Roosters coming back to the hen house... Hopefully it isn't being forclosed on.

I am reading and listening to all the reports on the credit crunch in the media. You only have to go back to my June 22, 2006 post. (It would have been done earlier if I had a blog back in 2004). Anyone that went through the S&L crisis in the late 1980's, could have predicted the news today. All you had to do is look at when those 3/1 arms were going to adjust.

I really fault the mortgage and real estate community for not policing itself. It comes from having an industry that is founded on commission only employees and greed. I can say that I am in sales. This needs to change, period. Real estate agents and brokers need to be employees of agencies with salaries and commission. They need benefits. The same is true of the mortgage industry. This also is not something for people to "dabble in real estate". This is a serious industry. Every house is a home. It is also a SIGNIFICANT investment vehicle for every home owner. It isn't a part time job, it is a profession.

The long term real estate professionals need to police there own shop. Down turns like this separate the wheat from the shaft. Learn from the historical information out there. Establish policies and procedures to prepare for this when it goes the other way. It will.

I think the core of the problem this time was the stupidity that mortgage professionals and underwriters applied to approving loans. Creative financing is fiction. It is simple. You can prove your borrowers make "x" based on the formulas they can afford to spend "y". Standard formulas we worked on when I was doing mortgages in the early 1990's were the following.

Your house payment should not exceed 26-28% of your Gross Income. There is a second ratio that takes into account your other debt. Think about this. Your home should cost you NO MORE that your gross check for one week. Week two is taken by Uncle Sam and Aunt State. Week Three & Four = cars, insurance, credit cards, fun, student loans, day care, 401K, utilities, home improvements, other investments, cell phones, clothes, gas, food?

Are you sure that you want to spend that full 26% at this point? Okay, whine at me.. The price of houses demand we spend more than we want to... WHY!

Simple.... people were able to get financing for higher ratios. Salaries have increased but not in the same correlation to home prices. We also have a full generation that expects to be able to purchase a house that has the same size and features as one their parents have after years of working and increasing their net worth.

I bought my first house for 91K. It was a 3 bedroom and 1 bath house built in 1906. The kitchen had metal cabinets. I lived with it. It was mine. Since selling that home, I have purchased and moved four times. The house I live in today is a lot nicer than that first house. However, I have firmly believed in the lessons I learned at Colonial Mortgage and Paul Speiss about how to qualify myself for affordability.

The other thing. Don't use a mortgage officer because they have a relationship with your realtor. They will be more loyal to the realtor than you. It is okay to pay a bit more in rate or for services to work with reputable people.

Would we be in trouble if we lost a job or something happened that we weren't able to work? Sure. It would be tough but we aren't going to lose our shelter, credit, and investment because of the mortgage type we signed on for 30 years.

Think about that ... what else do you commit to for a 30 year term besides your spouse and being a parent? Be really sure about the mortgage and home prior to jumping.