Real Estate – Ten Years After

Posted in: Uncategorized | By: | February 22, 2009


By Timothy C. Moore

Millions have been foreclosed upon. Many millions more are oxymoronically stuck in their homes with “negative equity.” Millions more will go negative in the coming months as house values continue to decline (I hate the word “plummet” because it’s so sickeningly headline-ish and potentially manipulative). Those with marginal remaining real equity are as nervous as cats in a coon-hound kennel. The lucky ones, who have “burned their deeds,” don’t even feel lucky. They wish they’d sold or taken out a “zero-down” mortgage so at least they could consider walking away like everyone else seems to be doing. In Michigan, where I live, there are probably many people who would sell their homes for anything just above a steal, to give them mobility in what will prove to be a more nomadic, job-foraging society. This will clearly change the mind-set of our country, and maybe the world, towards the attractiveness of owning residential real estate. We should have known this would eventually be the case, because we just exited an era when young adults were purchasing homes upon graduating college. All age groups had by then just accepted as truth that houses were the only way to go, and the sooner the better. But that will all change now.

Simultaneous with this, the financing of our homes has undergone a change just as tragic. At one time, the local bank held your mortgage. The mortgagee went to church with the guy at the bank who made him the loan. That guy paid an appraiser to value the property, and if he inflated the price he put the bank at risk, and was fired. A nice down payment was made. That model had to be scrapped though, because it didn’t allow enough room for fraud, greed, corruption, and waste. The govy let the banks do anything and so they did. Not the Republicans. Not the Democrats. Both of them, almost as if it were collusion, although I think it’s really just that sludge tends to collect at the bottom of the waste tank naturally. So they gathered their short-term profits and bonuses and commissions, put important national resources at nasty risk, and placed the money in the wife’s name or bought an overpriced Florida bankruptcy-protected mansion. Their socialistic comrades in the govy then did what they always do, and the rest is going to be history that will be written of for hundreds of years, if of course….oh, never mind! Anyway, now govy owns the banks, or soon will, and makes the terms for the housing markets. Manipulates the interest rates, determines who’s worthy of help, adjust down-payment requirements, provides special programs for those not economically ready for home ownership, yadda-yadda-yadda.

So these two conditions-both a growing disdain for home ownership and an increasing level of government control over financing of same, may conspire to change the place for HOMES in our lives for perhaps generations. Fannie Mae and Freddie Mac are responsible, it is said, for approximately 90% of the mortgages in this country (sorry, I shouldn’t have used the word responsible in the same sentence with those formerly quasi and now implicit government agencies). The banks, formerly holders and now mostly just originators for mortgage loans, are partially owned and 100% controlled by the govy. It appears that lord govy is ensconced in his manor and the era of the fiefdom has begun. He now owns the land through his devices, and will hold sway over the serfs for many, (slow-mo now) maaannyy years to come. How will it end up? Maybe like this.

In a nonce, the govy may be totally nationalizing the banks. They’re mentioning it first, acclimatizing us, and will do as they please soon enough. The big banks first, but the smaller banks will gladly dance to whatever tune the system demands. Fannie, Freddie, big banks, little banks, defunct mortgage companies – the government essentially owns a big chunk of the residential real estate in the United States already. As the prices dive further, more walk, nobody buys, and ownership is given over into the millions to this specter of lord govy and his fiefdom. He then begins renting out homes to all the people who have been put out of them, and tries to send them back to work. But pride of ownership being the requirement for livable communities, conditions will start deteriorating soon after this transition. An entirely new cultural sub-sector could emerge – the suburban tenant class. And imagine the possible political temptation of using a large number of people DEPENDENT ON THE GOVERNMENT for their housing. It makes me direly hope that the dream of American home ownership survives, but it feels like coin-toss odds right now.

Timothy Clinton Moore is senior financial expert specializing in securities litigation consulting services, case viability review, mediation assistance, expert testimony, and speaking at public financial and investment forums. Reach him through the homepage contact button.

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