When Donald Trump entered the White House as our 45th president, the nation was facing a potential housing problem, or worse, another 2008 foreclosure collapse that would impact millions of homeowners.
During the 1990s housing boom, many Democrats insisted that EVERYONE be qualified for a mortgage, regardless of low income. The LOW DOWN or NO DOWN payment bonanza brought the nation to its knees. Rep. Barney Frank and his colleagues through Fanny Mae and Freddie MAC forced banks and mortgage companies to take on these undesirable loans as MARCHING ORDERS right out of the Washington D.C. Play Book. The bitter result was property, right here in Beverly Hills 90210 dropping in value. The recovery had been anything but robust. The California Association of Realtors reported that we had the lowest housing market in 51 years. We are about to see a repeat as housing prices are now out of reach to most Americans.
The problem with this scenario—homeowners used their homes as ATMs or “Cash Cows” and millions lined up at the mortgage trough to burden their property beyond their ability to pay back the loans. These notes were interest only for ten years at below market interest rates of 3.5/8%.
In 2017, millions of those loans came due and the conversation on the street indicated that these notes will renew for another ten years. However, they usually would be at 3% or higher and would include Interest and Principle. This could double the payments and force millions of homeowners into foreclosure, as a likely repeat of 2008 scenario.
Every week I obtain a list from our Los Angeles court system that lists property in the county that involves a foreclosure, divorce, inheritance or death. Last week that list had over 6,000 homes facing foreclosure or pre-foreclosure.
During the early years of 2000, mortgage companies were pressured to write millions of LOAN MODIFICATIONS. Just as problematic as using one’s home as an ATM, these loans were for a 5-year period and interest only.
This double-edged sword in the mortgage market was a major crisis in the new Trump Administration and they are now repeating themselves in the Biden administration. With “real” unemployment of “6.3 million Americans” with households relying on government handouts, we hardly need a renewed mortgage crisis in 2022…but, hold your nose folks it’s going to get ugly!
With millions of people unemployed or unable to find work and over “40 million on Food Stamps,” many of these homeowners who maintained their payments on these notes without an increase in income for over a decade creates a serious financial undercurrent. Obtaining a loan has become quite a challenge, especially for first time buyers.
If you have a HOME EQUITY LOAN or are one of the millions who obtained a LOAN MODIFICATION, your home’s asset could quickly become a yoke around your neck that can drag you down while making the 2008 housing crisis look like child’s play.
William Dorich is the author of 11 books including his 2009 book, Defeat Foreclosure currently in its 3rd Best Selling edition. A publisher and author for 35 years, he has also been a California Realtor for 27 years.