Imagine the popularity of a politician who promised that everyone, regardless of how humble or poor they were, regardless of their ability to repay any loan, should and would have a home of their own - Clinton in the early 90's. A policy lauded by social agencies and the liberals who make a pass time out of using other peoples money to defy the normal laws of a free market economy (or to fund their fantasies). To make this happen, banks were incentivised to lend ever increasing ratios (up to 125% of the value of a home), especially to those with little or no equity, safe in the knowledge that any risk (perhaps better described as the VERY real risk) would be underwritten by the Government, thru "Fanny Mae" and "Freddie Mac" Where the numbers didn't work, special "introductory" interest rates were applied, heavily discounted for the first year or two, with a "Balloon" payment to catch up - everyone knew that with ever increasing house prices, the risk was minimal What a boon for house builders and real estate agents, and everyone in between - especially the money men. Mortgages, especially these "Sub Prime" (undesirable) mortgages were traded and on sold by bankers with a flair for creativity, playing the game and squeezing millions along the way. As the juggernaut gathered speed, the system became overwhelmed and corners were cut - the checking process for applications went out the window, with whatever was submitted being accepted as gospel - especially the declaration - "I earn $***** per annum" The music eventually stopped, and many were left standing. All economies have ups and downs, and people who simply could not afford to own a home under any circumstances, (even with super low interest rates), quickly defaulted. They were soon followed by millions of "Middle Class America's", people used to good salaries who were suffering due to unemployment or rising interest rates. Those who tried to sell quickly found their once valuable home how owed them far more than the market would pay. Foreclosure became an inevitable reality for those the system had given false hope, often taking away more than was ever given, with the spiral downwards having no end. The moral of the story is as always "If it looks too good to be true..." Fortunately the market here in New Zealand, especially Auckland, appears to have the checks and balances to prevent such a systemic disaster - having said that, even a controlled a free market does not protect homeowners from inevitable corrections Comments are closed.
|
Don MalcolmA perfect day involves being on my Harley with a long ride ahead.
|