Homebuyers figure into housing meltdown

By Buck Wargo

Friday, July 17, 2009 | 3 a.m.

If society just followed the advice of its grandparents, there wouldn’t be an ongoing crisis with foreclosures that helped trigger the nation’s economic woes, according to the author of a new book.

Shari Olefson, a Tampa, Fla., attorney and author of “Foreclosure Nation: Mortgaging the American Dream,” says simply blaming Wall Street, government regulations or predatory lenders — all who share culpability — is just shifting responsibility away from those who bought the homes.

Our grandparents lived in an era where they had mortgage-burning parties when they paid off their home loans, and everyone in the neighborhood came to watch, Olefson says.

Times have changed, with a greater reliance on credit cards and credit overall, Olefson says. That hasn’t been a good direction for this country, she adds.

“People have access to a lot of money. The average person has bad credit, and there is no problem. We have grown accustomed to credit,” Olefson says. “When you think about it, most of our parents used to sit once a month and write checks to pay the bills. Kids are not seeing that today.”

That is a danger because the further people get away from touching money, the more difficult it is to curb spending, she says.

That happened with this crisis as well. During the run-up of the housing market, people pulled equity out of their homes like a credit card, Olefson says.

The concept for writing the book came, Olefson says, when she was working for First American Title and went to a conference in San Diego in 2006. She heard people talking about the growing number of defaults on home mortgages.

“The idea of the book was to give people more than a sexy sound bite,” Olefson says. “I wanted to give them a whole picture. It sounds like a negative title, but it is not. It is a positive. It is up to us. What I ask is this the kind of country we want to leave for our children?”

Attitudes are changing during this crisis, but not always in a good way, Olefson says. There are people who can afford their homes who are walking away or talking about walking away because they are so far underwater, she says.

“With those attitudes right now, I don’t know what the result will be in the next five to 10 years,” Olefson says. “We are heading farther down the path of a lack of personal (responsibility).”

That doesn’t mean there is no reason not to blame the government, Wall Street and the mortgage industry, Olefson says. Deregulation enabled mortgages to be sold as commodities instead of the traditional method of banks knowing their borrowers.

Greed is a big factor, of course, especially on Wall Street because many assumed that prices would keep going up and that mortgage money would be available, Olefson says. A lot of people made flawed decisions, she says.

But despite all that, it comes down to homebuyers, Olefson says.

“None of this could have happened without our participation,” Olefson says.

Even complaints about predatory lenders and mortgage brokers duping people into obtaining subprime loans shouldn’t be excuses, Olefson says. If it sounds too good to be true, than it is, she adds.

The percentage of buyers who were duped was small, Olefson says. Many saw their friends buy homes and thought they could afford it when they couldn’t, she says.

The problem with foreclosures is they are in an evolving phase because of the recession and growing unemployment, Olefson says. But she says she is concerned about people walking away because they are underwater, and that the government might need to be more aggressive with some type of interest rate reduction to keep them in their homes.

Olefson says she knows people who earn more than $500,000 a year who are talking about walking away from a $2 million home because its value has dropped so sharply. They are angry because they look at their neighbors defaulting on their homes and driving down the property values in the neighborhood, she says.

There can be some good that comes out of the housing and financial crises in the long run, Olefson says. She hopes they makes people think about how they took for granted financial values and what they were teaching their children. None of this is going to happen overnight, and they aren’t going to become their grandparents, she says.

But it means educating themselves about mortgages the next time they buy a home, Olefson says. Many didn’t read the documents and they got lazy about getting information. People will clip coupons and drive to a sale an hour away, but they won’t look at their own credit reports, she says.

Despite the foreclosure woes, there are bright spots in the housing market with the influx of first-time buyers who are taking advantage of affordable prices and an $8,000 federal tax credit, Olefson says. That will help absorb inventory and enable other people to move up to other homes, she says.

“The most important thing to remember is that this will get better at some point,” she says.

In other news:

Scott Kichline, the manager of commercial and business development at McCarran International Airport, will be the guest speaker July 23 at the mid-year Crystal Ball housing forecast at Texas Station. The seminar starts at 8 a.m. and includes Larry Murphy, the president of SalesTraq, who will recap the second quarter housing statistics. He will be joined by housing analyst Steve Bottfeld. For more information on the seminar, go to www.crystalballseminars.com.

Brian Wargo covers real estate and law for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].