Subprime Again ?

Would a return to subprime mortgages be good or bad for the real estate market?

There are so many different ways to look at it that I’m not exactly sure what I think.

On one hand, I do believe that the subprime mortgage debacle played a huge role in the implosion of our housing market. But what was it that drove the machine in the first place? Was it lender greed? Borrower ignorance? Crowd mentality? Inflated appraisals? Over enthusiastic Realtors? Buyer desperation? Keeping up with the Joneses? Bad timing? “Big bank” duplicity? General apathy? I would tend to go with All of the Above. And who benefitted? We all did. There are millions of thankful homeowners who wouldn’t be homeowners at all if it weren’t for the leg-up they received from their first (subprime) mortgage.

On the other hand, I keep having this nagging feeling that if everything negative in our economy hadn’t come together just as it had, in precisely the right way and at precisely the right moment, the real estate crash mightn’t have been so severe (would it even have happened?). There’s such a muddle of cause and effect in this whole snarl of events that it’s become a “chicken or egg” debate. No one is really certain what came first and what caused what.

I watched the movie Too Big to Fail again last week. It’s an eye-opening little piece of cinema for sure! All about manipulation… ultra-powerful people in various stages of delusion, seducing and misleading the general public. I felt gullible and exploited. But then maybe it’s just a movie. Maybe.

As much as I’ve mulled over our economic maladies in the past 5 or 6 years, I am no closer to understanding them. That’s frightening to me. Does anyone understand, and are we doomed to repeat this?

This all incites me to share a very brief article I read today, courtesy of Housingwire.com. You can read it here. Apparently someone is suggesting we return to some version of the subprime mortgage.

Knowing what I know, which as you can see is very little. And feeling what I feel (very much conflicted). I’m right back where I was before I read that article. I have no idea what I think.

What I know…

1.)    People need a place to live.

2.)    People deserve a second chance.

What I feel…

1.)    This might help our housing market and in the process, our economy.

2.)    We still don’t know what started this whole thing.

A Warning About Your Credit Report

You know, you wouldn’t think being vigilant would be a bad thing. You’re SUPPOSED to keep an eye on your bank accounts and your charge cards, correct? As a courtesy, you’re even warned of possible misuse or fraud, it’s called “red flagging”. When this happens, you need to immediately call the bank and discuss the charges or accounts in question. You are advised to file a dispute of anything that you feel is suspicious or in error. It's hard to imagine circumstances under which you would not want to dispute fraud… except one.

Let me get off the subject for just a minute and tell you a little about what’s been going on in the credit reporting industry. There are three major credit reporting services. Each seems to operate a little differently, which in itself isn’t a problem, until you need something corrected. Mortgage regulations have tightened up in almost all areas including entries on your credit report so correction of errors is critical, and of course there is a fee for each supplement or correction. In the recent past, documentation could be sent to correct the records for all three agencies at once, but lately that hasn’t been the case. Each agency is requiring different documentation, and every time you send in separate documentation there is another charge. Hmmmm, who’s idea was that?

OK, so back to you being vigilant. Here’s where things have gotten very sticky. A new mortgage regulation requires that there be no DISPUTES on your credit report. The scenario goes like this: Someone uses your charge card fraudulently, your bank informs you and advises, wisely I might ad, that you dispute the charges. While you do the right thing and fill out the paperwork, your bank reports to the credit agencies that you are disputing your account. Still not bad, right? Now you’ve found your dream home and applied for a mortgage. Very exciting! You are told that the dispute must be removed from your credit report. OK, no problem, it’s been settled and that can be done. You send in the required documentation, you speak directly with the credit reporting agency, you pay your fee, and, oops, not enough. There are different requirements for one of the three reporting services. You take a big breath and request the new documentation from your charge card company, it’s sent to credit reporting, you pay your fee, and that’s it. Except that the third reporting service still refuses to remove the dispute. Keep in mind, every time you send in separate documentation there is another charge. This one had us shaking our heads. A “reality check” pow-wow with our mortgage Underwriter produced an acceptable solution. But do you really think you should have had to jump through so many hoops? Not I. Something is definitely amiss when credit reporting services can bring your life to a screeching halt, and all because you’ve done the right thing.