Some readers may wonder where we are in the collapse of the real estate bubble. We have been wondering, too. We also would like to delve a bit more deeply into the sources of the collapse problem.
Certainly unemployment is contributing mightily to it. Also the unsustainably high prices that homes were reaching in most parts of the U.S. But why? We’ve heard many explanations and believe most of them: greedy bankers is our favorite. Like “bankers” were a single entity.
In reality the financial market is divided into many segments: small community banks, big regional banks, humongous international banks, credit unions and savings and loans (yes, there are some still left). We’re not sure where mortgage brokers fit into this mix, but we are sure they have been a big part of the problem.
Here’s why: in a story in the Houston Chronicle today, we see the unholy connection between HUD, US Dept of Housing and Urban Development, contributed mightily to today’s still-dormant real estate market.
“…decade-long fraudulent lending practices cost the government hundreds of millions of dollars and forced thousands of American homeowners to lose their homes,” for one thing.
Federal prosecutors said”…Houston-based Allied Home Mortgage Corp. and [executives] Jim Hodge and Jeanne Stell, …originate[d] mortgage loans insured by the U.S. Department of Housing and Urban Development, or HUD. … [N]early 32 percent of the 112,324 home loans originated by Allied between Jan. 1, 2001, and the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD.
“The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and HUD could face $363 million more in claims.”
The remainder of the article details many of the methods by which the company defrauded mortgage holders and the government. To read just the prosecutors’ lawsuit, you’d think it was all the mortgage brokers’ fault, but we know HUD officials had to look the other way while the fraud was going on. What’s that called?
As we have said many times, linking government to the private sector is a recipe for financial disaster. Well, we didn’t say it exactly like that, but you get the picture.