Sunday, March 21, 2010

The cost of "flimsy" lending

From the L.A. Times:

Though signs of recovery in the housing market are emerging, thousands of people throughout the Southland are still in a precarious position on the brink of foreclosure, struggling with monthly bills and mortgage payments.

Duchemin and Ashraf are an extreme example because they've gone through foreclosures on two homes and are in danger of losing a third. They aren't alone: Flimsy lending practices mean that thousands of other borrowers face the prospect of repeated foreclosures, mortgage and foreclosure experts said.

The problem is especially visible in areas that attracted speculative buyers during the boom. In Maricopa County in Arizona, which includes Phoenix, at least 283 individuals have received a foreclosure notice on two or more properties since 2006, according to data provided by RealtyTrac Inc.

Multiple foreclosures are "probably more common in this decade than they've ever been because everyone was running to get into the real estate investing business," said Rick Sharga, a senior vice president at RealtyTrac.

Clark County in Nevada, another area that attracted house flippers, had at least 179 buyers who were foreclosed on more than once over the same period, the data show...
Because people thought the price of real estate would keep climbing, O'Toole said, they figured that the more homes they bought, the more they'd earn eventually.

"In a lot of cases, you had folks in this gold rush mentality: 'Real estate is going up, the more houses I buy, the more money I'll make.' "

The article mentions "flimsy lending practices" but doesn't explain how the lending industry came to offer easy credit in which speculation was encouraged. Instead, it builds sympathy for the Duchemin's without really looking into the big picture, like the politicization of the mortgage lending industry in which lenders were coaxed into providing credit to borrowers it would never have under normal circumstances. Why anyone would lend the Duchemin's funds for three homes is beyond me. Also, notice how the article never mentions the Duchemin's bad decision to "buy" three houses?


Harrison said...

They are in danger of losing their THIRD home? No wonder they are having problems. Sounds to me like they bought too many homes. Oh, but that must be the fault of the bank!

askcherlock said...

Well, it was the fault of the banks! They gave mortgage loans to anyone walking in off the streets. No credit checks were done; no salary had to be verified; and there was no oversight. There was, however, plenty of speculation going on. Put the fallen house of cards on the rubbish table where they belong: banks and lenders.

Harrison said...

Yea cause the people who borrowed the money and knew they couldn't repay it had nothing to do with it.

Tina T said...

I am troubled by the idea that personal responsibility seems to be out the window. Having only been relocated to California a little over a year ago we are just starting to appreciate what a house of cards the housing market is here (and we're glad we're renting.)

We meet people here who have moderate incomes who own million dollar homes and we thought that was crazy. Now we're seeing these same people have their second homes in Tahoe and other vacation areas being foreclosed on. It's mind boggling to think that people who wouldn't in prior times have been qualified to buy one home were given the money to buy 2 homes (can't even wrap my mind around the notion of 3 homes.)

The notion of people losing their home sounds so terrible, but the majority of people that we are seeing lose their homes are not ending up on the streets. They're moving out of huge homes and into nice apartments, which is where they should have been all along.