1. The money that banks and construction companies borrowed was the cheapest it had every been during the 2002-2005 years. This turned into a lot of cheap money floating around. If there is anything that we have learned is that “Cheap Ain’t Good, and Good Ain’t Cheap.”
2. With all of this cheap money going around mortgage companies could put otherwise unqualified home owners in homes that were twice the size of what they should own because the numbers worked out now. Never mind that their utility bills were going to make up the difference in what a mortgage payment would be.
3. Home builders were now building homes that were way too large for any normal family. Bigger is not always better. Just because you have a family of 4 does not mean you need a 4200 square foot home.
4. With interest rates so low every body turned into a real estate investor. This was bad because most people that are truly real estate investors have money in the bank to pay for the house but use that money to make repairs and in case something happens. This new real estate investor assumed it was ok to finance 100% of everything without having an emergency fund. This is bad business for everybody.
5. Mortgage companies started pushing adjustable loans to get people into homes and informed clients that they would refinance them in the future which means two sales for the mortgage company, not just one. This means more fees since the mortgage brokers do not hold onto the note.
6. If everybody would have just taken a 30 year fixed loan they could have got the lowest interest rate every recorded in mortgage history at around 5%. Rates historically have been in the 8%-12% range. Too many people were short sighted and took the 3 year adjustable loan at 3.75% because it would save them 1.25% in those three years and they would just refinance in 3 years because the mortgage company would do it. Of course they would do it because its more money for them. The mortgage company has not control over rates so many people are having to spend $5000 on closing costs the next time around and now get a rate around 7%. Imagine now if that 3 year ARM makes since.
7. Not everybody needs to be a homeowner even if rates are low. With 100% financing available it put zero risk on the borrowers. Even if they foreclosed on the house all that was ruined was their credit. Who cares about that, its only a piece of paper that financial institutions use. If you pay cash from now on than who cares what your credit score is. The “American Dream” is such a line of crap.
8. Getting rid of 100% financing will make people save up money and they will not want to lose the home and will work to keep it. Nobody wants to lose their home but if they put $10k down and have been making payments it would be a waste to see them lose it and the mortgage note holder keep it.
9. It started to become the thing to wrap in all of your debt, credit cards, car loans, boats, weddings, college loans into the only secured debt you had to save money on your monthly payments. This is bad because if you can’t make the payments on those other things just let them go into collections instead of wrapping them into your house. The $50k of equity you had is gone and now all of those things you rolled into the loan will be paid on over the next 30 years.
10. Real Estate goes up every year. Um….wait..what. Ha. Looks like there’s a first time for everything. Hope you didn’t buy a home in the last two years even if you did get a deal. More than likely you did not get a deal. If you paid more than what the home was worth in 2001 than you got ripped off.