by Jed Estrada

Richard Edwards moved to Horseheads this past October after the economic depression engulfed the market. Mr. Edwards is a programmer and web designer from Southern California, but over the past years he became involved in the real estate market. His story captures the depth of the shift in fortunes that resulted from the 2008 economic crash, and gives a good snapshot to how exactly such a depression affects individuals.

Ten years ago, Mr. Edwards and his wife took the money from their mortgage and invested it in real-estate. Through a series of quick ‘flips,’ (quick re-selling of property) he was able to make a significant amount of money very quickly. That made it an effective and attractive field of business. By leveraging the property, and taking out more mortgages, he was able to buy more real-estate. The theory was that as the banks gave out loans, the people who bought the land and houses would pay it back eventually. The original loans that the investor bought the property with would start with a very low “teaser rate” of interest, and the investment would appreciate, or increase in value, before it expired. And even if the investment didn’t appreciate in time, and investor could keep refinancing until it was sold. “With so many different lenders, we could always refinance to get out of paying real interest rates, especially on the larger payments that would pay down the larger loans” said Mr. Edwards. “As long as the real estate value kept going up, and as long as we could keep on refinancing, then it was a profitable business that went on for 10 years.”

That worked out great, up until the mortgage lending meltdown in 2007, caused mostly by inaccurate credit rating, speculation, and the changing policies of banks and the government; all brought to a head by a sudden boom in the real estate market. “When the mortgage lending meltdown made national news, then suddenly no lenders anywhere would refinance anything. And one by one we watched these teaser rates expire, and were unable to refinance them to more affordable loans. As the loans reset, we found they were no longer profitable.” With a large portfolio of investments on hand, Mr. Edwards found his assets value dropped from 6 digit to 4 digit value, and his liabilities ranging in the 7 and 8 digit figures. “We were borrowing money out of the property we had purchased to use them just as down payments on the larger loans of other properties.”

Then at the end of October 2008, the strain of foreclosures and default loans finally pulled their toll on the banks, causing the big bank and credit market crash that is still rippling through our economy and industries today. For people like Richard Edwards who were already reeling from the mortgage lending meltdown, this was the final straw. “I didn’t have any time to react to it. At this time I was still unemployed, and was socked with payments that were unaffordable, and had at this time exhausted my savings.” Richard tried to make any profit he could out of the property he still had on hand, but through this entire time no one was buying anymore. Before he might have gotten several offers on a piece of land within two weeks of putting it on sale, but now he might go three months without even one offer. “It’s like a shell game, where there’s a bunch of shells being moved around, and you wonder which one has the equity in it, the answer is none of them do!”

While talking to Richard Edwards, I was struck with the scope of the real estate market crash. Throughout the months of senate committees and investigations that followed the market crash, it was revealed how deep and corrupt the problems with the credit and mortgage system really were. But for Mr. Edwards and many of the other hundreds of thousands of people who lost their jobs, it was nothing less than a screeching halt, wild spin, and hard crash to an entire field of business. While it is easy to point out the irresponsibility of banks in the amount of money they would lend out on poor credit, it is also important to keep in mind the domino effect of calamities that hit viable investors like Mr. Edwards. “Originally I had set aside around $250,000 as a contingency, thinking that a quarter of a million dollars would be enough to weather any wrinkle in the real estate market. It didn’t occur that I would be socked with both long term unemployment, and a decline in real estate values, and the inability to refinance loans. So it was the culmination of those three calamities, any one of which would have been difficult to weather, which quickly burned through my savings.”

Many today are quick to point out individuals living beyond their means as the ones responsible for our economic state. In Richard Edwards’s case, it was his entire field that collapsed. In talking to him, he told me that he does not consider it a personal failure for himself. He did what he could to prepare, and even in the end he never filed for bankruptcy. “I could have weathered one, maybe two, but not all three calamities at once.” In the end, with enormous interest rates, debts, and a lump of semi-worthless real estate, Mr. Edwards told me he thought it was best just to walk away. Now he has picked up web designing and programming again, as well as adventures that involve canoeing, instead of the stock market.