How's That Hope and Change Thing Working Out For You?

Over the last ten years or so the government forced banks to make loans in neighborhoods which they knew were likely to produce buyers with bad credit, (but the banks made the loans under threats of “redlining” which carried huge fines for area/regional discrimination.)  The government, spearheaded by the likes of Barney Frank (d) Massachusetts), allowed—but really required banks--to develop loans that all parties knew would be risky and likely to result in a foreclosure.  Their logic: every American deserves to own a home (read: get a loan) and while some loans would fail, at least in the America of the early 2000’s, everyone would have the homeownership opportunity.

Well it didn’t work, we are saddled with tens of millions of upside down homes and millions of foreclosures.  And to make matters worse, now the government has sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

The total price tag for the securities bought by Fannie and Freddie affected by the lawsuits: $196 billion.  There is no stated amount that the government seeks in damages. It said that it wants to have the purchases of the securities canceled, be compensated for lost principal and interest payments as well as attorney fees and costs.

This government tactic will not result in any homeowners getting their property back, but it will serve to hogtie the major banks and at worst drive even the large banks out of business.  The topic under discussion here is not a taxpayer’sforeclosed home but rather the sale of bundles of loans by the banks to the government.  Home mortgage-backed securities were risky investments that collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.

All of a sudden nobody is afraid of the Obama Administration, so what if the American Banking Association took the bull by the horns and counter sued the government for actually requiring them to make the bad loans?  What if they could show that the loans were in fact made because they were required to make loans to unqualified people, and in return the government promised that they would buy the bundles of loans, no questions asked (wink wink…)

I have had literally dozens of people in my office who wanted to buy a house in the worst way.  I would contact a mortgage agent and find out how much they could afford—then show them every property in their price range, only to have them say they wanted me to show them homes priced $10,000 to $25,000 more.  Once we would find a home above their price range, they would sweet talk the mortgage agent and get the loan.

I recall asking one of the mortgage agents (whose bank is being sued right now) how he could raise the amount of a loan to somebody who seemed unable to make the payments?
His answer, “If I don’t make the loan, somebody else will.  We all make a buck, and the government buys up all the loans anyway, no matter who makes the loan.”

Well there’s plenty of blame to go around, but if we don’t allow this marketplace to settle out, and get the foreclosed homes somehow out of the mix, we’ll be stuck in the morass of cheap homes for another bunch of years. 

So far the weakness in the real estate business has created a bunch of clerks and retail salespeople out of the Realtors whose names and signs you probably know; it’s driven builders and artisans to move to new areas--different states even--or find new work; and now if the government sues all the banks that have made it their business to loan money to home buyers, it’ll be one more nail in the real estate coffin. 

And this in a cycle where there have been no new jobs created.  How’s that hope and change thing working out for your business?

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande.  You can reach him at 941-681-0312 at dane.hahn@gmail.com or at www.danesellsflorida.com