A builder in the Midwest from 2000 to 2007 RIP

Everything seemed pretty normal at the turn of the century in the housing market 7% mortgages 4 to 5 percent appreciation. Then 911 happened and the Fed (Greenspan) seemed to panic and started lowering the Fed Funds rate. There is usually not a direct correlation between the Fed Rate and mortgage rates.

However as I continued to build I would notice no money down and closing cost wrapped in the mortgage and later find out that buyers were getting increasingly better rates (the age of no money down and TEASER adjustable rate mortgages). The period of cheap money seemed to attract a lot of buyers. I had to ponder the thought did these homeowners know the money they borrowed was more than likely cheap for a short period of time.

While this was going on you would see mortgage broker ads everywhere for cheap mortgages. I wonder who was buying these mortgages maybe Freddie Mac, Fannie Mae, Lehman, Bear Sterns, USB, Wachovia etc. I’ll bet some smart Harvard graduate come up with the idea to package the Sub Prime and Alt A loans with Prime mortgages and call them CDO’s and sell them to the world. This might be an easy sale because what great returns you are going to receive once the teaser rates term expires on the adjustable rate mortgages.

As demand for housing exceeded supply and also due to the industrial expansion going on in China building materials started to sky rocket. I know everyone thinks the builders were gouging the potential homeowner. However, the truth is our profits were getting smaller because of the rise in commodities. We had no choice but raise prices. At least this was the case in the Midwest I don’t know about Florida and California.

Then around the end of 2004 after 2 years of Greenspan lowering the Fed Feds rate things were every so slowly starting to change. Inflation was beginning to become a worry. The mortgage rates were starting to rise. A lot of adjustable rate mortgages were tied to the LIBOR. For example you might pay 2% above that rate adjusted at perhaps annual intervals. The teaser rate period was about to end.

As Greenspan raised the Fed Funds rate (of course the LIBOR followed) homeowners rates would adjust at there scheduled intervals. I’ll bet Wall Street and the rest of the banking community was licking thier chops knowing that all these adjustable rate mortgages were about to increase dramatically. Little did they know the very homeowner they thought was going to make them money would end up shoving it back in their face!! With the exception of Goldman Sachs and a very few others.

The stage was set except for one wildcard that nobody could foresee KATRINA and Oil.
In my humble opinion this was the trigger that set what had happened previously in motion. This would continue to add pressure to the cost of building materials, labor and the cost to develop land.

The fall of mortgage rates locked in homeowners and yes speculators during the cheap money period. As the rates climbed and adjustable mortgages reset the house of cards started to fall. We all know what has happened the last year with foreclosures and the insolvency of investment banks and finally the GSE’s.

It’s not that homes have gotten cheaper to build since 2005 building materials and labor cost are higher than they were then with the exception of lumber. Greenspan had money to cheap for too long. The greedy mortgage broker’s pushed through anybody they could with no integrity to their profession and Freddie and Fannie allow it, then Wall Street bought the rest wrapped it and sold it to the world. Thanks for devaluing our property and your own you fools because of lack of integrity, morals and down right stupidity. I’m amazed any of these people made through college.

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• We need some changes in regulations for home mortgages.
• Fannie Mae and Freddie Mac Receive $46 Billion From Treasury
• Mortgage giants expected to shrink again starting in 2010.
• Fannie Mae and Freddie Mac: Notice the word UNLIMITED SIZE in the last sentence.

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