Baby Boomers Should Consider a Class Action to Recover Home Equity Losses

I’m truly amazed that I have not read much about a class action by US Home Owners, especially Baby Boomers, who have seen their house values drop by up to 40% in some places in the USA.

This blog is all about protecting your nest egg in retirement. Your home is an asset and is part of your nest egg. It has taken a significant loss in the last year, so this post is on topic.

I’m talking about Baby Boomers who have done everything right to manage their mortgage, only to see their home value drop through the floor whilst investment bankers pocket millions of dollars after resigning from their corporations in disgrace.

This loss was not due to a “normal market cycle” but to the highly irresponsible and highly leveraged activities of investment banks and others creating CDO’s stuffed with bad mortgages taken out by people who could not afford them in the first place.

The Ninja’s (No income, No Job or Assets) who signed up for these “Liars Loans” (no proof of assets or income was needed) may have been conned too but there’s no money is suing them. How anyone would even think they can pay off a mortgage without a reasonable deposit, a good job and regular income defeats me.

The real culprits are the institutions that sold these sub prime loans and then packing them up with “good loans” as CDOs, purchased a AAA rating and sold them off to unsuspecting investors who trusted their judgement. The Investment Banks are definitely in the firing line along with many major financial institutions around the world.

The New York State Attorney General has brought an action against UBS for selling off ARS’ (auction rate securities) when it allegedly knew the market for them was in serious trouble.

“Today we bring the first nationwide lawsuit against UBS, seeking to recover billions of dollars for customers and sending a resounding message to the rest of the industry that this type of deceptive behavior will not be tolerated,” Cuomo said.

So why can’t US Home Owners bring a similar action against institutions and others who have openly traded in sub prime mortgages through CDO’s. This speculation has lead to Baby Boomer home owners losing up to 40% of the value in their home through no fault of their own. This is a big blow to some who were relying on home equity for their nest egg.

The reason house prices are down is because of the massive over-building, fueled by sub prime financing, and the selling of those houses to people who couldn’t afford them. Wrapping up the risk in CDO’s and selling it as high quality debt worked a treat for a while.

When it all finally collapsed the impact was also felt by the genuine home owner who owned their home or had a mortgage and had been faithfully paying off their mortgage for possible years only to see their house value drop 40%.

The problem most likely affects home owners in the lower price groups where these sub prime mortgages were sold. But it had a knock on effect into the more expensive houses too. This is not right.

I am no expert, just an observer. But if Fanny Mae and Freddie Mac have an implicit government guarantee why not consider a class action against them? If that is possible and proven in court then they would have to get the FED to bail them out in order to pay home owners cheated out of their home value by supposed unscrupulous and questionable practices, not by normal market behaviour.

The FED and the government has worked hard protecting the banking system from failing, and maybe that had to be done. But as a by-product has protected some of the very institutions and employees that should be punished for their irresponsible ways.

Why should they be protected and not the hard working honest home owners who are the back-bone on which the sub-prime risk was based and on which much wealth was destroyed or transferred to the financial industry?

Home owners paying off their mortgages are some of the best risks in the world. Unfortunately they were an easy mark because home owners will do almost anything to keep their house and pay their mortgage. This is what has been exploited if you ask me. And these honest people should be protected and their wealth returned to them, in cash if necessary.

If you are a Baby Boomer you may even have owned your home out-right only to see it’s value plummet. You are entitled to compensation and should take action if you can.

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