In recent weeks, I’ve seen an increasing number of tank-like Hummers cruising the streets of Los Angeles, a troubling trend clearly tied to the big drop in gas prices.
Drawing a parallel to housing, my fear going forward is that the unprecedented drop in mortgage rates will lead to another ill-conceived housing bonanza.
And while underwriting guidelines have tightened and oversight is seemingly improved, it appears we could fall right back into the same mess that got us here.
Which brings us to a larger issue, whether we even care about the fundamental problems, or if we simply want it all swept under the rug?
When gas prices fell, the SUVs and Hummers came out in droves, not because global warming worries subsided, but because you no longer had to shell out $100 to fill the tank.
And now that mortgage rates are at record lows, mortgage lenders are hiring again while scores of borrowers inquire about refinance opportunities.
Meanwhile, homebuilders are trying to lower rates via government subsidies to spark new home sales and dump their stagnating inventories on unsuspecting buyers.
On top of that, U.S. Representative Al Green introduced legislation this week to bring back seller-financed down payment assistance, despite the fact that the risky loans could sink the overworked FHA.
Unfortunately, all these moves aim to prop up sagging home prices, which still remain much too high, while we continue to ignore the fact that the system is broken.
Let’s face it, Americans don’t want to stop consuming, but if a home is no longer viewed as an investment, an ATM machine even, why own one at these prices?
That’s why loan modification efforts face an arduous uphill battle, because it’s not about the size of the monthly payment, but rather the incentive to stay put.
And these days, it seems there’s no reason to stick around, especially if you bought during the tail-end of the crisis.
Even if you can afford the mortgage payments, it’s hard to justify staying in a home where your mortgage balance greatly exceeds the true value of the property (negative equity).
Real change, or should I say consequence, is needed; otherwise it’ll just be a matter of time before we’re back to our old ways.