Here’s a sobering CBS 60 Minutes story that ran on Sunday night covering the subprime mortgage situation. Its centered around the Stockton, CA housing market, which has one of the highest foreclosure rates in the country.
One of the best portions of the show was the narration of the process provided by Jim Grant of Grant’s Interest Rate Observer. For those who didn’t understand the problem, they should now. (I had the pleasure of a call by Mr. Grant a few weeks ago.)
“What do you mean by free money?” Kroft asks Jim Grant, the editor of “Grant’s Interest Rate Observer” and one the country’s foremost experts on credit markets.
“I mean free money. I mean you had to apply not to get a loan, almost. Sometimes you have to apply to get a loan, you almost had to apply not to get one,” Grant says.
The dot map created by Foreclosure Radar representing properties that were non-performing or in foreclosure was incredible.
My takeaways from the presentation were:
- The foreclosure trend has a long way to go.
- Because investors/owners found it so easy to finance these loans, there doesn’t seem to be a moral obligation to stick with the property and pay off the debt. Just walk away. Its a business decision.
- Who really owns the property or is the actual creditor? Not clear.
No one is to blame for this problem, yet everyone is to blame:
- borrowers for being naive
- purchasers for being greedy
- banks for loosening their lending standards
- Wall Street for creating securitization so complicated even they could not understand them
- real estate agents who fueled the flames
- regulators who were no where to be found
- appraisers who simply went along with the process
- mortgage investors who bought paper without understanding what they were buying…
and so on and so on.