Job Losses Continue

The housing market by some estimates is only 3 percent of our robust economy. However, that 3 percent can be very volatile with swings up and down. With our economy's average growth rate near 3 percent, a flat line in housing could define a recession.

In 2006, the 'housing industry' lost over 50,000 jobs. This year nearly 90,000 jobs have been lost in 8 months or less. Most of this may be from the over-selling of bad credit risks.

Bad credit risks need to be defined very carefully. This isn't about people not having jobs and can't get credit. It's about giving debt burdened couples and individuals a zero down mortgage loan.

Nothing is wrong with giving people a loan for a home. Nor, is there anything wrong with people wanting to enjoy home ownership. The problem is with the 'who' that makes the loan and the 'who' that owns the note. Those Who's are not the same in the 'mortgage industry.'

When I first applied for a home loan, a down payment of 20 percent was demanded. Without that, banks would very politely say, No and Good Bye. Back in those years, some banks still made, serviced, and held mortgage notes. During the 'housing boom,' banks or mortgage lenders would make 'zero down payment' loans and loans on bad credit histories. These mortgage notes are the so-called, subprime loans.

A mortgage note is that piece of paper that says, "I promise to repay." Now, that mortgage note, more or less a piece of paper, has some legal characteristics similar to a check. And, a legal claim to my house!

Banks could negotiate the paper and get some cash NOW in exchange for my promise to repay later or give up my house. I think that's called selling or reselling the mortgage.

Don't confuse that with servicing a mortgage. I send my payment to a post office box. Who knows what company owns the P.O. Box, takes my check, and posts my payment for the bank.

But, back to selling the mortgage. Once the mortgage is sold, the first bank has money again to make a loan. Someone else has a promise from me to repay them. Maybe a third person has to handle servicing the loan payment every month.

So banks make as many loans as possible. Sell them to the next fool. When I can't pay, the fool loses their money.

I don't really care for the fool and his money. But, too often, I'm really the fool!

My employers retirement fund is one of the fools buying my promise to repay someday. All of which works well, as long as I have a job, the company makes money, and people keep buying houses.

If I lose my job, can't pay for my house, and the economy slows, then retirement funds for just about everyone can take a huge financial hit.

Plus, the people making the mortgage loans don't have jobs. The people buying and reselling the loans have no work. And, those invisible loan servicing company employees get the pink slip.

That may not be the best explanation of the potential problems with the 'housing industry.'

But, with 140,000 financial 'experts' suddenly under employed or not employed, financial opinions are free.

For a better story on the economy and housing, click here. I have no idea if the story was written by a former financial expert or a current financial expert.