Did Osama bin Laden Plan the American Foreclosure Crisis?
By: Gerri L. Elder
No one can dispute that the housing market in the United States is in a serious state of disaster. The nationwide foreclosure rate continues to astonish even those familiar with the market and has everyone wondering when it will hit rock bottom and begin to improve. The Federal Reserve has begun cutting rates once again to try to turn things around, yet an improvement in the housing market hardly seems to be right around the corner. It also remains to be seen if the cut in interest rates, which may be at the root of the problem, will actually help the situation at all.
Americans facing bank foreclosure and the droves of now unemployed mortgage brokers not only wonder what is in the financial forecast, but how the situation ever got this bad. An interesting article by Scott Burns on MSN Money Central poses the question: Did terrorists cause the housing mess?
At first the question may seem strange. How could the terrorists responsible for the 9/11 massacre have possibly have orchestrated the collapse of a booming housing market? Burns digs deeper into the root of the problem and comes up with an interesting link that may not be as absurd as it initially sounds. As Americans we would like to blame the terrorists for almost everything that is wrong with the world today, but blaming them for the housing market collapse and the out of control foreclosure rates in the United States actually may not be far-fetched.
When the World Trade Center was destroyed on September 11, 2001, the United States was in the midst of the second straight year of what would become a punishing three-year decline. However, at the time it still wasn't dirt cheap to borrow money and there was no free pass to home ownership. That was yet to come.
In the weeks following the 9/11 terrorist attacks, the federal funds rate dropped from 3.65% in August of 2001 down to 1.75% and continued to drop as the policymakers desperately tried to keep the U.S. economy going. When the rate hit a low of .98% in December 2003, the housing market boom really took off. There was no sense in saving money because the rate was so low, but that same money could now buy incredible homes. The rate remained low long enough for many Americans to get in over their heads with mortgages that they could not afford once the interest rates reset.
So when Americans borrowed all this money to purchase the American dream, it was so close to free that it hardly seemed real. And there was a good reason for it to seem out of touch with reality - because it was. During the housing market heyday, Americans were able to buy homes one day with the knowledge that they were appreciating so quickly that they would, in theory, be able to sell it for thousands more than they paid. There was no risk, so it seemed.
The old saying is, what goes up must come down, however, with interest rates, quite the opposite is true. The low interest rates could not, and did not, last forever. When millions of adjustable rate mortgages (ARMs) across the country reset to a higher rate, the housing boom was over. Housing prices began to fall into what is a seemingly bottomless pit as the market became flooded with homes that were either foreclosed on when the homeowners could not pay the mortgages or put on the market in desperation. Even with the low prices in the real estate market, mortgage loans are now harder to get, so there are less buyers for the millions of homes that are out there waiting for families.
The effects of the housing market bust and foreclosure crisis have stretched far and wide, leaving few unscathed. While a housing market collapse and foreclosure epidemic may not have been exactly what the 9/11 terrorists had planned, the attacks were almost certainly a factor to be considered in this current mess.