We’re bombarded with tales of the new normal. These narratives focus on the scary notion that unemployment and economic growth levels might stagnate right where they are today and stay there forever. But we’re also hearing about the people who make up the new normal. In just the last couple months of REALTOR® Magazine’s Daily News items alone, headlines question the opportunity the future holds, thanks to shifting demographics and changes in people’s economic values:
- First-Timers Make Up Smaller Share of Buyers
- Millennials Will Become Home Owners Later
- Financial Crisis Sparks Housing Commitment Phobia?
- Did the Housing Crash Affect Home Ownership Views?
Just last week we learned that the word “underwater,” as pertaining to home value vs. loan amount ratio, was added to the Merriam-Webster dictionary. Was there ever so concrete evidence that the Great Recession has entered our cultural lexicon?
Perhaps American consumers are entering a new phase. But is that necessarily a negative thing? And are you ready for it? Continue reading »
By Melissa Dittmann Tracey
Slowing home sales, a tightening credit market, record-high foreclosures — how did we get to this point? Richard Bitner’s book Confessions of a Subprime Lender (Wiley, 2008) gives a close-up look at how the worst credit crisis in modern history came to be. Bitner, who founded a subprime mortgage company in 2000, left the business in 2006 after foreclosing on a subprime borrower that never should have been approved for a loan in the first place. While being careful not to blame any single source, Bitner gives an interesting view on what went wrong in the subprime mortgage market and how to fix it.
FROM THE BOOK: 5 REASONS THE SUBPRIME MARKET CRUMBLED
In 2000, as housing prices grew out of reach for buyers, more creative financing crept in and subprime lending became big business. Wall Street wanted its hands on more of these loans, and the hot housing market spawned a wave of new subprime companies. By 2004, 75 percent of borrowers were buying a home without using a down payment or proving income.
But by 2006 the subprime market started falling apart; Borrowers were defaulting on loans and subprime companies were going out of business. Bitner says these are some factors that caused the subprime market to crumble:
1. Greed. Mortgage brokers made more money if they sold loans with higher fees and interest rates. So borrowers would often be steered toward riskier products, even if a more traditional (and less risky) loan were available. “My income was directly proportional to the revenue I generated, and subprime was three to five times more profitable than any other type of loan we securitized,” Bitner says. “I saw no logical reason to sell something that made less money and carried no competitive advantage.”