I would first like to welcome you to Benton Real Estate Company Inc’s first blog! Thank you for taking the time to read our blog and please be sure to comment or revisit in the future.
Hank Paulson, Secretary of the Treasury just finished addressing the Nation and the World on the continued decline of the Global economic conditions. A portion of the address was focused on the housing market, more specifically the declining prices, coupled with the increasing amount of “bad” mortgages in the financial systems. I have been selling real estate for 8 years and have owned a real estate brokerage for 4.5 years now. In 2005, the peak of the last real estate cycle, I had watched (2001-2004) a real estate marketplace exploded in an upward fashion and at a remarkably rapid pace! The cause? Simple economics, demand outweighed the supply. However, this demand was driven by the financial institutions and their lessening/loosening of requirements to borrow monies. Do you all realize that in 2005, the market peak, 10% of all mortgages provided to buyers, from lenders, was considered “Alt A”. (Definition of Alt A Mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or “prime”, and less risky than “subprime,” the riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime home loans.) Secondly, in 2005 43% of all mortgages provided to buyers, from lenders, were ”no money down” products/programs. Together, in 2005, over 50% of mortgages written, are categorized as “riskier” ! Of course, with these type of “riskier” mortgage products comes a price, higher interest rates to the buyer and a larger return to the lender, that is if the buyer has the ability to pay! Unfotunately, in 2006,-2007 some of the other forces within the economy caused a downturn in real estate prices and the “burst” of the proverbial real estate “bubble”. As the real estate market slowed the supply significantly began to outway the demand and the decline in real estate values started. Now those mortgages mentioned above became exposed and vulnerable. Ultimately, lenders were/are forced to foreclose on homes and are stuck holding deeds to properties that are no longer worth what the borrow paid. Initially, I must admit, I was “pointing fingers” at the lenders and playing the “blame game” and was angered by the thought of the bailout plan. ”Why should our tax money go to bailout the greed of these lenders as they tried to capitialize on the riskier borrowers”? Then it dawned on me, why were these borrowers seeking financing for homes they truly could not afford and were living way above thier means? What did these borrows do with thier profits recognized from the rapid increase in values of thier homes during the “housing boom”? The bottom line is that WE ARE ALL TO BLAME FOR THIS HOUSING SITUATION and rather than “point fingers” and play the “blame game”, lets correct this situation and learn from our mistakes to assure that our children do not have to suffer through this type of financial catastrophy.
Paulson is “right on the money”, lets get those monies from the bailout plan to the finiancial institutions ASAP so they can stabilize and begin to do business again, all else will fall into place, especially the housing market!
God Bless and be well!
Benjamin J. Benton, Broker
Benton Real Estate Company, Inc.
