Here's the "straight talk express" that you won't hear from any candidate. Lenders get their money from the government. How much money they get depends on whether the loans are "performing" or "non-performing". A non-performing loan is one where either the payments are being made late or not at all, which of course would enter the property into the first stage of foreclosure. When a bank holds a note (loan, mortgage) that is not performing their ability to aquire capital from the gov. goes down. When their borrowing power goes down they can't approve as many loans, less loans means they have to tighten their restrictions on who can get a loan and they make less $. Today there are about 1.5 million people that are in some phase of foreclosure at any given moment, and for the last 10-20 yrs it has been roughly 1 million (12-18 million homes a year, that's alot of homes.) So the last thing the bank ever wants is a foreclosure, they want the loans to keep performing so they can keep borrowing and increase business, and they DEFINITELY don't want to hold property. So what did they do 20 yrs ago to stop the increasing stockpile of homes they were absorbing? They satisfied their own greed by appealing to the greed in everyone else. They created a situation where the most profitable stage in the foreclosure process was no longer the actual moment when the home is foreclosed on at the ctiy courthouse, where investors can only buy with cash. They taught people people to seek out distressed owners before the foreclosure took place, and the best part here is you don't need all cash, you assume the already existing loan (if it's FHA / VA gov't loan from Fannie Mae or FreddieMac) or buy the property "subject to" the existing financing. First let's look at Fannie Mae and Freddie Mac. They typically give loans to people in government services and what makes their loans special is that the mortgage is "assumable", meaning the property owner can sell their house directly to a buyer and the loan can be re-written in the new buyers name. The new buyer now holds the exact same mortgage without having to be approved by a bank or pay a re-financing fee, this is a perfect situation for an investor and therefore are targetted. So what happens is we have a program that is intended to help our army (or other gov't workers) but these gov't loans, with great terms, end up in the hands of investors. In fact this same loan will get passed from hand to hand through the years until finally real estate appreciation hits a roadblock. Years later many of these loans have been bought into legally and with no oversight, by people who could never afford them and were banking on the market appreciating. Now Freddie and Fannie, and the taxpayer of course, are paying for not regulating the terms of their loans by absorbing a flood of inventory and needing to get bailed out.
So what was the banking industry and wall street response to this 20 years ago? To do the exact same thing. Instead of absorbing more foreclosed homes they started teaching people to buy out distressed property before this happened, and instead of having a "non-performing" loan on their books they had a performing loan which justified borrowing more and then making more loans, keep in mind this is business and it is a legal requirement for them to make their stock holders the most $ they can, so it's really not that people are choosing to be corrupt but it is their resposibility under the law to take advantage of a loophole where they can.
How does this work? It's pretty simple, all it required was to expose the process the banks go through in doing business. Right now anyone who owns a home with a mortgage can sell it legally without needing to consult the bank. In fact on the HUD closing documents there is a box you check if you are buying a property "subject to" the existing financing. The only difference between a bank loan and a gov't loan is that on a bank loan there is a "due on sale" clause giving the bank the right to call the loan due if the property is sold. But guess what, the bank isn't going to do anything. All they are concerned with is that the payments keep coming so the loans keep performing and they can keep borrowing so they can MAKE MORE LOANS. And what's more is that, since these loans are now performing, the lender needs to loosen the standards on who can be approved for a loan to continue growing. This lead to even more people being approved that could not afford it, which meant more foreclosures, which meant more investors, which meant the same bad loan getting sold over and over until the artificially inflated home values and the owners who couldn't afford them hit the ceiling and now this bubble is exploding.
This is why we are in the dilemma we're in now. And that's just the housing mess, the debt/credit industry is a whole nother story. In short the super rich are squeezing every last dime, and then some once they squeeze out all the credit, out of people. And where is all that money getting re-invested? China, a country just starting to boom. This bail out is not going to solve this problem, only prolong it and keep peoples jobs and investments stuck in the same system of feeding on failure. Although it is a bad situation It won't be the end of everything. It might surprise some of you to know Mexicans are buying up U.S. property ever increasingly. America's economy is in a downturn and the dollar is falling in value. This country is already verging on being the worlds Wal-Mart, pretty soon foreigners will be flocking to the U.S. because, by comparison to what they are paying, property here is dirt cheap. Neither presidential candidate is going to admit they can't solve this problem. Bottom line is the majoity of people in this country are living in their investments and they already owe more than it is worth. If things keep progressing this way we will convert from being a nation of owners to a nation of renters and the rent check will be going to foreign investors that don't even live in this country.
