Consumers, lenders, mortgage brokers, appraisers, rating agencies, investment banks and securitizers must all take some of the blame for our country’s current credit problems.

What helped make the current situation possible?

Enlarge this image

Richard E. Raymer is general counsel of the Mortgage Bankers Association of Georgia.

RELATED:
• Editorial: Financial literacy must begin in early childhood
• Column: Lending standards went by the board
• Column: Many guilty parties in crash-and-burn

First, the rapid appreciation in price of most homes since 2000 meant that many people had newfound equity. Many people took advantage of low rates to refinance and take cash from their homes. They used the money to pay down credit cards or simply purchased consumer goods.

Unfortunately, many people continued to run their balances back up. Secondly, new loan products allowed some people to buy a home who would not have previously met credit and downpayment requirements. Unfortunately, lenders and consumers all assumed that real estate values would continue to rise.

This assumption, along with some flawed models for rating loan performance, combined with consumers’ lack of credit literacy to result in many more foreclosures.

In many areas of the country, home prices were rapidly increasing and were fueled by speculation in many instances.

Unfortunately, these increased values could not be sustained, and appraisals came back to more realistic valuations. Many homeowners now owed more than their homes were worth and were unable to refinance. They also could not sell, since the loan balances now exceeded property values.

Housing credit problems are almost entirely focused on loans made after 2000, which had much higher default rates.

We are close to, if not already at, the bottom of home-price declines in Atlanta. New home sales since 2000 relied more on people who would not have qualified under the old rules. Market forces have now eliminated many of these bad credit risks, as such loans are no longer available.

Hopefully, the lessons of the current credit situation will not be forgotten.