(LoanSafe.org) – Booms and busts can pretty much be considered opposites if you stop and think about it for a moment. During a boom such as the one we have experienced a few years ago, almost everyone is happy and nobody seems to have a care in the world. However, during the bust most everyone is pointing fingers and looking for someone to hang.
Yes, some people buy homes they cannot afford, then add cars they cannot afford either to the mix and let’s not forget about less than essential assets such as several large screen TVs, expensive phones, laptops and the list could go on and on. The consumer in us feels right at home during a boom and the operative word is “have”. Not everyone is guilty of this but many in America had partaken in the previous decade of over consumption. Regardless of what people say, most every-one’s mortgage hands are dirty.
We want to have a better home, a better car and a better life. Most people feel that way and are even willing to make foolish decisions in order to at least try to “fake it to the top”. Are lending institutions innocent in all of this? Of course not! Borrowers want to have, lenders want to earn and both parties are willing to let common sense take a day off during a boom.
So, the banking and lending industry encouraged this reckless behavior with easy credit and even easier loans. Some say that this was done purely for corporate profits without a regard for the consumer who is left stuck in what essentially is a defective financial product. Many feel that this was done on purpose to entice uneducated borrowers into mortgage products they could never understand or afford.
Most lenders have offered money under ridiculous terms and to clients which could be considered “high risk” at the very least. On paper, their future returns seemed impressive and while the CEOs of the previously mentioned financial institutions were somewhere on a yacht thinking about the bright future which was waiting for them, reality finally decided to say “stop”.
As time passed, the real estate crisis started making its presence clear and the worldwide economic crisis followed. The real estate market initially stagnated: people saw that prices seem to be going down but they were desperately hanging on to their properties. On the other hand, buyers were willing to pay less and less. As time went by, the real estate market collapsed and everything started spiraling downwards.
Real estate prices were dropping, jobs were being lost and people were no longer able to keep up with their monthly payments. All of a sudden, arrangements which looked great on paper turned into something disastrous and buyers found themselves having to go down the foreclosure route. Lenders, on the other hand, started facing liquidity issues: on the one hand, there is less and less money coming in and on the other hand, selling their existing assets at prices which enable them to at least break even is next to impossible.
As a result, we should expect a record-breaking volume of lawsuits in the future because if we were to describe this situation using just one sentence, we would say this: incompetence is being taken to court. Lenders were blinded by money which only existed on paper and borrowers made foolish decisions because they thought that things could only go up financially.
What happens when, after an agreement is reached, the two parties are not satisfied? That’s right, the issue is being taken to court! Even Fannie Mae decided to start going after deadbeat buyers in court in some cases and, on the other hand, they want to make the lives of financially irresponsible people harder for 7 years after walking away from a mortgage.
In some cases, the borrowers are the ones who decide to take matters to court for all sorts of reasons. A lot of times, people do not want to admit that they were wrong and start placing the blame on other parties. The greedy lenders are at fault, the government is at fault and the list seems to never end.
Uncertainty seems to be governing at this point and anyone with a little bit of life experience knows that we will be dealing with more and more lawsuits. Will the situation be solved by taking things to court? In some cases where it is clear who is in breach of contract, the answer is a clear “yes”.
But the truth is somewhere in the middle sometimes and transparent communication needs to kick in. If the two parties are not willing to budge, then they will simply have to settle in court and as everyone knows, it’s a costly and time consuming process.
Are there people who can make even more money than before even though the world is dealing with a financial crisis? Lawyers and law firms seem to represent an exception given the fact that borrowers and lenders seem to be busy burning bridges at this point. As a result, it’s only a matter of time until the two parties will end up writing a check to a lawyer and the facts speak for themselves.
My name is Maurice “Moe” Bedard. I am the founder of America’s #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.