Why Indy Mac Bank is just the beginning….
By: Daniel Gershburg, Esq.
The collapse of Indy Mac Bank last week was not a surprise to many in the industry. Washington Mutual’s stock tumbling to $3 was not a surprise to many in the industry. A federal bailout to Fannie Mae and Freddie Mac was not a surprise to many in the industry. If this is not a surprise to many in the industry, then perhaps this will be: Aproximately half of the closings my colleagues and I, based on conversations with Real Estate brokers, attorneys, etc., are involved in surround a purchaser obtaining an interest only mortgage. This is today…2008…after a near collapse of the credit market and a Real Estate bust not seen for decades. Where then, are the people who claim this is in a surprise.
Again, this is personal opinion, but one would think that after two years of witnessing why people who earn $40,000 annually should NOT purchase a home in downtown Brooklyn worth $800,000.00, people are nevertheless engaged in the same activity. I simply cant fathom how there have not been more Indy Mac’s to date. Because the problem doesn’t completely rest with the individual, it rests with the entity that is looking at an application with minimal to no net worth, and APPROVING this application for incredible sums of money. Granted one would think that someone would want equity in their property, that they wouldn’t wait for a home to “appreciate” before trying to flip the place. However, in spite of all of this, the serious issue we should all be wondering is how people are still obtaining mortgages for amounts they simply, by any reasonable estimation, do not qualify for.
There is so much emphasis in the media on the idea of “subprime” loans. There seems to be a lack of attention as to how people in New York can afford condominiums priced at $500k plus, with mortgage payments of approximately $3000/month (not counting taxes, common charges, etc.) when those individuals only bring home approximately 4k a month.
The sad part of this is that there seems to be no lesson learned here. People are still buying more home than they need or can afford, and banks are still enabling them to do it. Something, at some point, has to give in this local market.
Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester. Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates. Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy