"What I was more interested in is, how does a person react if all the rules of the real estate game - the rules of the universe, basically - are turned on their head?"
We sponsored a focus group of home owners to respond to this very question.
Q- Wally why did you buy your home in 2005?
A- Actually, I was very comfortable in California, living in a Condo. But prices were disappearing into the stratosphere and I thought I'd better jump on board...or I'd never be able to afford a home.
Q- And how old were you then Wally?
A- I was 40.
Q- So you were thinking, at the age of 40...that if you didn't make a move then...you'd be stuck in a Condo for the rest of your life?
A- Yes.
Q- And Sally...why did you buy your home in 2005?
A- I just come out of divorce...my ex got our original home...but the settlement gave me a little money...so I was looking to start over in my own home...just for me.
Q- And Wally...what was your experience in buying your home?
A- The lender told me...better make me an offer this morning because the home could be sold by the afternoon.
Q- And Sally?
A- Oh, I got the same thing.
Q- And Wally...without prying, may I ask you how much you put down?
A- The house was listed at $250,000 and I offered $100,000 as earnest money.
Q- Very substantial. And Sally?
A- My home was listed at $205,000 and I offered $50,000 as earnest money.
Q- From your appearance, you are both mature people...I mean you are not new to this kind of purchase...is that right?
A- Well, before I went to California...I used to flip fixer-uppers in New Jersey...it was hard work but was financially rewarding in a predictable way.
Q- And Sally?
A- Well, my first marriage to an architect exposed me to so many homes...so I thought I knew what I was doing.
Q- Did either one of you...suspect that you were buying into a bubble that was being manufactured by Wall Street?
A- Not in the least. I sold cars in California...and the prices were predictable...people had money and good jobs. I thought homes were selling at those high prices because younger people were making really good money.
Q- And you Sally?
A- Well I had been a hair dresser and the woman I catered too...all seemed to have money than they knew what to do with. Big SUV, three kids, lots of jewelry and designer jeans. You know, they just looked well...prosperous...all around me.
Q- Did it ever occur to you this prosperity was being fueled by a massive refinance gusher...enabled by low-doc, no-doc or interest-only loans to bus boys and waitresses?
A- I had never seen anything like that. In my day...such occupations would have only qualified people for a really beat up...used car.
Q- Sally...you were around prosperous looking women all day long...did you get any sign that something might be strange in the market place?
A- Not really. I just saw women all around me in shiny new cars, and the tips I received were tremendous. Everyone was happy.
Q- Well, now that the real estate bubble has crashed...and housing prices have fallen to the curb...has any of that affected either one of you?
A- I can hardly bring myself to admit it...but the crash has drastically affected my ability to sell cars...no money in the market place...in fact I'm about to lose my own home.
A- Golly...you know I thought I'd give up hair dressing after being on my feet for more than 20 years...my hips just gave out. So I got my real estate license...did good for the first year...and then...the world just came apart on me. There are days I have to decided whether the cat eats or I eat.
Q- Thank you both for participating in this focus group. I only have one more question...may I?
A- Go ahead.
Q- Have either one of you heard of no-doc, or low-doc or interest only loans?
A- Frankly, from the time I was a kid doing fix-ups all the way through to my years selling big ticket cars...never in my life did I ever see a waiter get qualified for a McMansion...just on their signature.
A- Well, as a hair dresser, I never really was involved in those kinds of big money sells...so I just thought people were doing their thing normally...like everybody else. If you worked and had the money...you could buy what you could afford. I just thought lots of people could really afford those home prices.
Q- Thank you very much. Just one more question...okay? Do you feel, from what you've seen and heard from your friends and associates...that some how...something really went wrong in the lending industry...or do you feel this current situation is the fault of the home buyer?
A- I'm kind of torn. A number of my friends are living in their cars...as it looks like I'll be doing myself soon. I just don't know...something is wrong...I just don't know what it is. I don't feel responsible. I put a really substantial amount down...but it seems I'm trapped in sort of downward spiral.
A- Well, after that first good year in the real estate industry...as I said...the market just fell off a cliff. The TV people say the banks are somehow involved, Wall Street is somehow involved...but it's just so complicated...I have trouble following it all.
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