The RE market colapse - blame, finally!

[Rich Rifkin]

The buzzword is recession and everybody should be worried. I've been in the industry since 1990 and my family's RE business goes back to the late 1800's and we all agree that there's no near future relief from a deep and dark RE recession.

The problem started in 1994 ...

In 1994 we experienced an increase in retail mortgage rates of about 1.875% (to the rate, not basis points) in just 6 weeks which caused a mass exodus of newbies into the wholesale marketplace. This was the only place where salaries were offered (instead of commission positions) and people were willing to work for less than highly experienced sr. underwriters, top tier account execs, etc. Moreover, QC (quality control) became so flexible that a new and more consistent underwriting system had to be introduced - and it didn't take long for make-sense underwriting to be replaced with automated UW (Fannie/Freddie and then jumbo).

This evolution continued upwards through portfolio and servicing investors (above wholesale) into securitization, and that lead to programs with higher LTVs, lower qualification (remember 28/36 ratios?) and negative amortization programs. The only logically predicted result was rapid escalation of RE equity (inflation of RE value), which is fine as long as incomes increase at the same rate. In other words, a $100k home in 1995 that is worth $500k in 2008 would require an income of $180k instead of only $30k. We all know income hasn't even come close to meeting the qualifying need.

So there you have it. The reason the gov't hasn't found anyone to blame is because there is nobody to blame. In retrospect I would have preferred slower and more controlled growth rather than a steep climb to an expeditious fall.