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I Hate to Burst Your Balloon

07/06/2010

This post was originally run at http://www.TheSmartlyOC.com. What is SmartlyOC, you ask? Well, it’s only the most awesome consortium of writers, bloggers and other online gurus who dwell behind the Orange Curtain. Check ’em out. I dare you… but do it after you spend twenty minutes or so here!

Writing for TheSmartlyOC… such pressure.  I feel pressure to write, well, smartly.  Now, if I were writing for SnarkyOC, SportsOC, RealityTVOC or RandomCrapInMyHeadOC, this post would have already been done posted-ed.

So here’s the the thing.  I’m a mortgage broker, and I don’t feel so smart of late.  It’s a tough gig out there.  Rates are lower than they have ever been (and likely lower than they’ll ever be), and I can’t find anybody to take advantage of them.  It’s an expensive proposition.  Equity has been depleted by dipping home values.  Home values were over-valued for quite some time, but I was over-confident.  I saw the writing on the newly-renovated walls.  I was ready for prices to plateau and perhaps dip up to 25 percent.  I thought I could weather that storm, knowing full well there would be plenty of homeowners who would not.  I thought I was smart.  Well, my balloon has burst.



Diagram of a Meltdown - How to Burst a Balloon

The sub-prime meltdown is really a misnomer.  What we have experience is an across-the-board meltdown.  From A-Paper to hard-money loans, the market has been systematically undermined… undermined by whom?… The Banks.

What you see in the figure is largely a function of the banks.  The banks loosened guidelines.  The banks did not back their securities.  The banks did not do their due diligence.  The banks are solely responsible for this economic climate we all have to endure.  The banks were in charge.   These banks have refused to assume responsibility.  They shirk it, and our government not only allows it, they endorse it with initiatives like TARP (Toxic… err, Troubled Asset Relief Program).  This $790 billion endeavor was all but a book of blank checks to the banks.  The Home Affordable Modification Program (HAMP) has been largely unsuccessful mostly because its parameters are restrictive and the decisions are made at the bank level.  Whether a homeowner receives a meaningful modification is not merely a function of the government guidelines; it ultimately is the decision of the banks.

In the genesis of this crisis, the Banks were the parents, and the homeowners were the children.  If your child comes home hooked on drugs, you have to take some responsibility as a parent when you let the dealers set up shop on your front lawn. The brokers and mortgage bankers might have been the pushers, but they only did what the banks allowed.  The banks have been worse than bad parents, they’ve been absent.  Before you lay the problems of the meltdown on the likes of Goldman Sachs, know that they are now, you guessed it, a bank.  A federally chartered bank that borrows at the Fed Funds Rate (nearly zero percent).  A bank that was entitled to and took Federal Bailout Funds for a crisis they exacerbated.

If you were expecting something funny, sorry to burst your bubble. But this was my token smart post.  Now on the sports, TV and general snark (who has recently been promoted from lieutenant colonel).

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3 Comments leave one →
  1. Carolyn permalink
    07/07/2010 9:24 pm

    The borrowers were the children. Ok- but even children have instincts to know when something is just plain wrong. They have to take some responsibility for accepting a loan they could not afford, and letting their greed for a big house over-ride their common sense. Children need to be disciplined !

  2. 07/13/2010 5:20 pm

    Steve, this was really interesting reading. I think Carolyn is on to something, too. The buyers have to take some responsibility for their actions. But, yes, the banks are mostly to blame.
    I really hope business turns around for you soon.
    Suz

  3. 07/13/2010 10:34 pm

    Carolyn has been a homeowner for many years. Her situation is likely much different than many homeowners who entered the market in the last 10-years. Her frustrations are valid. It must be maddening to see neighborhoods change because the bar had been set so low for homeownership. Even more still to see those same borrowers flee in mass exodus now that financing is gone.

    But I am not mad at those people. There were many of us who felt we had to get in the market before we got priced out. Many homeowners extended themselves, and many over extended. These were not decisions made in a vacuum; it was a climate. What young buyer doesn’t expect that 1) I’ll make more money in the immediate future and 2) my home will be worth more than it is now?

    But in both cases, they just did what the banks (and brokers) allowed. The inflated highs were due to the banks. The artificial low, too, is due to the banks. The sad fact is that this crash is almost in whole attributed to the fallout to overzealous lending. There are many people who could have afforded their status quo, but either could not get refinancing based on the same credentials they initially qualified with, or chose to bolt because their asset is now undervalued. There are still others who now are unemployed (or under-employed) because of this bank driven crisis. What they could afford comfortably, they can’t now.

    Personally, I’m in a house that I could afford if I was making half of what I used to make; I never expected that I actually would, and why would I? What reasonable hard-working adult with three college degrees expects that?

    Carolyn is right to be mad. I just think her frustration is pointed in the wrong direction. Being mad at the borrowers is like being mad at the drivers of Toyotas whose braking systems failed. It is foolish to trust the banks. That’s like trusting the pit boss to look out for your best interest. But we should expect our own elected officials to police the fleecing, and they, most certainly, did not.

    If you doubt the culpabilities of those who make the decisions (the banks, wall street investment houses, and good ol’ US of A), I suggest Matt Taibbi of Rolling Stone’s article: “Wall Street’s Bailout Hustle” http://www.rollingstone.com/politics/news/12697/64868?RS_show_page=0

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