One of the most interesting facets of the early days of the housing crisis was the blame game being played out on a daily basis in Congress, in the media and on the internet.
The consumer groups blamed the banks. The media blamed the banks. The government blamed the banks. And vice versa. Plus, the banks blamed the investors. Everyone blamed Wall Street. It was vicious cycle with everyone looking for easy answers as the economy sank into recession.
Sadly America’s homeowners were caught in the middle and no one wanted to be held accountable.
Everyone has their own theories as to why the market deteriorated so quickly. With so many factors contributing to the collapse, it’s hard to truly believe that any single issue was the smoking gun. There was securitization of subprime mortgages, loose lending in the form of risky mortgage products to high risk customers, questionable government and GSE policies and a tanking job market.
It was all a recipe for disaster.
Personally, I think that some people were just not meant to be homeowners and this constant portrayal of home ownership as the American Dream doomed millions of people. Moreover, many of the consumer groups that lobbied the government and the banks into making loans available to everyone in 2000 are the same ones still screaming in 2015 that the banks made bad loans.
You’re damned if you do and you’re damned if you don’t.
Of course my theories on the housing collapse are wholly unscientific, not driven by analyzing pages and pages of data, and based purely on personal opinion. But then again, I‘m not an economist.
I was just a guy paid to smooth things over between all of the stakeholders involved. I was “telling the complete story” for the mortgage bankers, while attempting to maintain good relationships with the consumer advocates, the media and the government. It was a delicate balancing act.
That said my thoughts about the housing crisis are quite simple and rooted in a basic belief that affordability and sustainability are the only two things that matter. These two concepts were completely thrown out the window from roughly 2000-2007.
For example, there was rampant overbuilding in prime locations, with the promise of guaranteed price appreciation, in many markets that sucked in new home buyers. Plus people flocked to neighborhoods that had previously been pretty marginal areas, but were being marketed with new names and false identities. On top of that, mortgage brokers and realtors were showing people how they could live in a $500,000 home on a $45,000 salary.
It even happened to me – a broker told me in 2007, when I was looking for a new house, that I could easily afford a mortgage of $4,200 a month. Technically, he was right. Of course, a payment of that magnitude would have meant not paying for my car, my phone, my groceries or spending any other additional money each month. I don’t know about the rest of you, but that hardly sounds like the American Dream.
And then there was the job market. Unemployment was going off the charts in many cities, especially the ones that relied on manufacturing jobs – Detroit, Cleveland and St. Louis just to name a few. It’s quite simple really – when you make less money than you did before, or lose your job outright, you can’t pay your bills. For most people, the mortgage is the largest one of these bills hence it is the easiest one to stick on the bottom of the pile.
And of course, there were a large number of people who were treating their homes like ATMS, sucking out every last dime for luxury cars, vacations, silly renovations and other non-essential things. They falsely, and quite detrimentally, believed that their property values would keep rising no matter what. Finally, the equity was completely gone, the house was worth less than the mortgage owed and the jobs were scarce to make it up. That was the fate of so many in Las Vegas, Phoenix, California and Florida.
It was all a recipe for disaster.
It’s easy to sit here in 2015 and point fingers at all of the players involved in the housing crisis. And there were many bad players. But the bottom line is that so many people never fully grasped the notions of affordability or sustainability until it was too late.