On June 13, 2005, TIME magazine reminded us that Americans were at the height of a great love affair with residential real estate. On October 3, 2008, we learned that every American taxpayer, now and in the future, would share in the cost of mortgage defaults and the rescue plan through the Troubled Assets Relief Program (TARP). The recent federal "rescue" legislation and the government's takeover of Fannie Mae and Freddie Mac make the United States the largest mortgage company in the world.Two maxims of California jurisprudence provide food for thought in assessing the fallout from the messy aftermath of the latest residential real estate binge: "He [or she] who takes the benefit must bear the burden"; and, "He [or she] who consents to an act is not wronged by it." California Civil Code sections 3521 & 3515.
With that said, let us acknowledge the participants who benefited from and consented to the questionable transactions in the United States that have resulted in extraordinary actions by governments around the developed world:
Buyers who used "creative financing" while they were in denial about the consequences of a variable interest rate loan readjusting and the inevitable decline in housing prices;
Mortgage brokers and real estate brokers who did not adequately warn buyers about the credit risk of buying a home without a down payment or a fixed rate loan;
Appraisers who, in some cases, participated in the validation of inflated prices or worse; i.e., mortgage fraud;
Mortgage companies and banks who defied reality by making loans without following reasonable underwriting standards;
Investment bankers who "securitized" pools of loans ("mortgage backed securities") that were not properly underwritten or backed by capital in the event of widespread defaults;
Rating companies that bestowed their pedigrees on the mortgaged backed securities at they same time they were compensated by the investment bankers;
Hedge funds, insurance companies and investment bankers who wrote contracts ("credit default swaps") to pick up the losses on the mortgage backed securities without the financial ability to do so in the event of widespread defaults;
And the United States government which failed to warn, regulate and control the participants before it became the world's biggest mortgage company.
