If I were smarter,or a better business observer,I would have predicted the housing/credit crunch two years ago.
Two winters ago, we spent a few months in Miami Beach.Each day we would walk blocks and miles and observe the new condos being built.We inspected many of them,as we had an interest in purchasing a property.The prices were off the wall,and we were told that individuals(speculators) were buying multiple apartments for resale when construction would be completed in 2-3 years.Sheila and I commented many times to ourselves, that it was hard to envision all these thousands of apartments being sold, unless S. Americans or Europeans enjoying a falling dollar were the clients.
Subsequently I read about some of those who were the speculators,using letters of credit and minimal downpayments for the apartments.Today of course they are running away from their promises.
Last year,each and every day (sometimes as often as three times a day),we received cold calls from mortgage companies.Each one sounded like a used car salesman.They always asked two questions.
1-would I like a cheap mortgage?
2-would I like to borrow extra cash with the mortgage?
When I told them they would have to beat my current mortgage on our Boynton Beach home,with no gimmicks ( interest only etc,) they quickly lost interest.
As to the extra cash, I told them (facetiously)that I would be happy to lend THEM cash.They were not amused-and promptly hung up.
It is sad to see individuals facing the loss of their homes.
The first rule of capitalism is that individuals must take responsibility for their decisions.Any type of approach to alleviate the problem, must not reward the unscrupulous mortgage lenders.To bail them out would allow them to repeat their attacks on the sub-prime borrower.If they falter,they should be prevented from engaging in this industry.
Nevertheless,perhaps, some approach by government whereby defaulted homes would be placed in some sort of bank or government pool,and those homeowners who want to work out payment to this body at a normal interest rate could do so.Thus many Americans could save their homes.The problem of course is not only the ability to afford a mortgage,but paying for a $300,000 mortgage on a home, now worth $250,000.However in time once the housing and credit market level off,home values will go up.
Not everyone can be helped,but again I emphasize that there should be no bailout of the unscrupulous elements in the industry.
I an neither an economist or financial maven,but with the housing industry comprising only 5% of our economy,and with both the US and world economies in good shape,I sense a psychological warfare against the consumer and investor to create a sense of gloom in order to get the Fed to lower interest rates,to save the millions and billions of poor investments .