So I guess the people buying more than they can afford did not play into it? People trying to flip w/o knowing what they were doing didn’t play into the problem(Caseys of the world)? Real Estate agents who either inserted themselves into the middle of the transaction (straw buyer) to skim money didn’t play into the problem? Real Estate agents pushing the mantra “gotta buy now or be priced out forever” didn’t play into it? What about the main-stream-media’s culpability?
Geesh, I get real tired when I keep hearing that the banks were the main problem. They weren’t. They did screw up, but it also cost them. Their screw-up was that they didn’t appropriately price risk and themselves bought into the ‘RE always goes up‘ so they figured that if someone defaulted, they could get back what they loaned through foreclosure. Everyone seemed to forget that things could go upside-down. I don’t want a nanny state where the government decides how much risk I get to take. If I screw up, I pay the price. Most of those ‘home-renters’ didn’t want to, and they complain loudly that they are being taken advantage of by the banks when they have to. Don’t forget all of the ‘Jenny’ Realtor, he-who-must-not-be-named, Casey Serins, June Reyno(s) that we have covered here. How much have these people paid for what in some cases amounted to felony fraud? To them it was sure money (sounds like gambling because it was). Always read the mortgage contract, and Financial calculators are cheap. A few years ago, I picked up a HP-10bII Financial Calculator at Wallmart.. cheap. Remember one key thing. A bank has to loan money to make money. If the product does not sell, the banks will have to sweeten the deal. If you have to, go to another bank. If no bank will loan you at the terms you want, maybe there is a reason. I just had to remind a friend of that fact when they were complaining about banks wanting to charge so much. The conversation sort of went along the likes of:
Me: So you consider yourself a good risk? What does your risk profile look like?
Them: You know I am good for it.
Me: How much money do you have in the bank?
Them: silence
Me: From what I remember, it is about 2.5 Months of salary, and outstanding credit card balance is about 1 month of that. That means you are 1.5 months away from bankruptcy on a job loss in a bad economy and without an engineering background.
Them: I can always borrow from my 401K.
Me: If you lose your job, you have to pay the borrowed money back or risk at least a 10% fine plus any outstanding taxes.
–the discussion pretty well ended there, but it should give you an idea of the mentality that still exists.
My sister and I also had to remind one of the family members that the loan officer is not being nice because he is a nice guy. They guy wanted to commission on the loan. It is a business deal and you have to remember it! Run the numbers.
PS: People didn’t pay much attention to Warren Buffet’s comments w/respect to BofA. He priced his warrants with a 6% return rate and $7.14/share strike price. Warren Buffet usually asks for a minimum 10% return like with Goldman Sachs. Warren is also not in the charity business when it comes to investments.
