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Old 09-21-2008, 06:57 AM
 
1,492 posts, read 6,775,071 times
Reputation: 1419

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So, most of us commoners are being fed that the reason for the bad economy is the housing market.

Many loans are being defaulted resulting in the banks owning these properties, families loosing their homes. Evidently these banks are loosing billions.

So, the govt is going to 'loan' them billions. Result: loans will still be defaulted. Families will still lose their homes. But the bank will not be in a hurt because they have the billions from the taxpayers pockets.

hmmmmm....

I'm no genius by any means but it would make more sense to:

Govt bailout-

The banks would do principal only payments for homeowners. The interest would be subsidised. [yes, the payment would be less and homes wouldn't be lost]

The banks would submit on a quarterly basis all interest payments not received by their mortgage holders-the families.

The taxpayers would pay - loan- the bank that lost interest.

The loans would be extended by 10 years (or something) to make up for that lost interest that the family didn't pay. And the govt would ensure the banks paid back the loans.


Wouldn't this have been better?
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Old 09-21-2008, 07:13 AM
 
Location: San Antonio, TX
545 posts, read 2,057,013 times
Reputation: 210
The problem is that it isn't home loans that banks own. They own mortgage backed securities, which means that the originating banks have taken the mortgages they owned, combined them into one big ball, then sliced up that ball of loans and sold them to other banks. The pieces can contain many different loans, so more than one bank ends up owning parts of a single mortgage.
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Old 09-21-2008, 08:29 AM
 
Location: N. Ga
3,492 posts, read 3,096,402 times
Reputation: 1833
Quote:
Originally Posted by VegasGrace View Post
So, most of us commoners are being fed that the reason for the bad economy is the housing market.

The banks would do principal only payments for homeowners. The interest would be subsidised. [yes, the payment would be less and homes wouldn't be lost]
I can see two problems, IMHO, with this thought. First, and since we don't own a home anymore this isn't personal, but I can imagine how I would feel if I was still making my P&I payment and there were folks who were now not paying interest just because they took out a sub-prime to begin with. Let's not forget that the reason some of these folks are in trouble are that they were taking interest only loans out anyway. They were in fact gambling that they would never have to pay the principal that instead they would be flipping the house for profit.

Which brings my second problem. It really doesn't correct the problem. All it would do is extend it till later. The prices of homes must be corrected. It is unrealistic to expect the normal middle-class family to be able to afford a home that is 10 x's their annual salary. I Spent a day watching some of the "what is my house worth" shows on HGTV and spent the day in disbelief. One show had a graduate student and his paralegal wife house hunting. Their budget... $500,000.00. Forgive me if I'm stunned, but we make a lot more than they do and we can't afford that kind of home. I honestly think that this crisis will eventually force prices down to where they should be and should weed out those flippers for people that once again want the American dream of home ownership, not just a quick buck.

P.S. I just found this great debate forum and it is fantastic. Thanks City-data and mod's!
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Old 09-24-2008, 08:33 AM
 
Location: Atlanta, GA
2,290 posts, read 4,946,160 times
Reputation: 784
If consumers should be expected to organically attain their wealth (i.e., getting an education; working in a career; deriving their wealth through income, saving and sound investments), then Wall Street should be expected to do the same thing.

And if consumers lose their wealth due to their own actions (i.e., over-spending; failing to save; high-risk investments) then so should Wall Street.

If that means that we suffer a depression, then at least we will have learned that our economy was never to have been built on houses of cards, smoke and mirrors. At least we will have learned that if the American median salary $50,000 a year, that the median of Americans cannot afford to borrow and be loaned money for a $300,000 home.
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Old 09-24-2008, 11:20 AM
 
Location: In My Own Little World. . .
3,238 posts, read 7,816,682 times
Reputation: 1596
Quote:
Originally Posted by aus10 View Post
I can see two problems, IMHO, with this thought. First, and since we don't own a home anymore this isn't personal, but I can imagine how I would feel if I was still making my P&I payment and there were folks who were now not paying interest just because they took out a sub-prime to begin with. Let's not forget that the reason some of these folks are in trouble are that they were taking interest only loans out anyway. They were in fact gambling that they would never have to pay the principal that instead they would be flipping the house for profit.

Which brings my second problem. It really doesn't correct the problem. All it would do is extend it till later. The prices of homes must be corrected. It is unrealistic to expect the normal middle-class family to be able to afford a home that is 10 x's their annual salary. I Spent a day watching some of the "what is my house worth" shows on HGTV and spent the day in disbelief. One show had a graduate student and his paralegal wife house hunting. Their budget... $500,000.00. Forgive me if I'm stunned, but we make a lot more than they do and we can't afford that kind of home. I honestly think that this crisis will eventually force prices down to where they should be and should weed out those flippers for people that once again want the American dream of home ownership, not just a quick buck.

P.S. I just found this great debate forum and it is fantastic. Thanks City-data and mod's!

That tv show has raised expectations among first time home buyers beyond what is realistic. Young couples with student loans, car payments and credit cards cannot be looking at half million dollar houses. Yet so many on the show seemed to act as though that was normal. Now we know why.
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Old 09-24-2008, 12:47 PM
 
878 posts, read 1,845,775 times
Reputation: 460
Quote:
Originally Posted by VegasGrace View Post
So, most of us commoners are being fed that the reason for the bad economy is the housing market.
...
The banks would do principal only payments for homeowners. The interest would be subsidised. [yes, the payment would be less and homes wouldn't be lost]
A big issue here, as identified by aus10, is that homeowners who did everything 'right' would be punished. If you saved your money, had good credit, and bought a house when you were ready, then you pay P+I. If you were irresponsible, then you get to only pay principle.

Which seems backwards to me.

You also create the problem that the bank is borrowing the money it lends out. They pay interest to the Fed. If buyers are paying principle only on loans, then the bank loses money every month. Not to mention that without the markup on interest the bank doesn't have income: employees of the bank don't get paid (fired), the rent on the building doesn't get paid (evicted), dividends to stockholders don't get paid (massive stock market losses), and interest doesn't get paid on your savings account (withdrawal).
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