You did a fine job in pointing out one element out of many that have together contributed to the systematic failure of the mortgage industry ("Bonfire of the builders," Cover Story, Aug. 13). But while homebuilders may have been irrational in inflating the demand within the mortgage business, buyers like you and me are much to blame. As humans we have a herd mentality, and much of the irrational buying behavior stems from our eagerness to follow what others do. While reputable magazines such as yours may shed light on the current fiasco, one should not forget the pattern of buying and selling that is a simple yet scary manifestation of that herd behavior.
In your article you note how high the builders' "capture rates" have been during the bubble years (the capture rate being the percentage of home sales financed by the builders themselves). Perhaps a big part of the reason for this is the incentives that builders dangled in front of purchasers if, and only if, they used the builders' mortgage company for their financing. "Free" appliance upgrades, closing-cost assistance, etc., were available if the purchasers didn't shop and place their mortgage with other lenders, even if those lenders provided lower-cost financing.
Perhaps the regulators need to determine whether this practice should be allowed to go on. If purchasers are told they cannot take advantage of $10,000 worth of upgrades if they seek a more competitive mortgage deal, then we have effectively negated the benefits of free competition and opened the door to the types of abuse cited in this article.
Your series of housing articles provides about as much insight into the state of the current market downturn as you would expect to read in a cheap tabloid purchased at the grocery store checkout counter.
The downturn was not triggered by builders overestimating household formation rates. Housing demand declined because housing prices rose at a record pace during the boom years, until they became unaffordable to prospective buyers--even at the low interest rates that helped precipitate the record surge in demand and prices. An influx of investors and speculators made the price situation worse, as did a sharp rise in the cost of land and major building materials. The resulting affordability squeeze brought the market back down to earth, increasing inventories of unsold homes and flushing out get-rich-quick buyers when they realized that they would be unable to flip their properties, adding further to the inventory overhang.
While it is always troubling to see rising foreclosures, and there was clearly a decline in underwriting standards, subprime loans are a small share of the overall market, and the pendulum appears to have already swung back to tighter lending standards. To suggest the subprime business of big builders is a root cause of the current housing crisis is ludicrous and shows a serious lack of understanding of the housing industry.
As for your anecdotal accounts of homeowners suing their builders for sewage backups and other defects, there were more than 4.6 million new-home sales in the past four years, and it would have been infinitely easier for your reporter to have found satisfied customers. You can say that every chipped tile is irritating in areas where home values have been declining, but with the exception of sales made late in the upturn, those buyers overall accumulated handsome amounts of equity that will far surpass any price declines by the time the market bottoms out and starts heading back to full health.
At best, this is sloppy reporting. At worst, you have hurt the reputation of your magazine by pandering to an audience you assume is interested in finding cheap thrills on a subject that deserves far greater sobriety.
National Association of Home Builders
We've seen increasing problems with people using the builders' lenders for the last couple of years. It seems to be fairly common for homebuyers to be told they must use the builder's lender, even though that's a clear violation of the Real Estate Settlement Procedures Act. Lack of accountability for builders has grown exponentially. They've become emboldened to get away with more and more. This housing crunch might just expose what has been going on, and it's about time.
Homeowners Against Deficient Dwellings
There is an ancient concept that holds people responsible for their own actions ("Want to take on your broker?" Personal Finance, Aug. 13). Buyers elected to go along with falsifying their mortgage loan applications. Regardless of what the lender told them, it was their prerogative to reject the bad advice. Instead, they jumped into the financial quagmire which, being adults of sound mind, they elected to do.
"Danger in the repair shop" (Global Business, July 30) shows an appalling misunderstanding of aviation safety in the U.S. The Federal Aviation Administration agrees that we need to stay on top of maintenance oversight to maintain the highest levels of safety--and that is exactly what we do.
The FAA and the airlines continually monitor the quality of maintenance at foreign repair stations, and we both follow through to correct any problems discovered. Other U.S. government agencies such as the Defense Dept. and foreign regulatory authorities may also conduct audits.
The FAA investigates reports of parts that may not meet regulatory requirements. Many do, in fact, meet requirements. However, for those cases where they do not and possible criminal activity is involved, we fully cooperate with law enforcement. In addition, U.S. air carriers and other operators have procedures in place to segregate these parts, and nowhere near 520,000 "counterfeit parts" are ever installed on aircraft.
The outstanding safety record of U.S. aviation results in part from the dedication of the airlines and the FAA to creating a culture of safety. That includes maintenance, wherever the work is done.
Nicholas A. Sabatini
Associate Administrator for Aviation Safety
Federal Aviation Administration
Thank you for "Dispatches from the war on stress" (Workplace, Aug. 6). In many states, suicide is the second leading cause of death among young adults. In 1998, our son, Keith Loehr, started a job in new-product development after receiving his MBA. The stress from this job, along with the lack of support from his company, were major factors in his decision to end his life seven months later. The impact of his death was enormous. Counting our family, Keith's co-workers, his friends, our friends, and my employees, Keith's suicide hurt hundreds of people. The collective negative impact on morale and productivity was enormous.
One thing you did not suggest is for companies to consider a confidential employee assistance program. If Keith had had access to a counselor, he might have been more willing to discuss his difficulties and how he was feeling.