Who do you blame for the housing crash?

Are you one of the more than 23 percent of U.S. homeowners with a mortgage loan who is underwater according to new figures from Zillow.com? If so, who do you blame for it?

Who do you blame for the rapid rise in housing values during the housing boom years, those magical years that came to an all-too-sudden end sometime in mid- to late-2006? And who do you then blame for the steep decline in housing prices that followed?

I’m underwater on my own mortgage loan. I know how natural it is to look for a bad guy. Problem is, when it comes to the residential real estate crash, there really is no one villain.

A lot of people want to blame all those loans that mortgage lenders and banks made to low-income borrowers. But that doesn’t account for the fact that so many housing foreclosures today are of solidly middle- or upper-class homeowners who had solid credit scores and good incomes when they first took out their mortgage loans. A lot of these people have lost their jobs, which makes it hard to make a mortgage payment.

It doesn’t take into account, either, the oddball loan products that banks and lenders developed. Loans in which borrowers didn’t have to present any paperwork to verify their income? Loans that required down payments of zero percent? Interest-only loans? These loan products practically invited high default rates.

So don’t blame only the loans made to poorer borrowers with bad credit histories. Yes, they contributed to the residential real estate fall. But if you look a bit closer, you’ll see that they were only part of the problem. In fact, there’s a good argument to be made that lenders and banks have long victimized these borrowers.

A new study, “Paying More for the American Dream IV,” which was compiled in part by Chicago’s Woodstock Institute, says that mortgage lenders have virtually abandoned neighborhoods that are mostly made up of minorities. The report says that lenders and banks have offered 60.3 percent fewer conventional, or prime loans, in neighborhoods that are largely minority from 2006 through 2008. During the same period, banks and lenders have cut prime lending in neighborhoods that are mostly white only by 28.4 percent.

This means that today’s minority home buyers in cities that are largely segregated, such as Chicago, have great odds of having to take out a high-interest-rate subprime mortgage loan. The American Dream IV study also mentions that banks and lenders mostly ignored minority neighborhoods until the housing boom years.

So again, here’s the big question: Who did the most to cause the housing slump that we’re suffering through now?


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  • Twenty-three percent of US homeowners are NOT underwater on a mortgage.

    Twenty-three percent of US homeowners who have a mortgage on their home are underwater, according to Zillow. Given the fact that many people own their homes free and clear, the percentage of underwater homeowners is less than 23%.

  • Hi, Joe:

    Thanks for commenting. You're right, of course, 23 percent of homeowners with a mortgage loan are underwater. My mistake. It's fixed now.

    Thanks for reading, and let's hope that underwater figure gets lower.


  • I've come to find that the housing slump is caused by the real estate referral marketing system. Buyers look to the brokers and agents for the appraiser, the mortgage guy, the attorney, AND the home inspector. Buyers must have a team of independents whose focus is the buyer's best interest not closing the deal. This will result in better quality homes and a more flourishing market.

  • Thanks, Tomacor, for your comment. You're right. A lot of buyers blindly work with whatever loan officers, home inspectors and real estate attorneys whom agents recommend. Of course, finding all these people on your own is not easy task, either. The home-buying process is so stressful already, it's understandable why so many buyers simply go with whatever referrals they get. This makes me thing this is worth a separate blog post.


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    Working with any referrals can put you in a jam. Buyers rely on the word and recommendations of the Agent. We have seen new buyers have to have their Heater Repaired in Westlake Village, or sometimes even needing to replace the entire Central HVAC system costing anywhere from 8-15k because of a bad report a home inspector wrote up. Buyers rely on the home inspector to know everything but the reality of it is they just simply check if your heater blows hot air and if your air conditioner blows cold. They do not dig into the parts and use tools to diagnose or give a life expectancy of the unit.

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