $64 question now is; will those millions of homeowners stay put, or will they simply turn their keys into the bank & say "goodbye"? Americas Watchdog thinks 40% to 50% of this group will say goodbye. Many in this group are " real estate flippers" who put second mortgage on their existing home, thinking they could cash in big on the boom". Now many "flippers" are over extended and have flooded many formerly hot real estate markets with fire sale pricing on their investment or they may lose the home to foreclosure. This reality puts real estate values in many US regions at extreme risk, when you add in the foreclosures from pay option adjustable rate mortgages & stated income borrowers.
The Federal Government including the Federal Reserve looked the other way, because the housing boom was good politics. "Never mind that up to a million undocumented workers were paying no taxes on the new houses they were building, or never mind there was zero transparency in the mortgage process". The Federal Government, Congress and the Administration are just as guilty as the greedy banks and greedy homebuilders in this real estate disaster.
So what Happens Next or What Should Consumers Do Now?
1. If a consumer has a good mortgage product and they can afford the monthly mortgage payments stay put.
2. If a consumer suspects they are one of the millions of cheated US consumers, the National Mortgage Complaint Center (Http://NationalMortgageComplaintCenter.Com ) will review the homeowners mortgage documents for a modest fee & write a narrative report high lighting possible issues and then suggest possible ways to get their money back. This is the only service of its type in the nation.
3. If a consumer is thinking about purchasing a home, wait, or thoroughly do local real estate market homework before making an offer on any house. Do not finance or refinance a home without first getting a mortgage document review & report from the National Mortgage Complaint Center. This mortgage document inspection is also the only service of its type in the nation.
So What Should Wall Street Do?
1. Prepare for a serious recession. According to Americas Watchdog, "Wall Street was supposed to be looking 6 to 12 months out; it now acts like its looking 6 to 12 minutes out". "Forget about a white Christmas". "Retail, auto sales, and many other sectors of the economy will suffer for the rest of 2007 & 2008 because of the US real estate disaster". Expect a significant correction in the Dow.
2. In the opinion of Americas Watchdog; "greedy Wall Street investment bankers in bed with greedy homebuilders, mortgage bankers, with elected leaders standing at the door as a look out, have led us to this national disaster. Mutual funds, pension funds, and investment advisor's need to thoroughly examine their mortgage backed securities portfolios. In reality these portfolios may only be worth $0.70 to $0.80 cents on the dollar.
Note: Commercial real estate investment trusts will also get crushed in 2008, because of the economic slow down. Corporate down sizing will increase vacancies in commercial and retail properties. Apartment rents will also plummet because of a flood of unsellable homes suddenly in the residential rental markets in many regions of the US.
So What Should Our Elected Leaders Do?
According to Americas Watchdog, "two very good starts would be elected officials refunding all "campaign donations" from the mortgage banking & the homebuilding industry & our elected "leaders" need to enact legislation so the home mortgage process is transparent for US consumers. Transparency includes banks and mortgage bankers disclosing a kickback called a yield spread premium to consumers. "Mortgage brokers are required to disclose this kick back for inflating the borrowers interest rate/monthly mortgage payment, mortgage banks and or banks do not (even though they get them too)". This is a ridiculous double standard that has allowed millions of US consumers to be overcharged by their mortgage lender". On September 13th 2007, Americas Watchdog asked US Senate Banking Committee Chairman & Presidential hopeful Chris Dodd to answer this double standard question for every homeowner in the nation via a national press release ("Why the double standard on yield spread premium kick back's for banks?"). According to Americas Watchdog; Dodd has yet to answer the question to the nation".
Americas Watchdog is all about consumer protection, corporate fair play and integrity in our political system. If a consumer feels like they are one of the millions of US homeowners cheated in the mortgage process, a new home purchaser, whose house was built by undocumented workers, or whose new home is defective, please contact Americas Watchdog at 866-714-6466. or visit our Homeowners Consumer Center at Http://HomeownersConsumerCenter.Com and send them a contact note via their web site.