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Bush's proposal is only to bail out people who can afford their mortgages before the reset. So, we are talking about pretty honest and hard working people. It allows those people who can't afford their current loans, prior to the reset, to default. That sounds like a pretty nuanced plan.
I don't want to debate your entire post because I take forever to type , but if you review many of the "woe is me" stories the media keeps trotting out for the subprime mess it seems many were buyers who took the teaser rate and ignored the change. Many knew it would reset, but thought they could right their credit or save some dough inbetween to cover something they knew they would not be able to afford if things stayed as status quo.
Sometimes it was honest hardworking people who still got caught up in the easy cash of home equity lines and granite counter tops and did not think further than "I will just refinance and roll it back into a 30 year". I know plenty of folks who did that, and am sure many others on here could share similar stories. And how can you be an arbiter for this type of policy? Were we there when these lenders were explaining things to these buyers...how can you truly know if it was predatory aside from taking the word of the home buyer. It could have been a flipper who took the ARM because he/she was set to re-sell in the next 12 months. It is an unenforceable bailout. For those that were elderly or prayed on because they were first generation homebuyers (ESL folks, etc), well they should get the support they are already trying to assert through local community offices who support mortgage counseling, foreclosure avoidance, etc. Community-based organizations that truly know and understand these families and communities. And these already exist.
But there is a myth out there that we must save the folks who even if they can afford the frozen ARM rate are still burdened by a ridiculous mortgage. For those who simply default and are foreclosed they might find that rent is much cheaper and affords themselves and their children more money to do other things. You base the need for this policy on the view that home ownership (or mortgage obligation really) is the best alternative for all families (and the economy). For some, keeping them in these homes by a whisker will be more of a strain, and only save pride, not the money they need. It's a free market, and has worked for quite some time.
Jrprofess,
That last post of yours hit it right on the head. In my area which is fairly affluent, many people took an ARM because they figured they were going to be relocated by their company in a few years, or relocate because of a change of jobs. For them the ARM seemed like a smart move at the time.
Mortgage brokers and realtor's do what they normally do, sell their products. Each time my wife and I bought a home we were told by the broker and Realtor that we could afford more, to buy bigger because our salaries would go up. We didn't. We bought what we could comfortably afford at that time and as our salaries grew we were able to invest, bank or spend the excess. And as has been pointed out I'm one of those people who is dumb as dirt but still I didn't fall for buying more house than I needed, wanted or could afford. There is a little thing called common sense that the home buyer needs when going out into the big wide world. Somewhere along the way people tossed common sense to the side and started believing that 400K for any kind of a home anywhere was reasonable or cheap and forgetting that no matter how you cut it, 400K is a helluva lot of money.
Common sense beats everything. Pity more people didnt have it when it came to their mortgages.
I rather like having a mortgage that I can afford, waiting until i can pay for improvements and getting the satisfaction of being able to sleep at night.
We generally pay as we go, if we don't have the money in the bank to do something we'll wait until we do. By doing this we somehow now have more than enough money to do what we want with very little ongoing debt.
Something else my wife and I did was to build a mortgage buffer by which we always kept track of how many mortgage payments we could make if we both lost our jobs. Having this growing piece of mind really freed us up to take some risks with jobs and investments.
It is Alan Greenspan's fault for cutting interest rates so much in the name of getting his good Republican pals re-elected in 2004. The blowback is the fact that housing got so ridiculously cheap it looked like you'ld be stupid if you didn't buy. Can you really blame people for wanting to have a shot at owning a house?
Really, it's all Alan Greenspan's fault, he cut interest rates way too low after raising them way too high. The man is overrated, he's not a guru of much of anything. He totally misread the 90's tech boom, screwed it up and that's what caused the housing bubble.
A completely free market with an infinite number of suppliers selling the same goods to an infinite number of buyers where the law of supply and demand sets the price is a very difficult place to make a profit. Most businessmen avoid make investments in such a market and try instead to buy (bribe) a monopoly situation from a government. This is much safer and far more profitable.
Really ruthless investors try to manipulate a market by creating an artificial boom using very low interest rates and very low margins (either stock margins or real-estate down payments) to boost sales and values in an investment bubble. The original investors that created the bubble usually bail out (profit taking) when the bubble reaches about 80% of the peak. Indeed they loose the last 20% of the boom but they have already multiplied their original investment several times and they avoid loosing in the subsequent collapse.
I am concerned that so much of our economy is in an artificial bubble that the collapse of the real estate will also break the bubble in equities and commodities. I actually expect a major ‘correction” to become a full fledged crash before the elections next November because the likely outcome of that election will result in more sensible regulation of the banking and securities markets to prevent a recurrence of the boom and bust cycle. The United States will no longer be a speculators happy hunting ground and most of them will start the panic selling quite soon.
As we are a credit driven financialized “consumer’ economy we will be do not have anything productive to provide a cushion for this crisis. The next few years will not be fun except for the folks that sell the system short. just hope you pension fund is one of these folks.
...or empathy for that matter. Newsday, in it's Sunday cover story (and there will be two more articles I believe) are beating the current dead horse of subprime loans and the housing market. This is all well and good and nothing new...but what truly irritates me are the sidebar articles profiling various "victims" of the current market. Examples include an older couple who owned their Deer Park home outright and were taking in about 60k a year. They apparently thought taking out a $300,000 loan was going to be financially prudent...and the single mother of two in Centereach who made 30K a year and took out a 324k loan on a 329k house!!! I could barely scrape by to cover 600 bucks in rent when I was making 30k some years back!!! There are many others profiled, but most of the families did not encounter an unforeseen illness or tragedy, they simply failed to do some basic math...I have ZERO sympathy or empathy for these folks who put their financial futures and those of their children (more importantly) at risk. Am I wrong? Am I missing something? Since when is nobody accountable for reading the legal documents that bind them to such an arrangement. If the government bails these folks out I will scream...
Talk amongst yourselves...
Sympathy? Nope not a ounce. I do feel bad though for those who were taken advantage of by unscrupulous mortgage brokers and the like. Can't say the percentage of those who were suckered over those who were just greedy. I say bail no one out who went in KNOWINGLY getting more house than they could afford. Let them flop, and let EVERY bank who gave a sub prime loan flop too. Its business and they lost in that game so let them pay the price.
Sympathy? Nope not a ounce. I do feel bad though for those who were taken advantage of by unscrupulous mortgage brokers and the like. Can't say the percentage of those who were suckered over those who were just greedy. I say bail no one out who went in KNOWINGLY getting more house than they could afford. Let them flop, and let EVERY bank who gave a sub prime loan flop too. Its business and they lost in that game so let them pay the price.
You cut your nose of to spite your face.
If you do this with your purist approach, it will crush the economy, hurting all of the rest of us.
So naive!
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