Let’s say it’s 1986, you’re in your mid-twenties and you and your spouse decide to buy a home for you and your two young children. You live in a medium-large city and you both have good jobs. With a little help from your parents and in-laws you manage to get a modest 3 bedroom tract home for $100,000, most of which you finance with a 30 year mortgage.
About fifteen years later you borrow against your home’s equity to put your kids through college. You support them and pay their tuitions at a nice (but not great) university. This costs you approximately $100,000 but you don’t mind.
In 2006 both your kids have finished school and are starting new careers. You and your spouse have a house bigger than your needs and you’ve grown tired of the rat race. You want to move to a smaller community with a slower pace of life.
A realtor tells you your home is now worth $300,000. If you sell it you can pay off your first and second mortgages along with your credit card debts and have enough left over to buy a small home in the rural community where you grew up nearly free and clear.
You sell the house and move. You’re not retired, but your financial situation allows you and your spouse to take lower-paying jobs without reducing your standard of living. You’re both in your early fifties and looking forward to early retirement.
One problem. You sold your old house at the peak of the housing bubble. Now that the bubble has popped the house is worth $100,000 again, and the new buyer walked away from it leaving the bank holding the note.
Are you going to give back your $200,000 ill-gotten gain?
There is a lot of anger at the housing crash and bankers are an easy target. While they certainly deserve their fair share of blame, they weren’t the only ones who cashed in during the boom.
Realtors, appraisers, inspectors, construction contractors, building supply stores, painters, roofers, and landscapers are just some of the people who profited from the housing boom. It was all good for years, then the music stopped.
People bought books and paid to go to seminars on how to “flip this house” and get rich quick. It was like a nation-wide Ponzi scheme. The people who got out before the bubble popped made out like bandits. Everyone else got left holding the bag.
Lots of people walked away from underwater mortgages. Lots of others tried or are trying to hold on to properties they can’t afford. What are we supposed to do about it?
Some people think the government should step in and fix things so they can keep their homes and have some or all of their debt forgiven. “I can’t pay my $2,000 month mortgage but I want to keep my house anyway!”
The “show the note” defense to foreclosure is based on the fact that sloppy recording practices make it hard for some banks to prove they hold the note to a property. But the hard fact is that in most of those cases the buyers really are in default and will never be able to catch up.
The banks didn’t hold a gun on anybody and tell them to borrow money. They didn’t force anyone to run up thousands of dollars in credit card debt. They didn’t make anyone take out student loans for a degree in interpretive dance.
I have no problem with investigating the housing crash and jailing those who deserve it. But a lot of what took place was legal, and the constitution prohibits ex post facto laws. We can and should make those practices illegal in the future, and we should also break up any bank that is “too big to fail.”
Banks will not change the way they do business no matter how many protesters march up and down Wall Street. They will change their ways when the law is changed. Law making takes place in Washington D.C., not New York City.
BTW – No investigation will take place while the candidate from Wall Street sits in the Oval Office.
Filed under: Barack Obama, Financial Meltdown, Housing Bubble, Occupy Wall Street, OWS, Uncategorized, Wall Street Banks Tagged: | #OWS, Financial Meltdown, Housing Bubble, Occupy Wall Street, Wall Street Banks