The Recent History of Mortgages

The twentieth century was one of wonderment over the idea of home ownership. Never in the annals of personal property, did such a dream become a reality. Only in America in the twentieth century could the middle class experience the pride of ownership.

The twenty-first century opened with fears of Y2K Armageddon, but within hours of the New Year it became clear it was a false alarm. It was much ado about nothing. Even after 9/11, people quickly forgot about the threat and moved on. Then more calamities; this time the stock market went south for three straight years, but it was only a problem if you were retiring. To the rest of us it was just a paper loss, not real losses.

Financial underwriting began to loosen up, growing more benevolent. It was easy to secure a mortgage. Low FICO scores were not a hindrance any longer. No down payment was required. You didn’t need a job. You could design your mortgage with short term ARMS, interest only or 40 year mortgages! And as the shackles of sensible lending gave way to fee driven profits, the wheels came off and the market skidded off the cliff into the abyss.

At the beginning of the housing market downturn, many real estate buffs compared it to the Great Depression saying, all goods and services were devalued during the thirties. Real estate did devalue as well, but not as much, so it was a hedge against all other investments. During the days of the wildest, childish lending environment normal people with a track record of rational thinking gave way to the hysteria of the rising housing market. People were purchasing numerous homes either to flip or as rentals to get in on the ground floor of the real estate boom. For most, it buried them alive under multiple mortgage payments and devastating devaluations of their properties. By the time the Dodd Frank Act was operational it was too late, tens of thousands of personal bankruptcies, foreclosures and divorces were all that was left of the wildest, childish economic environment in modern times.

But as time went on the housing market became the catalyst of the Great Recession and any hopes of appreciation then or in the future seemed long gone. Even now most mortgage brokers and seasoned real estate agents use 2-3% appreciation as a day in and day out number for long-term investment positions. The days of free wheeling lending are dead. But once you’ve been burned it’s a lesson hard learned and you find yourself cautious, stepping in trepidation and thankful you survived one of the hard knocks of life.

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