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The Housing Crisis, Will the Other Shoe Drop in August?
By: John L. Terry, III
July 25, 2008

Many both in the public and private sectors are watching the month of August with baited breath. Why? In August, more loans with adjustable rates will reset than in any other month in 2008, and fears are circulating this will spark another huge wave of delinquencies and foreclosures.

Inflation has reared its ugly head, pushing mortgage interest rates up a full percentage point from a year ago. This makes refinancing to fixed rate mortgages more expensive, and stricter lending requirements adds to the dilemma for those who are overextended and unable to refinance. This has the potential to further weaken a struggling banking system and bring the US housing economy to its knees&ldots;and the trickle effect into the other areas of the economy is potentially damaging as well.

1 in 171 homes in US in 2008 has received at least one foreclosure notice (30 days or more past due), with NV, CA, AZ and FL having the highest foreclosure rates in the nation. No state is immune from this problem, and the next round of interest rate adjustments may well cause this number to skyrocket. The housing bubble has effectively popped, and prices that once were rising at 10% or more per year are slowly starting to return to a sense of normalcy.

Yet in all of this do not forget that NO ONE was forced to borrow money, nor was any lender forced to loan money. Greed was (and is) the major contributing factor to the housing debacle. Greed both by the buyers who wanted to buy a long term (buy and hold) investment vehicle (a home) with a short term "buy and sell" mentality, and greed by the lenders who turned a blind eye to overextended borrowers simply to close the deal and get a payday.

Yet (as it always is in a financial crisis) the Government continues to be looked to as the "payor of last resort" for the thousands of loans that are now delinquent or in foreclosure. The government DID NOT get us into this mess, and does a disservice to the thousands of Americans who faithfully paid their mortgage month after month by bailing out the homeowners who bought more house than they could afford, and the lenders who overzealously approved financially questionable loans. A taxpayer bailout essentially uses our tax dollars to bail out those who could not (as well as those who simply walked away and would not) pay their financial obligations, and leaves these people free of the consequences of their actions.

Without consequences, people fail to learn from their mistakes&ldots;and are doomed to repeat them.

Food for thought as August looms ahead.