The Credit Meltdown

There's a bit of money going around, investing in property seems safe.

As time passes, as property values rise, the idea of speculating turns every supermarket cashier and electrician's helper into Real Estate Agents. The value of houses rise beyond logic. This two bedroom should be X dollars, but is being sold for 2X. Money is being made hand over fist. The idea of using one's residence as security for a loan on another premises "makes sense". Those who got in early and out quickly have made their fortune. The rest; lose the speculation property, their savings and the bank takes the house they live in.

As more mortgages can't be paid, Banks gain more property they can't sell. Property values always rise, spike and fall. It happens periodically, like a tide. What has caused the melt down in the American Housing Market are "Text Book" mistakes:

1. Using the property in which one lives as collateral. Never risk what you have for what you might get.
2. Variable or Balloon payments. Never buy anything where the interest rate is subject to change. Never assume that because five years ago you made X dollars and now make 5X that next year you will make 6X. Life doesn't operate like that. Don't go for cheap now, expensive later. If there's a variable payment, you aren't a variable.
3. Absence of renegotiation options You must be able to confront your lender and say; "I can't pay X any more. I can pay 2/3rds of X." It is wiser for the lender to give you a thirty/forty/fifty year mortgage then to be stuck with another unsellable commodity.
4. Inability to cut losses The Way Out is not rocket science. For the lenders; cease foreclosing. Receiving half a mortgage payment is better than all of nothing.

For borrowers; as soon as the next payment seems onerous, before going into default, see your lender and work out new terms. If that is not possible, cut your loses. Losing ten percent on a quick sale is better than losing everything. Don't try to get rich, try to Break Even.