When Banks Ruled the Earth
Remember when the very mention of ‘foreclosure’ or ‘collections’ struck fear into the hearts of homeowners across the land? It was a time, not so long ago, when banks ruled the earth. But, like Tyrannosaurus, banks’ dominion too now has ended.
Banks shmanks. Welcome to a new era of empowered homeowners who laugh in the face of foreclosure and smile broadly, perhaps wisely, in the face of their creditors’ collection agencies. Once a rarity, we now see more and more homeowners who are simply choosing to walk away from the table. People just aren’t scared of their mortgage lenders anymore. Rather than fight a losing battle against the rising tide of variable mortgage rates or the turbulence of high fixed payments in a depreciating market, borrowers are throwing in the towel. The how and why of this story might interest you.
Beyond improbable, the thought of 85 year-old Bear Stearns going under seemed impossible. Fannie Mae and Freddie Mac in trouble? How could it happen? It was GREED, pure and simple. Anxious to turn a quick profit on the housing bonanza, mortgage lenders lowered their underwriting standards to attract more borrowers. Equally motivated to make big clams (and willing to commit mortgage fraud – yes, fraud, good old-fashioned deceit), buyers flocked in droves, scooping up properties left and right. Lenders made a fast buck sourcing loans to hordes of unqualified buyers and selling them off into secondary markets, where loans were being purchased by large institutional investors (a la Bear Stearns) and diced up into complex mortgage-backed securities, which, it turns out, were only worth the paper they were written on. Surprise, surprise.
At the end-consumer level, two primary vehicles drove the sub-prime meltdown, thus facilitating the much broader national and global instability we’re seeing today. First, 100% financing. No money down! Homeowners and investors alike swooned at the prospect of acquiring substantial assets with relatively little cash and, therefore, risk. With no skin in the game, why not take a bet on the house? Lenders knew better. But, greed is a powerful motivator and it temporarily blinded even the best and brightest.
Second, NINA and SINA. These aren’t tropical storms or even hurricanes, though they did enough damage to the global economy. No Income No Asset and Stated Income No Asset loans. These loans were the equivalent of lenders looking the other way when it came to the credit-worthiness of their borrowers. Take these two time-tested lending checks and balances out of the equation and you get a perfect storm – a storm that signaled the end of an era. In its wake, many borrowers are realizing that their banks, now facing extinction, are more dinosaur than they ever imagined.
The Payne Smoot Group is Utah’s premier real estate, wealth and property management firm. For more information on the Group’s holding companies, investment or employment opportunities, please contact (801) 717-7777 or info@paynesmoot.com.
