By TA Webster

 
So much of the headlines today talk about the mortgage mess and how countless numbers of borrowers are nearing foreclosure.
 
Sure, the government and Treasury Secretary Paulson have made efforts to curb the rising tide of foreclosures for all borrowers in financial trouble (not just sub-prime) and that’s a great start. But how in the world did housing prices rise to such an astronomical level in the first place? Who fell asleep at the wheel regarding over-inflated real estate appraisals? 
 
Did regulation created under the Financial Institution Reform, Recovery and Enforcement act (FIRREA) created after the Savings and Loan crisis do more to help lenders loan money and almost nothing to protect borrowers from overpaying – YES!  
 
Were appraisers feeling pressure by lenders to support the ‘target’ price (aka loan amount) given to them in advance by the lending institution – YES!
 
The parallel investor and speculation market put undue upward pressure on prices. We know this for a fact! Every time a home was ‘flipped’ it served as a basis for a new ‘comp’ and the process repeated itself. Home prices were propped up just like building a house of cards. Now taxpayers will have to fork over more of their hard earned money so that the GSE’s (FNMA & FHLMC) and Banks can get bailed out – are you kidding me?
 
In retrospect, the thought of being priced out of the market was a huge motivating factor for many families. As years passed and prices continued to escalate, too many people falsely believed that they needed to purchase for fear of being priced out of the market. Tight zoning & land use laws helped affirm this mantra. Jobs and wages just have not kept pace with the increase in P.I.T.I payments over the years. To make matters worse there was far too little mention of the possibility that home prices were over-valued until it was way too late. That’s in addition to the millions of people who’ve already lost their jobs or are facing a job loss in the near future.  
 
Bottom Line: Banks will be able to write off their bad debt and move on. Homeowners who owe more than their house is worth and facing forclosure will have a difficult time even trying to rent a place to live in the near future with shabby FICO scores and foreclosure ‘dings’ on their credit. 
 
We need to focus our attention on the real problem at hand; how FIRREA helped American’s pay more than what their home is now worth and why our Govt. did nothing to prevent it.
 
See the article entitled ‘The Fraud of Appraisal Regulation’ by Larry Levy. It can also be found online at: http://www.financialsense.com/editorials/reality/2004/0702.htm
 
 

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