Time for a mortgage bailout?
Senator (and Presdential hopeful) Chris Dodd is talking about it. After all, 2.2 million American households are at risk. Maybe more. But what would a bailout look like?
For a start, there's moral suasion. Before we consider any major government spending, lenders are going to have to take their licks. Here's Berkeley economist Brad DeLong, arguing that the problem here isn't simply that some homeowners got in over their heads. The whole system failed, and that means everyone with a stake in it has to pitch in to prevent a crisis:
I can see one constructive thing that bank regulators can do: they can publicly note [to lenders] that foreclosure is an appropriate response to individual cases in which payments are not being made because idiosyncratic things have gone wrong with individual household's finances, but that foreclosure is not an appropriate response to a systemic problem triggered by macroeconomic risks that have come calling. The appropriate response [for lenders] when it is an aggregate rather than an idiosyncratic shock is to renegotiate the loan--not to foreclose on a homeowner. And banks that do the second rather than the first are not fulfilling their responsibility to the system of which they are a part.Don't provide direct financial support to homeowners in trouble, urges Nouriel Roubini of Roubini Global Economics:
Public funds to help borrowers should be used with care for several reasons. First, some forms of borrowers' financial support end up bailing out also the culprits of this mess; thus, these specific forms of support of homeowners under financial distress should be avoided. For example, direct subsidies to households who cannot afford their now-reset and excessively high mortgage payments end up helping the victims as well as the culprits.By "culprits" Roubini means the lenders. Instead, he says, the feds should force the lender to renegotiate payments:
For example, suppose that the value of a home (with zero down-payment) has fallen 10% (following the current housing bust) and that the borrower cannot now pay the full value of the mortgage debt servicing payments that are now being reset at much higher interest rates. Then, if the borrower can afford a lower string of service payments that, in NPV [net present value, I think--P.R.] terms, is 10% lower than the initial terms of the mortgage (and equal to the true value of the home), the solution will be to allow a reduction of 10% (in NPV terms) of the debt-servicing payments for the borrower.Hillary Clinton wants to make it easier for people to refinance out of onerous loans. From Bloomberg:
Clinton proposed eliminating pre-payment penalties that she said are "designed to trap borrowers" by imposing high fees for paying off loans ahead of time. Such penalties apply to 70 percent of subprime loans and less than 5 percent of prime loans, she said.[Update 3/19: Here are Clinton's remarks. On reading it again, I see it's not clear if she's proposing to change the terms of current subbprime loans. Seems like not.] Washington Post columnist Steven Pearlstein suggests a new mission for Fannie and Freddie:
...what's needed is some mechanism to encourage the faceless investors who now hold those mortgages to accept less money than they were expecting, while at the same time helping homeowners to refinance their homes with more appropriate mortgages.[Update 3/19: It's worth underlining the point that the ideas discussed above don't require, as a first order of business, a direct government subsidy. But from the news story I linked to, it certainly sounds like Dodd is willing to have Congress stump up some cash.] Nicole Gelinas at the conservative City Journal makes the case for government just butting out:
If the government, or its proxy, now steps in and purchases those mortgages, or otherwise systematically bails out borrowers, it will create a hazard for the future. The next generation of mortgage lenders won't take the high risk of subprime home loans seriously, because they'll expect that, in the event of another crisis, the government will step in and bail them out again. So they'll be even more eager to approve the risky subprime mortgages that are getting so many borrowers into trouble in the first place.By the way, my family is "the family down the street" that kept on renting rather than overstretching our finances to buy in a market we can't afford. So I sympathize with that last point. But this kind of cool tit-for-tat analysis seems a little unmoored from everyday experience. For the sake of argument, let's set aside the issue of whether lenders were deceitful or predatory, or whether the government encouraged this kind of behavior. I know I'm going to get lots of comments about 25-year-old idiots with $45,000 salaries buying McMansions and giant plasma screens and fancy cars that they couldn't afford. But I suspect that many people who are in trouble now were mostly trying to buy into a safe, stable neighborhood with good schools. The real-life choice for many families in bubble markets isn't between a fancy McMansion and a modest older home. It's between a house in a school district that works, and a house in one that doesn't.
Still, who could really argue that the government should prop up unrealistic home prices? Clearly, the air has to come out of some of these markets. The question is: How quickly? If mortgage blow-ups are really a dire threat to the overall economy, perhaps even those who were prudent all these years could grudgingly accept a carefully limited government intervention. Forced into a choice, I'd rather keep my job than satisfy my sense of cosmic justice.
It's too early to be talking about bailouts and I don't think we'll even need to by the time this whole thing plays out.
