I read this on CNN's iReport. It is an author's perspective on the housing crisis. I agree 100% with the author's perspective, and I thought I would share it here. As an aside, the title of the article is something an old boss of mine used constantly, and a good perspective on greed. It is a long read, but worth the time.
Pigs Get Fed, Hogs Get SlaughteredI started in the escrow business in Newport Beach, California in 1981. I was writing "wrap around" deeds for homes because no one could afford the 18% interest rates that occured during the Jimmy Carter years. I continued in escrow through the S & L bailout, and during the housing bust of 1990 - 1996. In 1998, I went to work for Chase Manhattan Mortgage Corp., and have been in lending ever since. I was taught by my parents that I had to be resonsible with my money, that I had to save for things I wanted, and to live within my means, (my father's favorite saying; "there's no free lunch"). I practiced that philosophy with my borrowers. I lost a lot of business out of the refusal to put people in loans that made no sense. I witnessed first hand all kinds of real estate fraud, and greed. Sometimes I felt like I lived in the Greed capital of the United States, but still, I clung to old fashioned values, and time tested virtues of handling finances. I was a renter in California until 1996. In 1989, I believed I would never own a home; prices were rising faster than my income would ever keep up with. Thanks to the S & L debacle, home prices deflated. During those "rental" years, I saved a down payment, and waited until I saw the market had bottomed out before I bought my first home. I had a reasonable adjustable rate mortgage that adjusted once a year, so I could qualify. I could afford the payments on the $180,000 mortgage, and felt that since I was only 32, my income would undoubtedly rise in the future and I would have no issues making my payments. I had enough money to pay taxes, do maintenance, and live comfortably, without expecting to live "luxuriously". I recognized in 2004 that the ever increasing prices of homes were not sustainable, and the market was too overheated. My home was appreciating at a rate of 30% per year, so far ahead of inflation and salaries as to guarantee a bust; the percentage of people who could afford a median priced home was less than 10%, and getting lower. I owned a home in Costa Mesa, CA. (A year after I bought it, I took out a modest $50,000 equity line, which at the time was still well below the appraised value. I never touched the equity again, out of fear I would not be able to make the payments.) I realized I was sitting on a gold mine; I just watched the insanity for my opporunity to cash in. I did without new cars, new furniture, major remodeling, expensive travel and pricey toys, despite the fact that I had almost $500,000 in equity in my home. My credit card debts were minimal. I lived within my means. I viewed the equity as my nest egg and future financial security. In the meantime, I watched people around me, most of whom understood little of the REAL housing market, let alone anything of fiscal restraint, use the appreciation in their homes like income, and adjusting their lifestyles accordingly. I was the first person I know to use the term, "using home equity like an ATM machine". People who prior had invested prudently were flipping houses, inflating incomes on loan applications and lying about their intent to use the home as a primary residence. It was a big party; I cannot even describe the greed I witnessed. They all acted like it would never come to an end. Many of the loan officers I worked with were making almost a million dollars a year, most of it off of what were, in truth, fraudulent loans. Underwriting guidelines got looser and looser. People with sketchy employment histories, no money saved, and/or bad credit, would ask me, can I qualify for a mortgage? My response was "can you fog a mirror?". Only 10 years before, they never would have qualified, with good reason. When lenders started allowing 125% mortgages with 2nd's, and stated income loans to W-2'd borrower's, coupled with absurdly low interest rates, I knew that things had gotten literally insane. Cheap money and "creative" financing kept the housing prices going higher. It was a free for all; some homes would get 20 offers in their first few hours on the market. Real estate agents were having a hay day. Properties were selling for 10% or more over their asking prices, with bidding wars, which only kept the prices spiralling higher. Everyone was getting in on the game. I was having a more and more difficult time deciphering all the terms of some of the more exotic loans, with references to indexes and payment changes that made less and less sense, deferred interest with 125% cap rates, and which more and more of my clients insisted on getting, despite my counsel not to. "Just get me the lowest payment" was the borrower mantra. The "terms" were immaterial; they would sell for a huge profit before they ever had to deal with those. Some "experts" were starting to yell about a bubble burst, and ironically, those who did were chastised and called alarmist. It seemed everyone was at the feeding trough; the agents, appraisers, home inspectors, title companies, lenders, secondary