"Did You Know That A Small Group Of Real-Estate Investors Have
Been Finding Motivated Sellers On The Internet Growing Their Income
To Record Levels?"

It is reported that the single largest contributor to the 2007-2008 real estate disaster in USA has been the avarice of mortgage dealers and their eagerness to make quick profits. They seem to be not particularly concerned about the long term impact on the economy and their greed, it is claimed, manifested itself in three primary ways - pay option adjustable rate mortgages, stated income loans and massive appraisal fraud on the part of homebuilders.

Pay option adjustable rate mortgages is ruinous for the consumer and for pension funds or mutual funds. It is said that this type of adjustable rate mortgage allows the consumer to choose among several payment options each month, including what is called a minimum or limited payment which can actually result in negative amortization, leaving the borrower with a bigger debt than they when he initiated the loan. As regards stated income loans, the borrower, broker, or bank deliberately makes up or falsifies the borrower's income in order to get loan approval knowing full well the borrower would not be able to make the mortgage payments.

Massive appraisal fraud occurred when homebuilders conspired with the appraisers to over-value the newly-built homes by as much as 30 percent. As a result, homeowners in existing neighborhoods naturally assumed their houses were worth more than they actually thought them to be. The artificial rise in real estate prices resulted in a huge unearned income for most homeowners. By taking home equity loans and refinancing the mortgage, they multiplied their profits. According to Federal Reserve chairman Alan Greenspan, they made $600 billion last year on the hypothetical appreciation of their properties and this huge profit went into reckless spending at the mall, on holidays, new cars and other forms of revelry.

Banks enthusiastically loaned whatever amount borrowers demanded as the banks were only concerned with selling the loan, pushing the default risk onto buyers of mortgage-backed bonds. Buyers borrowed too much money and cannot pay the interest and now there are mass foreclosures. It has come to light that a trillion dollars in mortgage loans will not be repaid. This implies that the money available for mortgages is falling and therefore house prices keep falling. Also note that unlike earlier years, most lenders now require a 20% initial down payment.

That will eliminate many buyers from the market, driving down prices. Nationally, 25% of houses bought during the last few years were based on speculation and not bought to live in, and the speculators are thus going into foreclosure in large numbers now. Even the National Association of House Builders concedes that investor-driven price appreciation looms over many housing markets. It has also become common practice for speculators to avail a loan far in excess of the price of the house he intends to buy. The appraiser abets in obtaining the inflated price offer and strangely he is never asked to do another appraisal. The speculator then pays the seller his asking price and uses the extra money to make mortgage payments on the unreasonably large mortgage.

High house prices have become unaffordable to new families, especially those with children. It is literally impossible for them to buy at current prices but government appears to prefer to make sure bankers have plenty of debt to earn interest on. A lot of vacation homes and condos are bought by people with no experience and probably no knowledge of real estate for making huge profits. These vulnerable amateurs are the avaricious innocents who start a real estate crash.