Many daily newspapers are asking a question I have asked for a long time before the residential real estate bubble finally burst, and foreclosures, not sales, became the norm.
The question is "Who was to blame for the rapid increase in real estate prices and most of the obvious fraud that followed, resulting in the worst foreclosure crisis in American history?" The answer is long and complex, hence the lawyers have jumped on board to sift out the blame and figure out who deserves to be compensated for losses. The main players in the home real estate and mortgage foreclosure fiasco are all suing each other. Home owners are suing realtors, mortgage companies are suing fraudulent buyers, local governments are suing lending companies and appraisers, and some mortgage brokers and lenders are being sued by everyone.
When I saw so many unqualified buyers buying expensive real estate so fast during the so-called real estate boom, I warned people I knew that the worst real estate bust in history will soon visit upon us. My reasoning for the "dismal real estate bust prediction",
was that it is not possible for real estate values to go up so high, so fast when people are losing their jobs, losing health care benefits, gas is skyrocketing, and American salaries are being decreased, not increased. The reason brokers gave to justify selling subprime adjustable rate loans was that homebuyers were told, "you don't make much now, but when your monthly rate increases your income will also increase. But, of course, any level-minded sensible person would understand that most employees don't get 30% salary increases in three years as the adjustable rate subprime theorist suggested.
The reasoning many potential subprime homebuyers made for buying a home with an adjustable rate subprime loan was, "if it was not possible for me to pay for this house, the
mortgage company would not have allowed me to purchase it." One such person this statement actually came from was an educated retired school teacher I spoke with who purchased a new home at retirement with a subprime loan. I attempted to counsel
her to understand that because her home price was huge and her payment was tiny, her
loan was an adjustable rate subprime loan. Sadly, she did not understand what a subprime loan was, she had a high credit score, and she would not listen when I tried to tell her she was qualified for a much better product and the broker she was dealing with was fraudulent.
Well, now she understands that too late, and found that she qualifies to be a part of a lawsuit her city is filing against her broker and other mortgage companies who gave adjustable rate subprime loans to people with high credit scores, based on higher commissions for the broker. At the time she accepted the loan, I told her that her income
qualifies her for a conventional $200,000 loan, but the fact that she was purchasing a $600,000 home was a screaming clue that she was getting a subprime loan her broker did not explain to her, but she refused to see the reasoning.
The retired school teacher was forced to refinance in just 12 months due to a
drastic increase in her monthly payment coming due at adjustment. She was a part of
the highly qualified home buyer who:
1. Did not understand what an adjustable rate subprime loan was,
2. Was not told she was being sold an adjustable rate subprime loan,
3. Was fraudulently sold an adjustable rate subprime loan, when she qualified for a low interest fixed rate 30 year loan.
This behavior was a part of the dishonest mortgage brokers who sold subprime loans based on higher commissions instead of qualifications and understanding on behalf of the buyer.
Who is to blame for the foreclosure explosion that followed the subprime mortgage fiascoes? In my opinion the mortgage industry has been loosely regulated and monitored by government agencies, as a result mortgage brokers and lenders have had little consequence for their actions. Many Americans are against government regulation, but to me this is a major reason why the government should closely regulate industries such as this. Blame should start with the federal government, then state governments, the cities, the lending industry, the mortgage brokerage industry, and the real estate industry. All of these entities should get together rewrite rules, regulations, and enforcement. Each homeowner who lost their homes to adjustable rate subprime mortgage loans or were sold homes they could not afford, should be paid for pain and suffering. All of these agencies knew that the home prices were increasing at an alarmingly false rate, and they also had many clues that fraud artist were artificially assisting in increasing home prices. The agencies allowed it to persist until finally the federal government and lenders pulled the plug on abusive lending when foreclosures started to skyrocket far beyond historical rates.