market, Wall Street, furniture companies, builders, auto dealers, Home Depot; the entire country and economy was getting fat and complacent. The pigs had become hogs; big, fat, lazy, sluggish and fuzzy minded from the feast. Making money in real estate was like shooting fish in a barrell. More and more peoploe got their lending and real estate licenses; you certainly didn't need any knowledge of the industry to make money in it. The stage was set for the worst housing crisis the country has ever seen. For those who are asking "what is your point?", it's this: I have NO symapthy for the hogs who are losing their homes. No symapthy for the agents and lenders going out of business. No sympathy for the investors. No sympathy for the Bond Ratings Companies who rated the loans. NONE, for any of them. They are all HOGS. We have four classes of borrowers in trouble: the borrowers who used their home like an ATM machine, refinancing over and over to finance a lifestyle they couldn't afford; the one's that knowingly committed fraud, with the intent of making income off of risky investments, apparently thinking their return would be guaranteed; the borrwers that were "lied to" by their brokers, signed legal contracts they had no understanding of, left their financial well being in the hands of people with motives that had nothing to do with "helping" them, and want the government to save them from their own stupidity; and the truly innocent first timers, who had no understanding of the housing market, did not believe the prices would eventulally come down, and got themselves into homes they just absolutely could not afford. Most went into these properties with no money, therefore it is hard to argue they have been damaged, except for their credit, which I am guessing in many cases was already questionable. Weigh them against the millions of homeowners who did none of these things, but whom are expected to pay for the mess the others are in. Why should we? What justification is there? Are we responsible for any one elses greed, stupidity, or choices? It isn't our fault if they lost their job or had to do repairs they could not afford to do, to a home they could never afford to own. How DARE these whiners blame a broker for putting them in a loan they didn't understand, after signing over 100 pages of documents, many of which are disclosing in PLAIN ENGLISH the very terms they claim not to understand, and requiring notarizations and verifications time and time again that they know what they are signing. IT'S A LEGAL CONTRACT, STUPID. We cannot destroy the sanctity of contracts over a whiny "I didn't get it"!!! Not only that, but if contracts are no longer binding, what institution in their right mind would ever again make a mortgage? If Congress wants to ensure the complete demise of the housing market, they could pass legislation making contracts pliable if someone has a big enough sob story. See who gets a home loan after that. I do NOT want my tax dollars to save these people. I did the right thing. I didn't take advantage of the market. I saved money. I lived modestly. I made sound decisions regarding my finances. Millions of other hard working Americans did the same. None of the above scenarios demonstrate any of the fiscal restraint that I, and millions of other American's, exercised. It is morally repugnant to me that we should be expected to shoulder the burden of the mistakes others made. Our society is SICK, our children are disrespectful and entitled, and the legal system unworkable because of the perpetuated belief, furthered by a liberal and socialistic congress, that no one individual needs to take responsibility for their BAD DECISIONS. It is basic common sense that an individual who is not required to deal with the CONSEQUENCES of a bad decision, will not learn from it. If this Government bails people out, they will do it again. If we bail out the finaical institutions,and Wall Street, and Bond Rating Companies, what consequence need they fear for repeating the insanity, let alone the borrowers? The laws were not created to protect people from their stupidy and greed. They are created to protect the rights of the individual to pursue freedom, financial success and happiness without another individual's beliefs and decisions being forced upon them or causing their detriment. In essence, they are created to protect us from one another, thereby creating a "civilized" society; my decisions should not affect you personally, and the laws confirm that. Obviously, not everyone agrees with that assertion, and many in our government feel we need to be protected from our own stupidity. There are too many laws on the books for just that purpose; I'm sure most Americans believe that the laws passed in that spirit erode our freedoms, and I agree. So, in the spirit of the U.S. Constitution as I believe the Founding Father's intended it, a decision to bail out borrowers is completely unconstitutional, and STUPID. It's my money. It is taken from me in a way I find confiscuatory and unfair. At the least I should have a say in how it is spent. Let the hogs get slaughtered; they will be wiser for the experience. And the sooner, the better. Government intervention only extends the pain and suffering. Let the market correct, and let's be done with it. Enough said.
