By William Hudson
Millions of Americans lost their homes to foreclosures or short sales during the housing crisis that continues with no end in sight. The same servicers and mortgage companies who induced millions into fraudulent loans are now trying to convince those same homeowners that were damaged by foreclosure to reenter the home market.
Eight years ago the housing market artificially peaked emboldened by cheap money, high-risk loans and people who bought into the hype. For millions of those homeowners, their dream resulted in unfathomable misery, financial ruin and personal devastation that extended beyond the foreclosure itself.
The snake oil sales men are now touting their wares and inciting borrowers to buy into an inflated housing bubble by offering low-interest loans with 1% down. The mortgage industry is promoting their services by informing prior homeowners that the adverse credit items are now “starting to roll off the books right now” to quote a Fortune magazine article. Now that you have suffered through losing your home, having your credit destroyed, and having the courts stonewall you- why not jump right back in? In fact, even if your credit score is low (below 680) or even if you don’t have the 1% to 3% down payment a lender has solutions to find a way to finance you.
Not only is the mortgage industry excited about offering new predatory home loans but, “Improving credit scores might entice households to start borrowing more in general,” said Ralph McLaughlin, chief economist at real estate search engine Trulia. With low interest rates coupled with low borrower credit requirements- why not jump right in? What could go wrong?
If the economy was as strong as Wall Street and their co-conspirators claim, then why the desperate measures to increase consumer spending by offering subprime loans on housing, credit and auto loans? Consumer spending accounts for 70% of the American economy and for years consumer spending has been flat to decreasing. Retail brick and mortar stores are closing en masse. People who are naïve and unsuspecting may be willing to enter into unilateral consumer contracts where they have few rights, but once burned by a servicer or lender- you simply don’t forget.
The Federal Reserve Bank of New York reports that the number of consumers with a foreclosure added to their credit reports peaked at about 566,000 in the second quarter of 2009. In the four years through 2010, that group totaled 6.8 million. The numbers have improved only slightly in the past two years.
Negative events like short sales and foreclosures generally are removed off a person’s credit report after seven years, according to the three major providers of consumer credit scores and reports: Experian, Equifax Inc. and TransUnion. With that anniversary fast approaching, the lenders are once again targeting these borrowers with new predatory loans. We can only hope that homeowners learned their lesson the first time.
The lenders are hoping that better credit scores equate to stronger demand for homes, higher spending on durable goods and auto loans. Wall Street is not built on equity but on the creation of debt.
The mega banks have become wealthier, larger and are awash with reserves from their fraudulent securitization scheme. Why not target the same suckers they decimated the first time? If they can get people into homes, credit cards and auto loans they securitize and sell down the road- they can repeat the 2008 debacle. Why not? No one went to jail, the federal and state judiciary greased the runway, and the banks became wealthier even beyond their wildest dreams.
Housing Bubble Trouble
Last year TransUnion estimated that of the approximately 7 million consumers whose credit was negatively impacted when the housing bubble burst — including those who were either severely delinquent on their mortgages, negotiated a short sale or went into foreclosure — only 1.2 million had recovered enough by December 2014 to meet Fannie Mae selling guidelines. Therefore, in the last six months, Fannie Mae lowered their guidelines.
TransUnion now believes, based on these credit histories that 2.2 million more borrowers can qualify according to the new criteria. Typically Fannie Mae guaranteed loans are for borrowers who have little cash to spare, and purchase lower to middle priced homes.
Borrowers with higher credit scores and down payments are considered prime borrowers and have lower credit risk profiles and tend not to buy into obvious housing bubbles like we are now seeing- so once again the banks must target the vulnerable, offer them housing loans that may over-extend them. When you don’t even have the 3% down required to purchase a home, what happens if any type of costly repair is needed on the home? Either the maintenance is deferred or funds are borrowed to fix the problem. This is where people get in trouble with second mortgages and overextend themselves.
Credit scores have not recovered to their prior levels for approximately one-third of prime borrowers even a decade after their foreclosures were initiated reports TransUnion- so even those who were once considered prime borrowers years ago, will likely not qualify for large loans. When this occurs the prime borrowers flood into the lower priced home market and prices rise. As prices rise, people without financial means end up being priced out of the market or they buy into the bubble and eventually default on a home when it becomes under water.
It is more than likely that even though people may be able to enter into the housing market again- doesn’t necessarily mean they will, said Richard Green, an outgoing senior adviser on housing finance for the Department of Housing and Urban Development.
“What I don’t know is are they going to want to come back to homeowning, or were they so traumatized by the experience of being foreclosed upon and seeing their savings wiped out that they’re just not going to be interested?” Green said. Green is likely absolutely right.
Nothing has changed in the United States lending market over the past eight years. Loans are still being originated by originators who do not reveal who the true lender is (in violation of Regulation Z that considers a table funded loan to be predatory per se). Even if you finance a home tomorrow you are still receiving a mortgage that will be securitized, may not be delivered to the Trust, and may be fraudulently endorsed and robosigned. The banks have not changed any of their fraudulent practices, the government has not enforced the laws on the books, and when this housing bubble pops guess what is going to happen? 2008 Part II.
The homeownership rates for consumers who are 35 to 44 years old —those who were most hurt by the housing crisis — has risen for two straight quarters on a year-over-year basis according to U.S. Census data. This would make you believe that those who have been foreclosed-upon could be returning to the market but the true return rates were not revealed. Likely there is a trickle of homeowners who are smarter this time around and with children at home must return to the housing market because of the difficulty of raising family in a rental.
Homeownership levels are the lowest they have been in the past 40 years. Borrowers who have heard horror stories about the housing market crash, of foreclosure, and of the unethical servicing practices of he banks are afraid. Most people who have a credit card or a loan with a bank have discovered that when you have even a small issue with your account that it is almost impossible to have the issue resolved in a timely and uncomplicated matter. The thought of having an unresponsive and untrustworthy lender with the power to create a loan default is absolutely terrifying.
The American consumers are no longer naive. They understand that Wall Street is unscrupulous, they know their retirements are at risk, and they know the market is rigged. Americans have learned that due process is for the wealthy who can afford excellent legal representation and that the pro se litigant prevails less than 1% of the time in mortgage litigation.
However, homeowners have options! Bank locally at small independent banks. Pay on time, and if you have an issue meet with the bank president to resolve your issue. Don’t borrow from big banks. Don’t rely on advice from a call center employee in India or believe they can help save your home or even solve your issue. Save for a home downpayment if you must, and never buy into a housing bubble. Wait until the market calms down and purchase for the long-term. Consumers MUST become more knowledgeable, more resourceful and protect our own interests. Eventually banks will be forced to respond and go back to being entities that can be trusted with our life savings.
“If you foreclosure on me once once, shame on you. If you foreclosure twice, shame on me.” Spread the news.