Predatory Lending Part One: You Are Not In Kansas Anymore
By Kurt O'Keefe, Attorney at Law on May 1, 2007 in General Bankruptcy Information
Michigan has been ahead of the curve, leading the country in declining real estate values, without having experienced the boom of Vegas, South Florida, and some other areas. Last year was the first year over year national decline in home prices since the Depression, 1937. Many of you may have heard about the Great Depression, it was in all the papers and many movies.
Let me start the story, of the big picture, back in the halcyon days of the 1950s. Leave it to Beaver, Father Knows Best, Donna Reed, dads in suits and ties all the time, moms with nary a hair out of place. Black and white TV, with no black people. Like the movie “Pleasantville.”
The shows were unreal. 3% mortgages were real. The neighborhood banker was the mortgagee. He knew you; he knew your house. You got your 30 year mortgage, from the local bank, and it stayed with that bank; it was not flipped before the ink was dry. The closing was at the bank, or maybe at the office of the title company, the one that actually issued the title insurance policy.
Different factors, over time, brought us to our current situation. I am sure I will miss some. Let me start with the big guy, Alan Greenspan.
CNBC used to film him going into meetings of the Federal Reserve Board, then predict whether rates would go up or down based on the size of his briefcase.
Yes, a man of mythical stature. Chairman of the Fed, whose other members seemed to have rubber stamped every thing Al desired.
This is more complicated than I can explain completely, but, paper money is a physical commodity. There is supply and demand. If the supply is increased, too much money chasing too few goods, that causes inflation.
The single entity in charge of the supply of American currency is the Federal Reserve Board, which operates independantly from the rest of the government. Its decisions do not have to be approved by Congress; those decisions are not subject to veto by the President.
When the money supply increases too rapidly, bubbles are created. That is what created those Vegas, South Florida and other real estate booms.
So, the Alan Greenspan easy money table is set in the 1990s. Where will it go?
The 1950s neighborhood bank, if it did not expand itself, was bought out by another bank. Outsourcing, efficient in many ways, was pushed by the bean counters across the board in our global economy.
So, mortgage brokers increased exponentially as the mortgagees outsourced the task of finding, and qualifying, mortgagors. The easy money the banks can get finds its way to the mortgage market through the brokers.
TO BE CONTINUED
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