We are in the middle of a very serious financial crisis in this country and around the world, yet a real solution is being missed. Let me take it a step further: Intervention by the powers that be are making a real solution harder to achieve. What exactly am I talking about? The initial cause of the financial crisis, if you recall, was the so-called sub-prime problem. Loans were being written down by the banks because of the perceived lack of value in them. To this day the greater percentage of these loans are still intact, but most of the banks are not.. Following the discovery of the "toxic" loans, we found real estate had been falling and sales of real estate started slowing. The die was cast and all sorts of discoveries were made about the entire financial system, from banks to brokerage houses, from insurance companies to giant mortgage lenders. The collapse was beginning.
Now everyone is looking for a way out even though it is right in front on their eyes. Although this isn't a chicken and egg riddle, there is some discussion whether the loan problems hurt the real estate or whether the falling real estate prices escalated the problems in the lending industry. I favor the argument that falling prices hurt the loan industry. If you subscribe to that theory then the answer to this financial mess is to do everything possible to get real estate moving again. It is that simple! If real estate prices increase home owners will have more equity, toxic loans will start to move in the right direction where they become a percentage of the value of their security, real estate, instead of the security being a percentage of the loan.
If ridiculous rules had not been foisted upon the lending community this could have already happened. I don't think it was an accident that real estate picked up steam to the downside when Fannie Mae and Freddie Mac started surcharging loans that they offer to the public. Along with the surcharge were restrictions and program changes that may have strengthen their financial position, although their isn't evidence about that as yet, but it did slow down real estate dramatically. Jumbo loans, those whose balances are higher than conforming loans purchased by Fannie and Freddie, haven't come out of the freeze as yet which makes anything Fannie and Freddie does more significant.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.