There’s plenty of blame to go around in all this mess.

Well - a lot of real estate professionals even - didn’t know the actual meaning of the term “Subprime” even two years ago.  A lot has changed.

Same with the phenomenon “short sale”.  99 out of 100 in and out of real estate had no idea what that means - even as recently as a year ago.  Some still don’t - if it doesn’t affect them directly.

That’s where millions get left behind - caught behind the curve - head buried in the sand.  If you don’t have a Subprime loan chances are you don’t think about the impact even though its in the news for a long time now.

Think about this…

Remember when there was no such thing as subprime loans. 

If you don’t here’s the facts…

Introduction to implosion the whole phenomenon spanned maybe five years.  They came along - a few at first and then more, more, more.  Successive new programs offered increasingly aggressive, exotic products with progressively more relaxed lending standards.  In hindsight it is all there to see - a huge problem in the making.  

At the time - few did - everyone was just happy - the borrower on the loan got a new home and the agents, brokers, loan originator, appraiser, home inspector, title company - all got paid.  The seller got a property SOLD.  Everyone was happy and dumb and getting a little fat.

Then everyone got a little fatter - often with a refinance.  Millions did it.  Some, a lot of times - we saw them - I even coined a phrase for them.  Regular homeowners turned “serial refinancers”.

Homeowners who once made buying and selling and refinancing decisions maybe a handful of times in an entire lifetime - made them routinely - without blinking.  Everyone was doing it.  The costs associated - often $10,000 or more to make a new transaction was often not even a thought.  Americans ate up all the Subprime action brought to them - buying real estate and spending on credit cards like drunken sailors all the way.  Many refinanced once for a lower rate - then again - within a matter of months - then again for some well deserved “equity” to pay some bills, take a vacation live a little - then again and again. 

Problem is - all of the free spending and once easy decisions have made millions slaves to the home they live in.  There is no Freedom in that.  There is no American Dream there.

All the fattening - really ill advised - fueled more fast and silly lending with the real estate industry pumping transactions built on all the ridiculous financing.  All the while - the general public eagerly gobbled up the easy money, easy terms, easy access and all their “equity”.

At one point - several years ago - I remember a guy I worked with for many years said to me something about “NINJA loans”.  Right away that confused me.  I asked, “Jim - what are you talking about?”

He said, “Its a loan for someone with NO Income, NO Job, NO Assets.  That’s a NINJA loan.”  And he was right.  They were out there.  The only thing that wasn’t NINJA about them was they weren’t hiding.  Thousands of lenders could write those loans all day long - sea to shining sea. 

I stared back speechless - could not say a word.  Now - I am pretty sure Jim coined the term “NINJA loans” - no one is expected to understand Jim’s lingo.  That’s the interesting guy Jim is.

But here’s the point…

At the time Jim was talking about NINJA loans - most folks weren’t even familiar with the term Subprime and all the variations of loans that developed.  No money down programs were everywhere.  Stated income programs, zero down non-owner occupied investment property loans, interest only loans, Jumbo loans to new unheard of limits, negative amortization loans, balloon loans, ARMs.

Many of these loans would combine - piggyback - two or more of these increasingly risky elements just to compete with the other programs on the market from other lenders.  But people did not even know - these loans were falling from the sky, out of nowhere, and temporarily sustained the overheated real estate market.  Historically - financing like this had never existed. 

Regular people forgot that homes they live in ordinarily appreciate around four percent a year.  That’s across time and regions.  That does not account for two or three percent per year out of pocket for regular and deferred maintenance costs. 

People forgot when they make $60K a year - it isn’t good to spend $80K even if the extra came from the “appreciation” in their home.

America as a whole was thinking Upside Down with regard to its real estate and spending and thirst for fast, easy, cheap financing sources.  The true and total cost was not calculated.

Now they are gone - long gone.  Just the fallout is left.  One site online tracks failed lenders - 271 as of the date of this post.  They failed because of loans they originated, funded, or bought which could not perform.  A long time ago they were doomed.

No one has dared return where the failed lenders disappeared.  That left too many homeowners needing a refinance in a tough spot - facing a mortgage adjusting up maybe $300 a month when they were already maxed out.  People were living OFF their homes - not IN them.   

Really - there’s been nothing serious going good enough to stop a slow downward spiral that at times feels like a snowball.

That’s one of the reasons why more homeowners continue to default…

There are big bailouts for banks - but no big easy handup for the regular Joe homeowner. 

Congress is working on a new measure now.  The last time the government acted - not many noticed who that helped.  That was the week after last Christmas.  For this - we have to wait and see - there may be too much water under the bridge.  For too many - it is clearly too late.  

In fact - the most recent month’s numbers are record numbers - some 247,000 new foreclosure actions in the U.S. last month alone.  No one can say how long those will take to clear through to sherrif sales at the local courthouses and trickle into the asset managers at the overwhelmed banks’ REO departments.  Finally - when the banks bring them to the already saturated marketplace - they will drag even more on neighborhood real estate values.

If you were unaware of what Subprime was while it was here - you are not alone.  If you are unaware now - reread this article. 

Don’t leave this article without getting the point here - that it is critical to know what is going on while it is happening.

The Subprime mess could have been seen if people wanted to notice.  I would recommend the blog post here called “The New Subprime”.

That way - those who follow Free From Real Estate can understand what is around us and ahead.

Otherwise - you won’t see the value in Free From Real Estate. 

Because - the bottom line is - there is hope.  And opportunity - even now. 

That’s regardless of where anyone is with their current real estate and money and job situations.

Many people will truly be doomed to repeat the same mistakes - not just in real estate - in life.  They will always wonder why they work so hard - do not ever go forward.

Sad part is it is predictable.  And - worse - it is avoidable.

Its time to see and think Right Side Up.  Go check out the recommended blog and… 

If you haven’t already - sign up for our free eNewsletter on the homepage - you will learn more there. 

Also, send this to a friend today.  Chances are they didn’t ever hear of a NINJA loan either.