We've become awash in sad tales about downtrodden families being forced from their homes by interest-rate resets resulting from adjustable-rate, subprime mortgages. The implied -- or occasionally overt -- message is that those mortgagees are innocent in the nation's housing mess, that the builders similarly have only been bystanders, and that the guilt for creating the disaster should be dropped solely at the feet of predatory lenders.
Wrong! If you think housing's on its keister only because of mortgagers' misdeeds, you've let a half-dozen other culpable groups off the hook. Here's at least a partial grouping of those at fault:
- The buyers. Many homeowners now in the soup should have known that they couldn't actually buy more house than they could afford, however tempting the loans they were offered made it seem. I've read far too many articles about folks with modest incomes in high-cost housing areas who took on unwise mortgages that now absorb an excessively huge chunk of their budgets. Those buyers are largely responsible for their own plight.
- The lenders and brokers. Imagine lending someone hundreds of thousands of dollars without bothering to verify the borrower's income. Many banks did exactly that. In addition, with the help of brokers, lawyers, and other related parties, lenders from Countrywide (NYSE: CFC ) on down created loan documents that were so opaque, it would have taken a team of MBAs and lawyers a couple of weeks to understand all their moving parts. And those are just a couple of the lenders' myriad transgressions.
- The builders. The crescendo of writedowns by builders whacking the carrying values of all manner of land, lots, and house inventories is just one indication that the big companies got way ahead of themselves during the bubble. Here's hoping that when the dust finally settles, firms like Centex (NYSE: CTX ) , Pulte (NYSE: PHM ) , and D.R. Horton (NYSE: DHI ) will emulate KB Home (NYSE: KBH ) in avoiding the urge to populate neighborhoods with large numbers of spec homes.
- The flippers. People who bought homes solely to resell for a quick buck did a real disservice to the housing markets in several locations. And while they'll always be with us, I trust that many of these characters have had their financial wings clipped, and will conduct themselves far more prudently in the future -- or at least until the dawn of the next bubble.
- The Realtors. Fools are smart people, and so I won't spend a lot of ink on this obviously culpable group.
- The investors. Institutional investors worldwide gorged on the seemingly wonderful opportunities provided by mortgage-backed securities. Perhaps if they'd checked what they were buying more closely, the entire process of originating, funding, and packaging mortgages might have been held to higher standards.
- The ratings agencies. I admit I'm most confused about the group that provided ratings for mortgage-backed (and other) securities. I'm referring, of course, to the likes of Moody's (NYSE: MCO ) and the Standard & Poor's unit of McGraw-Hill (NYSE: MHP ) . What did those folks actually do? Apparently, it didn't involve providing in-depth and accurate analyses of the contents of mortgage-stuffed securities.
- The politicos. Today, the president and Congress are collectively shaking their heads at the nation's housing catastrophe. But they can't fool me: I distinctly recall them pushing with all their might to raise the percentage of Americans owning homes ever higher. Perhaps a little of the "redlining" that so ruffled their feathers would have been appropriate and beneficial in some locations.
For housing to regain equilibrium, all of the above groups will need to get their acts together -- in unison. The inherent difficulty in that feat suggests to me that a real housing turnaround won't arrive in the next couple of years.
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