Dangerous Home Loans

"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson

Jefferson and the founding fathers were geniuses. We are stuck with Greenspan and Bernanke.  I feel compelled to speak about home loans and the danger they bring to those who buy at the top of the real estate bubble. My concern is that credit is becoming more restrictive, and that there will not be that appreaciation in homes that we have seen in the past 5 years. People just need to be warned of the difficulties and the ethical injustice of pursuading people to take on low down, or no down adjustible rate loans at a time when the rules governing these loans are becoming more restrictive and at a time in which interest rates that govern these adjustable rate mortgages are rising.

No one has a crystal ball, but it is a risky thing to buy more house than one can afford simply because one is offered creative financing. Remember, if you are relying on appreciation of your home to get out from under such "creative financing" you may be the last one in on a very large ponzi scheme, orchestrated by the federal reserve. It is clear that banks went from permitting a loan based upon 30 percent of income and are now doing what is being done in England, approving loans based upon 40 percent of household income. Add to that the interest only, jumbo, and down payment finance and you have a brewing disaster and will see inventory explode. This inventory explosion was created by supply side economics gone awry, as investors poored too much money into real estate and not the stock market, as well as low interest rates for two long causing people to take greater risks in real estate than they should have done!

Update 9/06: Here is an email that sums up my opinion about the housing bubble and the relationship of government to the bubble. I sent this email to Harry Reid, Senior senator from Nevada:

"I am very troubled by the senate hearing regarding housing. The senators invited shills of the housing market to tell us about whether or not there is a bubble!!

You must understand that Mr David Lereah, who failed to show, has been lying about housing for the past year. You cannot trust him or his buddy, Mr Stevens, who appeared before the hearings, to give you the scoop. In fact, Mr Stevens is the one whose house is not selling at all because of the bubble! What does he know? He can't even sell his house. What buyer would trust him? And this is an issue of trust. Buyers do not trust that the value of houses will remain where they are. They do not want to be the "greater fool".

It is necessary to understand that no one can predict the pain of 2007 and 2008 resets in housing arms and how that, coupled with baby boom retirement, will impact inventories that are already at record highs.

I predict that things will be bad in Reno, where we have 6k houses for sale with less than 500k people. We already have a disaster. Add to this mess mortgage and appraisal fraud, the huge amount people have taken out of their homes for cars, boats, etc, and tightening of lending standards, and you have a disaster waiting to happen.

There is not much the Dems can do, but you can certainly blame the fed for rates too low for too long and Bush supply side economics that put money into the hands of investors, and the Republican congress for the capital gains tax being eliminated which caused investors to compete with regular families. That was really stupid. And it appears many supply side beneficiaries invested in real estate instead of stocks during this time.

If you care about the middle class, you must warn them to not buy with these dangerous easy money loans. You Dems have become too comfortable, and you have not really given the middle class a reason to trust you. Housing may not remain in decline for 14 straight years as it has done in Japan, but it could be many years. People should be educated.

You Dems should have been warning about the dangers of these exotic loans for years and you didn't do it. Based on that why should you do any better than the dumb Republicans who have taken advantage of the middle class in every way? I think they should go, and so I will vote Democratic this election. But I don't think you "get it" any more than they do regarding housing."

A most helpful link with a real grasp on the issue of the housing bubble and on the issue of tools that help determine ACTUAL AFFORDABILITY of property is found at  http://en.wikipedia.org/wiki/Housing_bubble 

Again, it is greed, speculation, government incompetance and casual disregard for ethical behavior that is driving our economy to potential ruin. I hope that this will not happen, that there is a "soft landing", but I fear that will not be the case. I believe that Americans should save money, get out of debt and prepare for the worst, and hope it doesn't happen.Home