Three Barriers to Solving the Mortgage Crisis

In late 2006 the economy was showing indicators that pointed to a looming mortgage crisis that would ultimately disrupt the flow of business in the secondary market.  Investors, who are essential to the flow of money, basically ignored the warning signs but began trading more cautiously. What they ignored was the “perfect storm” as it relates to our secondary mortgage market. The housing bubble burst, sub-prime loans began adjusting, investors stopped trading, and mortgage companies were left holding mortgages that were not worth what they paid for them.

A by-product of the housing boom was an addiction to credit largely funded by the rising equity in our homes.  A large portion of our economy was deeply invested in this boom. The chain of industries that profited from and helped propagate the boom is endless: builders, real estate brokers, investors, appraisers, surveyors, paint stores, home supply chains, lumber companies, marketing companies, architects and of course mortgage companies.  In a financial game of musical chairs it was the mortgage companies who were the ones left standing.

The mortgage companies, fueled by their own greed and an economy that demands the continuous flow of goods and services, invented new ways to “move money” to a larger segment of the public. As competition between banks escalated, new lending products were invented to capture a larger share of this market until they were basically handing out loans to anyone that could fog a mirror. Banks, who had an endless supply of money via their investors on Wall Street, sold the loans for a profit only to reload to do it again. The problem was that these loans were ticking time-bombs with short fuses, each dependant on rising house values.

As we all know that ship has sailed, leaving our economy in shambles in its wake.  The problem that we are faced with is not “who’s to blame”, but rather, who can fix it. The most obvious answer is our legislative group and the banking industry. Unfortunately, those who would be involved with the recovery have either a political agenda or are just trying to stay afloat but it is the public that’s suffering. The writers at Lendfast.com, a nationwide home loan services company, have come up with what they feel are the three main reasons we can’t solve the current mortgage crisis:

1) Politics – In an election year, neither side is willing concede a point of view that could possibly allow the other side to claim victory in solving the crisis.  The “haggling” approach to passing legislation allows each side to claim victory on the local news; however the “local news” in an election year is now the national news. If a bill is passed, it is likely to be an ineffective and will have to be revisited in the future by the judicial branch.

2) Lobbyists – Legislators are supposed to be representing their constituents, meanwhile the lobbyists are representing the banking industry. Throw millions of dollars into the equation and a hand-full of representatives that spell mortgage c-o-u-n-t-r-y-w-i-d-e  and the chances of getting real help for the “average Joe” is either impossible or a long time away.

3) “Baby with the Bath-water” – It is almost certain that a bill will pass this year, and as mentioned earlier it will probably be ineffective or an over-regulated nightmare.  It is politically convenient to punish the “unscrupulous” lenders by enforcing regulations that sound good on paper. However, like most people, the extent of most legislators’ knowledge of the mortgage industry was learned at the closing table. It is pointless to pass regulations that restrict banks from lending money to the very community they’re trying to help.

America must solve this crisis by holding our representatives in Washington accountable for their actions or lack of actions. There is one advantage to the election year, and that is we get to vote. We can throw the “babies out with the bath-water” as well. If you want real change look past Democrats or Republicans and vote for the best candidate to help you.