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Paul Kiesel
Paul Kiesel
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Cold Housing Market Freezes Desert Boomtown

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The Los Angeles Times reported earlier today on a family, the Magsams, from La Quinta, California who have been dealtthe foreclosure card, whose house is scheduled for auction on June 27. The Magsams, like many other families in the InlandEmpire, took out an Option ARM loan in 2004 and, after seeing home prices skyrocket towards the end of 2005, they took outa second mortgage for $100,000. It seemed like a safe bet at the time, but then came 2006 and the beginning of declining home prices.

Ultimately, their interest rate resetsooner than expected, their business, which happened tospecialize in home improvements, suffered as well, as other families/homeswere unable to make any new upgrades to their homesas budgets became tighter, and they stopped paying their mortgage in December of last year due to the reset that ballooned their monthly payment ($2400 to $4000).

However, the Magsams aren’t complaining about the situation.They’re taking accountability. “The banks loaned money to all kinds of people they shouldn’thave, including us,” according to Gary Magsam. “[It] was bad judgmentthat went with it — on the part of lenders and borrowers alike.”AndGary is right, lenders and borrowers got caught up in the housing frenzy, butin Gary’s defense andother homeowners in similar situations,it’s the lenders who went about originating loans that, due to their vast experience in lending and knowingor foreseeing potential RISKS, should have been wiser than they wereto encourage such reckless lending practices. Now, thanks to lenders and these unfortunateOptionARM andteaser rate payment options, we have families, in the hundreds of thousands, if notmillions, about to lose their home at some point in time this year, and the lending institutions are almost exempt of guilt as they continue to see private andgovernment bailouts, helping keep them afloat financially(the majority of homeowners seekinga reformed mortgage have been denied this opportunity, even at the behest of government officials).

The Magsams are optimistic, as they hope to bounce back once this phase of their lives has passed. But many should look at their situation as a telling sign of who the actual victims are in the foreclosure mess. And theseforeclosures,that affect people like the Magsams, are beginning to adverselyaffect other homeowners who don’t face foreclosure, but whose property value depreciates when this type of negative market activity surrounds and engulfs the neighborhoods whereforeclosures areseen in more common frequency (i.e. Inland Empire). So don’t let anybody distort who the real victims are, because it’s not the lenders by any means.