against your name when you walk away from your
property, the bank can’t come after you for your
What caused the crisis and where are we now?
Before we can understand where the market is going,
we need to understand what caused the chaos, so that
we can make educated and informed decisions about
the future.
The two major issues, the subprime crisis and
the oversupply of property are discussed below.
The sub prime crisis
a. It is all about the ‘reset mortgages’. What this
means is the banks/ mortgage lenders were
providing really cheap finance
to people on 2, 3 and 5 year fixes. What mortgage
brokers told people is that when they came to the
end of their fixed period they would just remortgage
again. However, as the market changed, they could
not refinance, the mortgage rates often doubled
if not tripled and then they could not afford their
mortgage.
b. Another problem is that in the USA all lending
is ‘non-recourse lending’. Basically what this
means is that although you will get a black mark
www.reimag.co.za
other assets. Therefore, people, who find
themselves in this negative equity position, find
it easier to walk away from their mortgage than to
continue trying to pay.
c. Ease of arranging finance: When I asked people
how one got a mortgage before 2007 they said,
“All you needed was a heartbeat!” This was the
major problem – anyone was given mortgages and
this is what caused the “subprime” crisis. The
banks/mortgage lenders provided what was known
as “NINJA” loans – “No income, no job, no assets”.
When George Bush was re-elected in 2003, he said
it should be every American’s right to own a home
and encouraged banks to lend freely. As an
example in Orlando we were told how the bank
would approach lenders and ask them what they
would want to pay monthly. They would normally
be paying $2000 a month but would agree to pay
$200 a month and put the rest on the end of the
loan. Most people will always take the easy
mortgage and that is why most Americans had 3 to
4 mortgages over their homes.
d. The question is: “Where do we go from here.” The
scary thing is that there is another resurgence of
reset mortgages (over $1 trillion) which is on
the horizon for the Commercial Securitised Debt.
Although government and banks are preparing
for this and doing everything within their power to
prevent the same catastrophe from recurring
– it is still coming and it depends on how successful
they are as to the type of damage it will do to the
commercial market.
Oversupply of property
a. Oversupply: Unlike UK, Australia or South Africa
where demand continued to out strip supply, in the
USA there were and are major oversupply
problems. The country got so caught up in the
Offshore Handbook 2013
15