Bubble News by Max
Much thanks to "Max," who sent us this letter to the editor of the Press Democrat. (aka. local real estate industry PR service)
Thanks Max, keep them coming! Indeed, Ms. Whitehead Chan hit the nail on the head.
EDITOR: You report that home loan default notices in Sonoma County doubled last quarter. Who could possibly be surprised by this development? Your article speculates that interest-only loans and mortgages with minimum payment options might be contributing to this phenomenon, as interest rates rise and minimum payments start to kick in after the “teaser” period is over. But why would the average home buyer have agreed to a loan with those kinds of risks?
A local banker is quoted as saying, “Just because of the higher-priced homes, that is the product that is in demand in order to qualify.”This statement implies that “creative financing” was developed as a consequence of high real estate prices.
I believe that just the reverse is true: Creative financing was developed for the express purpose of enabling the finance, insurance and real estate industries to successfully market the higher prices of homes so that they could make the income from increased insurance premiums, interest income and commissions from those sales. Without creative financing, if no one had been able to qualify for loans at the unrealistic prices real estate was going for four years ago, the current “market correction” would have been unnecessary because prices would have corrected themselves then.
ALICE WHITEHEAD CHAN