The Next Great Real Estate Crisis Has Begun

The Next Great Real Estate Crisis Has Begun

Author: Dean D Davis

I have been seeing some disturbing trends in the economy in the past half a year that lead me to believe that, not only did we not have an actual recovery, but that we are actually heading for a continuation of the downturn that began with the popping of the housing bubble, only worse.

Since 2008, the number of families living from paycheck to paycheck has risen from 47% to 77%! That´s an increase of 63% in the raw number of families living on the fringe of having to downgrade their standard of living. This trend is one of the most alarming that I have ever seen, and tells me that all the bank bailouts, economic stimulus deals, and other government interventions have been ineffectual against the recession that they have been battling for the last three years.

Housing is in much worse shape than was previously thought. Banks have been sitting on a huge amount of foreclosed property that they haven´t been listing in the marketplace. This represents long run competition against homeowners wanting to sell their homes that could take many years to clean up. What´s even worse than that is the recent development in which three major home loan servicers have recently admitted to falsifying legal, court documents in property foreclosure cases, and have since stopped their property foreclosure processes. The actual cause of this has to do with the fact that many banks choose to bundle together houses into what is known as a Mortgage Backed Security, then sold off the income piecemeal to multiple interests. Consequently, the titles on the individual houses are now hopelessly clouded, and no one appears to be able to definitively tell who really is the owner of the house!

This is so bad that some previously bought foreclosures have been completely reversed. (Think about purchasing a house through a realtor, then getting informed that you have to give it back! It´s actually happened recently.) Most title insurers are at present refusing to issue insurance for any loans on previously foreclosed property, which means banks won´t issue financing for the sale, and that other banks have no way to sell their foreclosures.

This is considerably worse than it appears at first glance. The value of the homes having foreclosure filings against them during the past year was nearly $1 Trillion dollars. And this isn´t even the most severe issue. Once people on the whole realize that the banks don´t have a legitimate method to resell their foreclosed houses, and that there is a good chance that their lender can´t even prove that it has the right to foreclose, a lot of those individuals will halt paying their mortgage loans. Trillions of dollars worth of mortgage notes could possibly (and most probably will) go bad suddenly.

The only issue that would prevent a colossal wave of defaults at this point is the fact that the general public doesn´t know which properties have got clouded titles, and which ones don´t. And so I expect that a number of the individuals playing games with their mortgages are going to be in for a nasty surprise soon. Conversely, expect both an upturn in services dedicated to discovering and pursuing mortgages in which the note holder has a sketchy claim, and measures by congress to give banks a method to retrace and re-register legitimate loans in the near future.

This is only a manifestation of a much deeper issue. One that is certainly not going away any time soon, and is shaping up to become the economic storm of the century, which will make the real estate crisis seem like a soft spring rain. Quite simply, credit in America has grown to become toxic. All of the mortgage failures in the last few years are due to lender practices that have been great for getting individuals houses and things to place in them, but were horrendous on our long term ability to pay for them. Now that we´re having difficulty, our government is essentially utilizing the nation´s credit to clean up the mess. The only problem is the fact that we (our taxed earnings) make up the basis for that credit, and we´re currently broke.

Our banks, personal finances, and general economy are in a constant state of change right now. In addition, we are currently facing some of the most challenging and dangerous financial crises that the world has ever see. I personally invite you to come over to my blog, The Rogue Economist, or check out my online E-Book, The $300 Trillion Dollar Crisis, especially if you are even the least bit curious or worried about the current state of banking, international finance, real estate, the markets, or the economy in general.