Post by unlawflcombatnt on Jul 31, 2007 18:31:41 GMT -6
Below is an article from efinance titled
Top 10 Reasons Why We Are In a Housing Bubble
"
1. Loose Credit Regulations
At one point, it was hard to buy a house unless you had good credit. At the very beginning of the housing boom, lenders changed all of that, making it easy for risky borrowers to get a 'subprime loan'. The banks loaned money recklessly because they made lots of money by charging borrowers higher interest and were able to transfer the risk onto organizations like Fannie Mae and buyers of mortgage backed securities.
2. New Mortgage Instruments
Fixed rate loans used to be the loan of choice for most homebuyers. The problem was that many borrowers didn't qualify for these loans because they couldn't afford the loan payments. Lenders found a way around this by offering new mortgage products like interest-only loans and ARM loans with exotic features, which had lower initial payment than the traditional 30-year fixed. These products allowed borrowers to qualify for huge loans they had no business getting and no way of affording once the interest only period was over or once the rate adjusted.
3. The Federal Reserve
In order to prevent the dot.com bubble from dragging the entire economy into the toilet, the Federal Reserve began to lower interest rates. They dropped rates to historically low levels, and everyone used this action as an indicator that it was a good time to buy a house. In reality, all the Fed did was create a new bubble in their eagerness to escape the bursting of the dot.com bubble.
4. Alan Greenspan and the ARM
In 2004, Federal Reserve chairman Alan Greenspan said it would be beneficial for borrowers to have easy access to ARMs. The advice was great for commercial banks but terrible for the American people. Of course, most borrowers didn't realize that Greenspan's main allegiance was to commercial banks so they used ARMs in alarming numbers. And thanks to Greenspan's unforgivable guidance, more than $1 trillion of ARMs will reset in 2007 alone. Payments for some mortgage holders will increase by as much as 70 percent. In short, the banks got rich and the American people are suffering the consequences.
5. The Government is Weak
In our schools, we teach our children that America is run by the government officials that we elect. What we should be telling them is that the government is run by our countries' largest banks, corporations, and associations, which contribute to campaigns and lobby leaders on a daily basis. Our government cares more for them than they do for the American people and have proved this by turning a blind eye to the actions of lenders and borrowers alike. Because of that, everyone - not just the people who bought during the boom - will feel the effect of the bursting housing bubble and the coming recession.
6. Real Estate Appraisers
There are a lot of real estate appraisers out there who should be sitting in prison because of their participation in mortgage fraud. In a recent survey, 90 percent of appraisers admitted to being pressured by lenders to turn in exaggerated housing values. What's worse, a large number of them admitted to doing just that. The appraisers justified this behavior by saying if they didn't do it, lenders would refuse to work with them on future jobs. The result: it was the buyers who ended up being a victim of the fraud. Because of an over-inflated appraisal, they paid an over-inflated price.
7. Real Estate Flippers
Real estate flippers were a huge part of the market boom. Longtime investors -and every Tom, Dick and Harry - got wind of the idea that there might be money to be made in the housing market and they turned out in full force. Houses started selling for more money than ever before. But pretty soon, the prices moved beyond what people could afford and the negative side effects of irrational flipping became obvious just as they did before the great Florida real estate crash of the 1920s.
8. Housing Price Bulls
No matter what the housing market is doing, there are housing price bulls out there who do their best to instigate people into buying. Even though the majority of these optimists work for real estate, mortgage, and home construction organizations and cannot be considered an unbiased authority, the mainstream media quoted them and treated them like one anyway. The bad advice doled out by individuals like David Lereah of the National Association of Realtors (NAR) made people think that home prices would only keep going up, up, up. As a result, those who bought during the boom overpaid for their homes.
9. The Media
Most recently, the media has been blamed for the current downturn in the housing market. The very idea is ridiculous. If anything, the mainstream media helped to create the housing bubble. Newspapers, radio stations, and even television stations need the advertising revenue from realtors, lenders, construction companies and others in the industry. They are constantly pressured by these advertisers to put a good spin on housing market news. If you think the media doesn't change stories or think about this when creating headlines, think again. The only honest news nowadays comes from bloggers and online scribes.
10. Overeager Buyers
These poor folks bought into the hype that housing was a good investment and that home ownership was the American dream. They competed with one another, which helped to drive up prices. They were also willing to take out a bad loan and spend more than they could afford just for the privilege of owning a home. Now, many of these eager beavers are facing foreclosure, financial devastation and even homelessness.
"
Top 10 Reasons Why We Are In a Housing Bubble
"
1. Loose Credit Regulations
At one point, it was hard to buy a house unless you had good credit. At the very beginning of the housing boom, lenders changed all of that, making it easy for risky borrowers to get a 'subprime loan'. The banks loaned money recklessly because they made lots of money by charging borrowers higher interest and were able to transfer the risk onto organizations like Fannie Mae and buyers of mortgage backed securities.
2. New Mortgage Instruments
Fixed rate loans used to be the loan of choice for most homebuyers. The problem was that many borrowers didn't qualify for these loans because they couldn't afford the loan payments. Lenders found a way around this by offering new mortgage products like interest-only loans and ARM loans with exotic features, which had lower initial payment than the traditional 30-year fixed. These products allowed borrowers to qualify for huge loans they had no business getting and no way of affording once the interest only period was over or once the rate adjusted.
3. The Federal Reserve
In order to prevent the dot.com bubble from dragging the entire economy into the toilet, the Federal Reserve began to lower interest rates. They dropped rates to historically low levels, and everyone used this action as an indicator that it was a good time to buy a house. In reality, all the Fed did was create a new bubble in their eagerness to escape the bursting of the dot.com bubble.
4. Alan Greenspan and the ARM
In 2004, Federal Reserve chairman Alan Greenspan said it would be beneficial for borrowers to have easy access to ARMs. The advice was great for commercial banks but terrible for the American people. Of course, most borrowers didn't realize that Greenspan's main allegiance was to commercial banks so they used ARMs in alarming numbers. And thanks to Greenspan's unforgivable guidance, more than $1 trillion of ARMs will reset in 2007 alone. Payments for some mortgage holders will increase by as much as 70 percent. In short, the banks got rich and the American people are suffering the consequences.
5. The Government is Weak
In our schools, we teach our children that America is run by the government officials that we elect. What we should be telling them is that the government is run by our countries' largest banks, corporations, and associations, which contribute to campaigns and lobby leaders on a daily basis. Our government cares more for them than they do for the American people and have proved this by turning a blind eye to the actions of lenders and borrowers alike. Because of that, everyone - not just the people who bought during the boom - will feel the effect of the bursting housing bubble and the coming recession.
6. Real Estate Appraisers
There are a lot of real estate appraisers out there who should be sitting in prison because of their participation in mortgage fraud. In a recent survey, 90 percent of appraisers admitted to being pressured by lenders to turn in exaggerated housing values. What's worse, a large number of them admitted to doing just that. The appraisers justified this behavior by saying if they didn't do it, lenders would refuse to work with them on future jobs. The result: it was the buyers who ended up being a victim of the fraud. Because of an over-inflated appraisal, they paid an over-inflated price.
7. Real Estate Flippers
Real estate flippers were a huge part of the market boom. Longtime investors -and every Tom, Dick and Harry - got wind of the idea that there might be money to be made in the housing market and they turned out in full force. Houses started selling for more money than ever before. But pretty soon, the prices moved beyond what people could afford and the negative side effects of irrational flipping became obvious just as they did before the great Florida real estate crash of the 1920s.
8. Housing Price Bulls
No matter what the housing market is doing, there are housing price bulls out there who do their best to instigate people into buying. Even though the majority of these optimists work for real estate, mortgage, and home construction organizations and cannot be considered an unbiased authority, the mainstream media quoted them and treated them like one anyway. The bad advice doled out by individuals like David Lereah of the National Association of Realtors (NAR) made people think that home prices would only keep going up, up, up. As a result, those who bought during the boom overpaid for their homes.
9. The Media
Most recently, the media has been blamed for the current downturn in the housing market. The very idea is ridiculous. If anything, the mainstream media helped to create the housing bubble. Newspapers, radio stations, and even television stations need the advertising revenue from realtors, lenders, construction companies and others in the industry. They are constantly pressured by these advertisers to put a good spin on housing market news. If you think the media doesn't change stories or think about this when creating headlines, think again. The only honest news nowadays comes from bloggers and online scribes.
10. Overeager Buyers
These poor folks bought into the hype that housing was a good investment and that home ownership was the American dream. They competed with one another, which helped to drive up prices. They were also willing to take out a bad loan and spend more than they could afford just for the privilege of owning a home. Now, many of these eager beavers are facing foreclosure, financial devastation and even homelessness.
"