Now that the coronavirus pandemic is pushing the world into recession, many people are comparing this to the 2008 crash, caused by big banks, subprime loans, and the spectacular rise and fall of real estate.
To tell you the truth, I don’t remember that much about 2008 crash. I had investments but did not make any changes based on the stock market dive. I don’t even remember how much I lost on paper. I kept my job although I remember a year (or two) of salary freezes. Even after the economy recovered, I never got a big raise again and certainly not enough to make up for the “lost” years.
However reading this post about the 2008 recession by Bitches Get Riches brought back some memories. It also made me realize that the young Millennials and younger generations probably think Gen X and Boomers are idiots.
Consumers were desperately trying to get ahead. They trusted the mortgage lenders, trusted S&P, trusted real estate agents not to steer them down a destructive path…But if the system had worked as it should, most of those people would never have been eligible for such self-destructive banking in the first place.
Looking back, my spouse and I should have known better. I knew that our incomes had not kept up with home prices. We were pre-approved for a loan even though we had less than 20% down payment and did not provide adequate documentation, hence the term “liar loans”.
Liar loans (also known as stated income or no documentation loans) is a type of mortgage loan where a lender does not verify an applicant’s income. Because the rules were lax, many people lied about their income and/or assets. It sounds crazy now but these types of loans were common in 2008. I don’t think these types of loan exist today.
While we didn’t lie about income, we mentioned possible family help (not realizing that the family member’s assets were also tied to the stock market boom). I clearly remember our lender playing around with numbers so that we could increase our offer for a home.
We were frustrated from being outbid; getting a bigger loan seemed to be the only path to home ownership.
Note: it was a definitely a Seller’s market as well. Even rundown homes attracted multiple buyers (and flippers/ investor). Many home buyers, us included, wrote tearful letters in hopes of swaying sellers to accept our bid over others.
None of that excuses our actions of course. We were just lucky that we never won a bidding war. If we had purchased a house, we would have struggled to pay and then defaulted on our loan.
Years later, when we finally purchased a house, the process was very different. We had 20% down and no debts. The lenders we talked to all required extensive documentation. No liar’s loan for sure!
I guess the point of this post is to say that you never know how you’ll behave until it happens.