The housing market has suffered a serious collapse, the stock market has disappeared trillions of dollars of wealth, and the economy has entered into the worst depression since the 1930s. As a result, many Americans have lost faith in the companies and professionals they were supposed to be able to trust.
A number of real estate and financial experts played a role in the pump and dump scam that was perpetrated on the national housing market over the past decade. Foreclosure victims should be aware of the role of these private market experts in taking advantage of the artificial bubble in housing prices to impoverish borrowers.
Local real estate agents who mediated sales between buyers and sellers were typically the first contacts that families had with the housing market. Depending on the contacts the real estate broker may have recommended to home buyers, it could be very easy to inflate the value of a property or recommend a mortgage broker able to get bad loans approved.
Mortgage brokers or loan originators working for lending companies were also able to take advantage of a willing buyer. Brokers would often encourage homeowners to take out a loan for as much money as they were qualified for, instead of a reasonable amount they could pay back. With the low lending standards during the boom, getting approved for a large loan was easy.
Appraisers played a role in the housing bubble by valuing properties on the high side and finding any excuse in the book to justify market appreciations of 20% per year or higher. But even if they wanted to be more realistic, appraisers would often find themselves with very little business from local Realtors or mortgage brokers if they did not pump up values.
The mortgage lending companies that provided funding for these loans also helped inflate the housing bubble by seeking out mortgages anywhere they could be found. Lending standards disappeared in the search for more mortgages to fund. Once the loans were made, they were packaged up and sold to the investment banking firms that mortgage lenders borrowed the money from to fund the loans in the first place.
The Wall Street investment companies played an enormous role in the housing boom by creating the credit lines to subprime and other lenders to make mortgages. Once the mortgages were closed, Wall Street would buy back the loans, package them, slice them up, and sell the various asset backed securities to investors around the world.
The investors played a role by buying these securities that everyone knew would go bad. Public, private, and international pension funds invested in these securities and believed they were safe. Hedge funds took on most of the greatest risk, tapping credit lines provided by the investment firms to purchase more mortgage securities on margin.
The media also helped to create the illusion that housing prices never fell and that the bubble was a great time to get into the real estate market. Of course, none of this was true, but the news media ran with it anyway and too few homeowners questioned the wild claims made by pundits or market analysts.
The credit rating agencies, which get most of their funding from the investment firms whose products they are trusted with rating, simply assumed that mortgage securities were safe and gave them the highest ratings available. This made it much easier for Wall Street to sell the toxic assets around the world; after all, they were AAA rated.
This does not even take into account the government bureaucrats and authorities who encouraged bad lending practices. As well, the Federal Reserve set the entire market up for malinvestment through artificially low interest rates during the years after the 2000 dot-com bust and the 2001 mini-recession.
The bubble in the housing market turned everyone into amateur speculators and allowed borrowers to believe in a fairy tale of perpetually rising real estate prices. Now that it has collapsed, the result has been rampant foreclosures, the erosion of trust in government and the banking sector, and the worst depression the country and world have seen in decades.
Author Resource:-
Nick writes for the ForeclosureFish website, which gives homeowners the information and resources they need to avoid foreclosure by themselves and fight back against the bank's lawsuit. The site describes various methods to save a home, including foreclosure refinancing, deed in lieu, loan modification, stopping a sheriff auction, bankruptcy, and more. Visit the site on the web to read more about how you can avoid losing your house, repair your credit, and establish a long term financial plan once a hardship is over: http://www.foreclosurefish.net/
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