As a builder in the area and living though this mess of an economy I have been watching closely what is going on in the housing market.  Here are my observations and what I expect for 2012.

The housing market was set up to fail when The Community Reinvestment Act of 1977 put forward by Rep. Barney Frank, Chairman of the Congressional Banking Committee, and signed into law by President Carter opened the door to today’s mortgage meltdown by requiring banks to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services. In 1995, during the Clinton administration, the Democrats added new provisions that forced banks to issue $1 trillion in “sub-prime” loans targeting to help the unqualified buyers by lowering credit standards, not having to prove real income, and lowering or even doing away with down payments.  These lower standards increased mortgages by 40% given to people that were not qualified to own property under normal underwriting guidelines.

With all the lenders required by our government to give “easy money” to people who in reality could not afford to make payments, we were forced into this mess.  When it became clear that we were in trouble, some banks began to bet against the forced, or government required loans in order to try and stave off their bank from failing.  All the while, mortgage brokers were making and reselling bad loans to keep themselves afloat, as their only source of income was making home loans.  I have seen this up close when a mortgage broker asked me to change some numbers around on a bid to make the homeowner qualify for a loan.  We refused to change anything, but I get the feeling that the mortgage broker somehow made it work anyway.  Last time I checked the owner (really two families building a third home in Surfside together) were still paying on a construction loan, for all of this mess came down as they were building the home.  Add to that one of the owners being involved in the building industry, and you can see just how bad of a situation they were in due to “easy money.”  This has nothing to do with being poor, for on paper these people were worth quite a bit.  However their “wealth” wasn’t income, which is the most important part of being able to pay for a home.

Now that the lenders and the government have come to an agreement with foreclosures, I expect to see a flood of them.  Up until now the lenders have been waiting for this agreement so that new foreclosures would not be “illegal” or held up in court.

So for now the pain will continue, despite the government trying to help the housing industry by throwing good money after bad.  The only way for the market to fix itself is for the REAL market value of the homes to used, and for the government to stop spending tax dollars on a bad investment.  I expect values of homes throughout the country to drop until well after the number of foreclosures stops increasing.  When then will we get to the bottom?  I don’t know for sure, but I do know that the more the government “helps” the longer it will take, and thus the longer this economy will stink!