Are we heading for a recession or a depression?
Or are we already there?
According to a recent article on the Washington Times website, “This year’s housing bust is shaping up to be one of historic proportions. Sales and construction have sunk to levels not seen since the 1990 savings and loan crisis, while foreclosures and price drops are the largest since the Great Depression — and expected to get worse next year.” The article predicts millions more foreclosures and over one trillion dollars (yes trillion) in mortgages reset within the next two years. So what caused this dilemma? “John Stumpf, president of Wells Fargo & Co., the second-largest U.S. mortgage lender and a survivor of the housing busts of the 20th century, blames today’s crisis on unscrupulous lending practices, which joined in a toxic mix with outright greed and extraordinarily low interest rates to send house prices soaring 90 percent between 2000 and 2006. When the bubble burst, house prices collapsed by 5 percent to 20 percent in cities nationwide.”
Greed definitely played a huge role in the extreme number of foreclosures. Rachel saw this first hand when she worked for years at a mortgage company and knew of other offices whose brokers would intentionally sell adjustable rate mortgages so that borrowers would have to refinance a few years down the road. That way the broker could charge them more fees. Can we say predatory lending? Her office did the right thing and locked homeowners into fixed rates at historic lows that they could afford. If only more lenders did the right thing.
Lenders are now giving their lending practices a makeover by re-popularizing the 30 year fixed loan. You can read more about the crooked lending process and the governments role in this economic decline in this article, part one of the Washington Time’s series.