Housing, Again (September 3, 2007)

The root word of “mortgage” is “mort” – death.  Pay until you die.  Die trying to pay it off.  The concept of “equity” was created by the British Courts of Equity and represented a promising development.  Before the creation of “equity,” if an individual missed one payment, even the last payment, he lost the house and forfeited his payments.  The Courts of Equity allowed individuals to acquire a house brick by brick, month by month, payment by payment without losing everything if they missed one payment.  Today, by contrast, without making a payment, a homeoccupier can take a loan against “equity” he or she does not have in a home.  Too many individuals have spent “equity” that does not and will not exist.  They are killing themselves financially.

A few years ago before effective spam filters were available, the offers streamed in from the Internet.  “Do you want a smaller penis?”  “Do you want a bigger mortgage?”  Or similar enticing messages.  The public devoured them.  The loans were aptly described as “Liar Loans” because they did not require one to provide tax returns or wage statements.  Having a job was not relevant.  The lenders/originators encouraged the borrowers to lie.  The borrowers obliged.  The prospective purchasers confronted a 1) small down payment if any, 2) initial payments that were manageable, and 3) a real estate market that appeared only to be skyrocketing.  Their response is not surprising.  The appraisers provided whatever appraisal price was required under the circumstances.  The real estate agents and brokers and facilitators facilitated things.  The loan brokers are largely gone and cannot answer for their crimes.  The borrowers are obliged to pay third parties who acquired the loans perhaps with some inkling that they were dubious.

The Enron and related scandals were created by a small cabal operating behind closed glass doors in glass towers.  By contrast, the real estate apocalypse was created and fueled by the greed and short-sightedness of millions of individual citizens.  The short-term drop in interest rates in the last few years has come at a great long-term social and economic cost.  (See the e-ssay dated January 30, 2006 entitled “Greenspan’s Legacy – Apres Moi, Le Meltdown”).  The collapse was predictable and predicted.  Everyone seems to be living in a glass house.  There are no easy solutions.

Bumper sticker of the week:

We have met the enemy

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