I have to agree with the analysis some economists are giving; indicating that it will likely take years for this to shake out completely. Still, I expect that we will find really solid ground on the other side. As a former foreclosure analyst, financial advisor, budding real estate investor and loan officer in Central Ohio at different points and time throughout the last 8 years, I had an opportunity to see every part of this crisis develop from nearly every aspect. And while I must say that this crisis has played a unique role in my decision to pursue a career change into Financial Engineering/Quantitative Trading, there were two problems that all the numbers are screaming, but no one wants to spend more than a sentence or two describing it -- fundamentals & behavior.
At some point, when you see a house has smoke coming from it, you should notice that smoke is coming out of multiple windows -- not the damn chimney.
Homeowner:
If your budget only allows for you to afford a $800 a month mortgage payment in Cincinnati, why are you moving to Chicago for the same comparative pay and buying a house the will cost you $780 this year, but will go up to $1119 at the end of 3 years ? Cost of living increase aside, you have to a financial plan in place to utilize such an instrument and it needs to be for specific, purpose â such as a distinct opportunity that facilitates switching career fields [i.e. a telecommuting opportunity that allows you to complete Business School/Law School and will likely have advancement opportunities upon completion of said graduate school work]. In situations such as that, it is a chance, but at least it makes sense because it supports a clear goal that should in turn make the mortgage increase affordable in the near future, should a refinance not become a reality.
Mortgage Brokers:
Why are you forwarding Appraisals on properties that were using inflated comps? If you know that bloated Lease-Purchase sales agreements where the Landlord/Real Estate Investor was charging essentially a usury rate of interest in the form of an over-inflated sales price, then how can you ethically close a loan for a renter/homeowner to-be as an 80 or 90% LTV ARM [read: Adjustable Rate Morgtgage] mortgage that behaves like "refinance" which is on a property you know is financed at closer to 115% of the true LTV even if the appraisal "suggests" that it supports the sales price? Folks, we all know that without some sort of macro economic stimulus, housing prices just don't go up at a sustained pace of 6-8% in any one metro [let alone one ZIP CODE] for more than a 2-3 years... people have to actually afford to pay the note on the property AND the taxes and insurance...
Loan Portfolio Director:
Why would you purchase mortgages from Mortgage Brokers who are behaving as mortgage bankers just so they can close loans, only to wholesale it within 90 days so that they do not have meet certain loan servicing & compliance standards and put an extra $6,000-$10,000 in the coffers, knowing that many are using less than ethical methods [read: smoke and mirrors that are often just plan fraudulent tactics -- see above] to close these loans?
Trading Desk Manager:
Why are you trading a security or derivative that no one seems to be able to establish ANY solid fundamental value on? I mean based on what I just stated and adding in over-utilitzation of leverage [really at every end of the game], how in the world did they expect for this NOT to happen sooner?
