The old adage say's that when it comes to real estate its all about location, location, location. That statement has not been true for a very long time. the new adage about real estate should read that when it comes to real estate it all about money, money, money. Easy to get mortgage money, that is what has driven real estate for the last ten plus years.
When I was in grade school I opened up a savings account in my neighborhood bank. the bank was called Washington Mutual Savings Bank and had been around for a very long time. Their slogan was "the friend of the family" and they had a very good reputation for making loans to homeowners and small businesses alike. This business model had worked successfully for many years.
New management took over the board of directors and the top management spots in the mid 1990's. This new management had a new vision for the direction of the bank. The bank grew dramatically via acquisitions of banks all over the county, they changed their name to WAMU and started being the most aggressive bank in the country when it came to mortgage loans.
Banks, including WAMU were writing more loans than they could handle so most of the loans that were written were sold to Fannie Mae and Freddy Mac the large government created loan servicers. Fannie and Freddy had certain standards that loans needed to adhere to before they would accept the loan from a bank. During this time many banks and mortgage lenders such as Countrywide created loans that would not fit into the standards set up by Fanny and Freddy. These loans included many Jumbo loans, Interest only loans and Multiple payment option loans were one of the options is to make a payment that does not even cover that months interest thus adding to the overall amount owed on the home each time this payment choice was made.
Next: Banks "solution"
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