After piecing together the actual causes of the US (and world) financial meltdown, I began to look back at my years as a banker during 2003-2004 (when the Fed funds rate was only 1.00%) and seeing just how relaxed the credit market, interest rates, and real estate prices actually were during that time.
During 2003 and 2004 I was a personal banker who, at that time, dealt with originating home equity loans on almost a daily basis. I can remember accepting home equity loan applications that ranged anywhere from $50,000 to $200,000, depending on the home’s value. Most of my customers wanted the loans to make improvements to their homes, but I did have occasional customers who used money for vacations, consolidating debt, or even buying a car. In these cases I still underwrote the loan as “home improvements”, and underwriting would just approve the loan – underwriting typically didn’t ask any questions. Accepting applications for these loans and getting them approved was not only extremely easy, but I was highly confident that even my “lower” credit score customers could get these loans too! Of course I really didn’t care at the time because I was meeting my sales goals!
After being promoted to another lending position in 2005, the super-charged mortgage market continued. Not only was loan money extremely easy to get, but the sub-prime market had emerged because everyone (even those who couldn’t afford it) could own a home with little or no money down. The creative types of loan being offered by mortgage brokers became an addiction for the market. The most insane was the “stated income” loan, which qualifies a borrower based on the income he/she states on the application form – as opposed to the income the borrower can document. With a stated income loan, the lender agrees not to attempt to verify the income the borrower states on the application. Let’s not forget about cash-out refinances – on occasion I remember that appraisers and lenders (only the shady ones) worked as a team to inflate real estate values the lender needed to get a deal done! I’m sure glad that when I borrowed money during this time, it was to buy income producing assets, not to use my house as an ATM!
Although I’m doing great while going through a tough financial crisis, I do wish that I had more financial intelligence at the time so that I could have made even more money. However, I don’t regret the investment choices I made. By the time 2007 arrived (at the onset of the credit crunch), I had purchased 3 pieces of multi-family rental housing (although one of them didn’t produce profit cash flow because I bought it for too much). Fortunately I was making a good corporate salary, and I used the inflated credit market to purchase those properties at attractive long-term fixed rates. Then after leaving my banking job in December 2007, I immediately decided to purchase an additional 3 pieces of housing that would eventually allow me to leave work permanently. It was really an interesting time because I can remember thinking to myself, “how can I be getting such great great deals on these houses even when they don’t need much work?” The best part was that I really didn’t have much competition from other investors during that time. Overall, I knew that I had a great opportunity and I seized it at the right time!
Preparing For the Future
As of today there is strong evidence to support that an even greater depression could be on its way, considering whether or not the Fed continues to print money thus causing the devaluation of the U.S. Dollar. As a result of this, and the transition of our world to working together as one, I believe it is important for all of us to increase our education across the board (especially financial education) to prepare for our future.
Presently, my top priority is to increase my financial intelligence. I am currently striving to learn more so that I can make sense of what has happened during this financial crisis, and so that I can predict the future more accurately when change arises. For instance, I have been loading up on books on the subject of personal finance, politics, the stock market, and the New World Order. Although reading so much material in a short time is very tedious and time consuming, I am more confident that I understand what is happening at a time that seems very unpredictable to many other people. I’m also finding that many of the things regarding the economy and the world have, at some time, happened to some degree in the history of our world. I’m soaking it all up now so that I can forsee changes and feel more comfortable with changes as they come.