Like A House Of Cards…

A really good three part series (one,
two, and
three) in the Strib on the rash of foreclosures have affected Wright County, but it\’s all quite applicable across the state and the country.

What I\’ve taken away from this series, and other articles I\’ve read and seen, is that there is
plenty of blame to go around; no one group is completely responsible. From predatory lenders,
to greedy/ignorant builders, to ignorant/greedy buyers, and ignorant/greedy city planners … there\’s plenty of places to lay blame.

While everyone may be to blame, there are some definite losers out of this. First are the most innocent ones, the existing community members. They\’ve seen an influx of people (or promise of an influx) and need for infrastructure, but now are left holding the bag on those projects going forward. Who is going to pay for those new roads, new schools, new sewer and water lines? They are… and for a long long time.

Next are the suckers… er, I mean poor people who bought these homes. I have less sympathy only because I feel that it was very foolish to purchase a home so far out of the metro area. If your job was in Maple Grove, perhaps it made sense. But not all of the foreclosures are happening in the exurbs. Actually, I do have a lot of sympathy for these folks because the intricacies of buying a home are ridiculous. From my own experience: I have a primary mortgage and a home equity line of credit (HELOC), functioning as a second mortgage and is an ARM. I was told that my HELOC was only going to be sixty dollars a month, turns out that was only the prorated amount for the rest of the month. Additionally, we all know what rates have done in the past few years (although they\’ve come down a bit recently), but my sixty bucks a month ballooned into well over four hundred a month. I went into this with a good understanding of the process. Understanding that my ARM would be interest only for 10 years… but I would be able to re-fi before then and get rid of the ARM… right… right?!?! On the other hand, would I have been foolish (or reckless) enough to buy the entire house using an ARM? Not a chance; but even for the semi-informed, there are pitfalls that your mortgage person may *inadvertently* overlook informing you about.

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Now on to the groups where I really have no sympathy, and in fact have a fair amount of contempt, the builders and the lenders. First the builders: can you really blame them for continuing to build and build when the money was pouring in? Yes… yes you can. If anyone should have been in tune with what was going on it the market, it\’s the builders. Are there some builders who have been hurt by what happened? Yes, but it\’s nothing like the homeowners and cities they\’ve stripped clean and left in literal ruin.

On the other side, the ones who are at most fault and are most contemptible are the lenders.
When I say \”lenders\” that covers a lot of ground. We\’re talking about the mortgage companies
that used very poor judgment (and that\’s being nice) in signing people up for mortgages they
never should have qualified for. We\’re also talking about the large banks who bundled these risky mortgages up as securities and sold them to the suckers (read: Bear Stearns) on the open market. This made a disaster, a colossal disaster by dragging the world markets into the fray.

With all that being said, what I\’ve found most interesting are the parallels between the housing
bust and the \”tech-bubble\” burst earlier in the decade. Something that everyone should have seen coming, and something that was, if not preventable, could have been mitigated. Communities, such as St. Michael, that chose to limit growth are not feeling the same pinch as other communities. Although they took a more conservative approach to the growth and at the time felt they might have been missing out on the boom, they aren\’t feeling the pain like other communities and are relatively stable.

I think the Phillips Distilled Sprit company says it best, \”Moderation Is The Mark Of Maturity\”.







2 responses to “Like A House Of Cards…”

  1. Explosive Bombchelle Avatar

    What I find interesting is how little focus was placed on the rising cost of gas and the effect this will continue to have on outer-rim suburbs in cities nationwide. As our friends know, gas prices and the effect they would have on commuting costs was a major factor in our home buying. Everyone, especially our realtor, could not imagine why we wouldn’t consider even Eden Prairie or Chaska because we would get so much house for our money. 3 years later and the gas prices hurt, but not as much with a 5.1 mile commute. The added bonus; gas money saved allowed us to purchase a bigger home.

    As for the ARM thing, yeah, it sucks and we were nervous about it but it is for very little. I could not imagine staring down the barrel of a full mortgage ARM wondering what my payment would be month after month.

  2. anderswa Avatar

    re: gas– many also know that being able to use public transportation was a major factor in my job search; with $4 / gallon gas looming in the near future, my drive from happy valley to minnetonka every day was looking incredibly unappealing. (not to mention environmental impacts.)

    to the topic at hand, though. i agree with your sympathies to home buyers. could the process be any more $#*ing complicated? how many people truly understand everything they’re signing away on closing day?

    finally– while the housing market was bound to rebound at some point, this is really unsettling. sure glad the government is spending up to $30 billion to bail out bear stearns.

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