I wanted to share a little story I heard yesterday from one of my Bank Reps that not only frightened me, but angered me a little. If anyone has any insight I would love a contribution.
So, I am talking with my rep about what they are saying, what is new on their end, and they told me a story about a friend of their's that bought a new construction house about 2 years ago that they financed with a 2 year fixed through the Builders finance broker. The friend bought this new beautiful house for X dollars, which though it is a lot of money, has been the norm for such a nice area, great schools, great employment....everything. So, the builders in this community built a lot of homes in this area, and continues to build. The builders have built soooo much that that have overbuilt the area, and are forced to slash prices to clear their inventory. The people that bought this house 2 years ago are now $120,000 upside down on their property. That is about 15% behind.
This type of scenario makes me wonder, what is going to keep this from happening in the future, who really is to blame, can this be prevented.
Here are some of the causes and their potential blame:
Builders- they are a business, sometimes corporate, forced to perform for their shareholders, can you blame them for needing to create a profit? Should they have to perform ethical and look out for the people that have previously trusted them and bought at a set price?
City Planning Departments- They have given builders the ability to keep building houses They too are required to perform, should they be held liable for overbuilding and putting people at risk?
Buyers - Should they be blamed for buying a property at market levels 2 years ago, and being $120,000 behind, and should they be forced to repay that additional $120,000 or should they just let the home go into foreclosure when their current home mortgage doubles upon their first mortgages adjustment?
Lenders - They have allowed this person to get a 2 year fixed, and assumed the liability that the value when they funded the loan, might not be there 2 years later. Should lenders be required to make decisions for people, even though they already disclose the terms of the loans in the signing documents? Should lenders require 100% financing be accompanied by a fixed rate first mortgage, ensuring that there would never be a "Payment Shock" (when you payment increases as a result of a mortgage going adjustable) issue.
I am not trying to stir up peoples emotions, or get people fired up, I am merely trying to see if there is a proper way to handle this type of situation if you were in it. Is there a way to prevent this? Who really is to blame in these cases? Is it necessary to cast blame, or do we just learn from it and move on?
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