“I’ve seen the enemy and the enemy is us.”
I’ve been following the subprime mortgage debacle for a while now, giving it a lot of coverage. This bust has left us with some tragic results, as homeowners far and wide are left holding the bag and in ruins, after losing their homes and whatever else they’ve got.
It’s common knowledge how much fraud has become a big part of this crisis, but in their own defense, insiders from the real estate industry have claimed that this crime is actually victimless. Is that so? Well you know what mainstream articles on this subject would like to have you think, since they’ve done a good job with putting a face on this crisis, profiling the many who have fallen victim to the trend.
Israel Medina admits he got too gung ho about the idea of getting rich by flipping Bay Area real estate.
Medina, a Concord resident who ran a limousine company before wading neck-deep into the housing market, has seen not one, but 11, of his Northern California properties move into foreclosure in the past year, he said.
“I was a real estate tycoon; I had everything,” said Medina. “Now I have nothing.”
There are many participants caught in this sordid financial drama but it seems that we’ve already made up our mind about who’s really at fault here.
So who or what’s to blame for all this?
- The slimy real estate agent? These are the guys who give you cold calls and bug you to no end with the promise that you can buy houses without having to give up a single cent.
- The sleazy lender? They’re in cahoots with the agents, approving your loans in the blink of an eye.
- The big banks? Greedy capitalists (or so they say) who invested in a secondary, unregulated market based on loose and risky credit. That market is now shot.
- The Fed? The catch-all of blame for all things that have gone wrong with our economy, our system, etc. A favorite target for criticism from dismayed victims of foreclosure and loss.
- The developers? Hey we wouldn’t be in this mess if they didn’t build so many houses!
I’m sure you can tell (at least I hope) that my tone here is somewhat tongue-in-cheek. In reality, there’s not one element here that is solely to blame; what we’ve got is a cornucopia of reasons and factors and a clustering of events that have come together to conjure this disaster.
And one thing we shouldn’t leave out: the personal responsibility that homeowners have to take as participants in this predicament. It doesn’t help that victims themselves have made it easy for the bad guys to prey upon them, as evidenced by the following survey results.
Check out the results of this homeowner survey done by Bankrate, where people were asked several questions pertaining to their mortgage:
Some Quick Facts
- According to The Economist, almost 7% of mortgage holders have negative equity. They own homes that cost more to own than rent, but which would not be feasible to unload due to even larger costs.
- 1/3 of new subprime mortgages are expected to default.
- 34% of homeowners don’t know what type of mortgage they’re carrying. This has been attributed to the availability of more complicated mortgage products offered by unregulated lenders.
- 34% of adjustable rate mortgage (ARM) holders don’t know what they’d do once interest rates adjust. [I've been told by friends who are ARM holders that they're prepared to sell their houses if they're forced to. What they don't realize is how tough it would be to sell in a declining market.]
- 24% answered that they no longer plan to have the loan once it readjusts. [Would that mean bailing out?]
What this clearly states is that we need to do more to protect our money from ourselves. You’re bound to commit financial suicide with this combo: GREED, ENVY (yah, everyone and their uncle’s got a new house, now what about you?), IGNORANCE. We won’t stand a chance against pushy salespeople if we’re acting greedy or dumb.
Some Quick Advice
- Don’t buy if you don’t have the money.
- Don’t buy and don’t invest if you don’t understand the terms.
- Factor in all current and future housing costs before making a decision. Insurance and taxes can rise quite a bit every year.
- Get home-buying counseling and advice, do a lot of research and build up your knowledge prior to any purchase.
So look before you leap. Before buying a property and signing on that dotted line, make sure you know what you’re getting yourself into, how much you’re going to be “in it” for, and realize that you’re committing a huge chunk of your future into this transaction. It’s shocking that so many people would be putting their life’s savings at stake without fully understanding the details of their financial transactions.
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