The housing market scam

Few people have considered the fact that the current housing marketing boom was created on purpose by the banks to increase their profits.  This would not be a new phenomenon.  In fact, many analysts are finding that the current US sub-prime housing market was part of a scam.

Here is how it works. A group of people or companies come together and pool their money.  They lend out low interest loans, and offer almost impossible terms to people who cannot afford a regular mortgage.  Some examples might be an endowment, an interest only mortgage, a 40 year mortgage, or a 125% mortgage.  All of these are present in the UK right now.

The next step is to increase media attention on a housing market boom.  However, no one is informed that the boom was created artificially.  The boom is fed by lending money to people who cannot afford to repay it.

Then, people start to default.  In an optimum situation, they default while their mortgage is still new enough that they are paying at least 80% interest and very little on the capital.  This prevents them from remortgaging with another company.

People default, the original investors made a fortune on interest, because the first few years of a mortgage are almost interest only.  Or, if the mortgage is an interest only mortgage, than the company made pure profit, with no capital repayment.

The play ends with the investors making a substantial profit on their investment, and owning most of the homes, which can be resold above market value.  This is one of the lowest risk scams in the financial world.  And, it breaks no laws, so people can amass wealth without fear of imprisonment.

The tragedy is measured in the broken lives these people leave behind.  These people are crushed as their dreams are turned into nightmares. Homes are lost.  Wealth is lost. Families are broken.  And, the rich get richer.

Don’t mix up this wealth building scheme with the actual mortgage scams that involve accepting down payments for mortgages which do not exist.  That is a beast of a different colour, and one which is illegal.

There are several variations on the scam.  Several versions have been active in the USA. In some cases the fraudster did go to jail, a small consolation for the poor people who lost everything.

There is no defence against large corporations when they twist the rules.  They create anomalies that lure the unenlightened to part with their money in the hopes of living the better life.  Especially when the banks and large financial corporations jump on the bandwagon.

There is an old saying, ‘Buyer beware.’ It is as true today as it was long ago.  The world fell into a post-war lull. Somewhere we grew to believe that the banks were looking out for our welfare. They were above the menial aspects of business life, and somehow wanted to spread the wealth.  Most people don’t realize the truth behind this myth until a bailiff appears at their door.  

Big business takes advantage of people’s wants and needs to make a profit.  They have always done so, and they always will.  It doesn’t matter whether the business is a realtor, a shop, a car dealer, or a financial institution. 

The myth that home ownership is part of the dream, or a fundamental right of the population, then fewer people would be petitioning for bankruptcy.

 That doesn’t mean that everyone is being drawn in.  Some people are finding great deals at house auctions.  They are buying houses below the current market value, and reducing the risk of ending up bankrupt or in a ‘negative equity’ situation. 

There is another saying, ‘if it looks too good to be true then it probably is.’  If more people applied this line of thinking then it would be impossible for companies to profit from our foolishness. 

Think about it.  Thousands of people rushed out and purchased a home they could not afford. Why? Simply put, advertising, propaganda and media attention fed us the lie that if we didn’t own a home now then we’d never own a home.

This happened back in 1991. That housing boom drove prices out of reach for most people, but they came down again.   Last year, you could purchase a home in most areas of the UK for as low as £80 000.  If you go back to some of the media attention in 1991 then you’d see that they claimed that the UK would never see those prices again.

We will see those prices again. It will just take a couple years, 5 years at the most.  The banks will accumulate more houses in the next few years than they can manage.  When the repossessions peak then the banks will be forced to lower the price of houses – it is a law of economics.