Imagine you are driving along and you come to a traffic light. It is green so you don't slow down. As you cross the intersection you are struck from the side, your car rolls over several times, and you awaken in a hospital.
The next few months are spent in a painful recovery. As you are unable to work, the bills pile up. Your insurance company files suit against the insurance company of the other driver, and they settle on an amount that, while not making you whole, will at least pay off a lot of your medical bills. Then you receive a letter from your insurer, telling you that they are going to keep all the money and you are left to fend for yourself.
That stinks, right? OK, here is another story, and this one is true.
The banking industry discovers that if you write crappy loans, that are likely to default. you can sell them to some sucker if you package them with a bunch of other crappy loans as mortgage backed securities. You might even make some additional profit by servicing the loan for the sucker you sold them to.
So your CEO gets a huge bonus, and because anyone and his brother can get a loan now, the price of real estate goes crazy. Buying a home becomes more and more expensive.
Now you have a decent job, perhaps some savings for a down payment, and you go shopping for a house. The prices are absurdly high, but that is just what they cost. You take some comfort in the fact that with your purchase, you are building some equity, and you can recoup that when you sell.
Of course the house of cards that the banks have constructed eventually comes tumbling down, and then suddenly the house you have been making payments on every month for five, six, or seven years is worth dramatically less than you owe on it.
If you were to lose your job, you cannot go somewhere else to look for a job because you cannot sell your house. If you are ready to retire, you have no equity to pull out. Need to move to a smaller, cheaper place now that the kids are grown? Forget it. Even if you walk away from that mortgage, your credit is trashed and you won't be able to buy another house for years. Some landlords will not even rent to you.
Ever the federal government and the states. They reach a settlement with the banks. Now the amount of the settlement reached is a tiny percentage of the amount of equity that was wiped out as the result of the banks gaming the system. But at least you may get some small amount of relief.
Until the state decides that they are going to keep your share of the money, the money that was supposed to provide you with some sort of relief. That is what many states, including my own state of California intend to do.
So bend over and crack a smile. You are about to get fucked in the ass...again.
