Tuesday, December 18, 2007

Housing and Development

A perfect storm is poised to strike the McHenry County housing market. The combination of unmanaged development and the collapse of the sub-prime lending market threatens property values throughout the county. Home owners and in particular farmers, whose equity is bound up primarily in their land, and who acted prudently in obtaining their mortgages, are vulnerable to the imprudent acts of a few, many of whom do not even live in this state.

The McHenry county board never met a developer they didn’t like. Slack jawed and glassy eyed for every developer that walked in, the county board helped create an overabundance of housing, all based on the same $365,000 price range aimed to perpetuate an artificially inflated income standard, and price point designed to maximize the developers' and agents' profits. However, not everyone fits into the $93,000 per year income range needed to afford these homes.

When the market for these homes slowed, an unregulated lending industry lowered standards and aggressively marketed to those who would not normally qualify for these loans. This was done in the full expectation that any short term lack of profits would be overcome when the teaser rates expired and the lenders could increase the loan rates at will. These marginal borrowers cannot afford the loans at the inflated rates and now stand on the verge of default.

It’s easy to point a finger at the borrowers and say “caveat emptor, they should have known better.” But the lenders are not innocent either. The lenders had an obligation to their investors, and to the communities, to perform due diligence and not accept borrowers that fail to meet customary standards.

For all the finger pointing, the only true victims in this crisis are the people who played by the rules, bought wisely and managed their debt prudently. They have the bulk of their net worth tied up in their property, and stand to see the value of their investment evaporate because of the unethical actions of a few.

The hardest to be hit will be farmers. Farmers have the greatest proportion of their worth invested in their property. Crops may pay the bills from year to year, but the value of their land establishes their net worth. The failure of the sub-prime lending market will adversely affect the entire lending market, including the seasonal credit farmers use to operate.

Development must be managed to protect the current residents as well as provide for reasonable growth within the county. A mixture of homes designed to fill a broader income range more suitable to the actual market is needed to insure that a stable community can exist. The county board has an obligation to the residents that elect them to protect their interests. It is here that the current county board has failed the most.