Lenders don't want to own people's homes and I think the industry will come up with some innovative programs to help people who didn't know what they were getting into concerning adjustable loans.
Mortgage fraud and first payment defaults will hurt, but the economy is strong enought to absorb these losses.
I have a few other answers to questions about subprime loans.
I think the Bloodhound Gang said it best when they sang "The roof, the roof, the roof is on fire.
The roof, the roof, the roof is on fire.
The roof, the roof, the roof is on fire.
We don't need no water let the mother$%^&*( burn
Burn mother$%^&*(, burn
Another bailout similar to S&L crisis. Unscruplus builders, lenders hype the market even though cost of building and materials did not increase. And now same people want public bailout and make more money. Thanks to our econamy and analysts.
Some of the comments are completely correct. Mr. Dodd wanting people to get bailed out is an excuse for him to look good iin the general public and thats about it, since it would make zero sense to just bail out this mess, 1) As one person already said, it would allow future lenders to behave in a similar fashion 2) Didn't these people borrow the money, and being in the business, I am well aware that a majority of these people could of cared less about anything they just wanted a loan and are just as much at fault as any lender if not more 3) Any government help would be bailing out bothe culprits the lender and borrower and ultimately the investors - there is a reason it is called investing , their is risk and these investors shouldn't be bailed out by the government they should be taking it upon themselves to take 60 cents 80 cents or what not to protect their investment 4)Finally you would end up bailing out a lot of people that don't even deserve it but take advantage of the system- imagine the default rate at first when anyone with a subprime loan knows they can negotiate - most will end up missing a payment to take advantage of this situation!!!
I strongly appose a government bailout for both lenders and borrowers. I do feel sorry for the select few that were taken advantage of by greedy lenders. Nonetheless, a majority of Americans have been using the housing "ATM" to finace themselves into massive debt, by purchasing new BMWs and plasma TV's. Let me tell you...their hands weren't tied. Both lenders and borrowers new exactly what they were doing. Now, those of us who made the decision not to financially ruin ourselves are going to be stuck footing the bill??? I guess that's the American way. What a joke.
A lot of the problem was greed. Let those that thought they were going to make big bucks, pay for their greed. I'm sick of bailing out people. And the government should be enforcing it's regulations. If they did we wouldn't be having theses problems. Oh! then again the last 4 years wouldn't have been so good for the rich
Lenders should make reasonable chances for people to refi or pay up faster. Government should not "pro-up" the real estate market - let supply and demand rule. Anybody who ended up in over their head, should face facts and teach the lesson to their friends.
There better not be any kind of bailout. My wife and I have been busting our butts to save money to buy a house, and are on track to do so next year. We didn't give in to the agents telling us not to worry, just buy a house and it will appreciate before we have to re-fi. If those individuals that threw caution into the wind are bailed out of the mess they got themselves into, it sets a really bad precedent.
While they're at it, why don't the Fed's use my tax dollars to pay off all the credit card debt for people who are too dumb to get into it in the first place - what a great motivator for me to stop saving and get into the pool with the rest of them.
Absolutely no bailouts for flippers. Maybe for families who really got suckered into loans they couldn't possibly afford by unscrupulous mortgage rokers. Go over to http://bubbletracking.blogspot.com/ and take a look at how many people bought multiple properties with "creative financing." The vast majority of the forclosures we are going to see aren't going to be families losing their homes, they are going to be flippers losing multiple properties. It isn't 2.2 million American "households" it is 2.2 million American "houses."
Keep Hillary's greasy hands off!!!
She already screwed up our health care.
I took out a loan four years ago with no documentation for 100% of the value of the home. I sold it last year for a sizable profit.
I knew the risks going in! I knew that I may have to decalre bancruptcy and get forclosed upon.
People should not have the government bail them out of stupid choices!
I for one certainly don't believe we need to be talking about bailouts. I think there's fault on both sides in this problem--on the side of the banks and on that of consumers. Banks were far too eager to loan money, and people didn't do nearly enough homework before signing on the dotted lines.
Now the banks and consumers are realizing that they're in trouble. Personally, I think that perhaps some of the banks will simply have to eat some losses on this one. Or they'll need to innovate to find ways to work with these consumers. And consumers need to do the appropriate belt-tightening in order to pay their mortgages. If that means selling one of the $60k SUVs sitting in their driveway in favor of something more sensible or sending Johnny to public school instead of private, then so be it. The economy will handle the losses.
Large corporations are so fond of taking advantage of the "free market" when they're offshoring jobs or creating overseas tax shelters, but when they stand to lose money, they sure seem to look to our government for help in a hurry.
My fear is that millions people (like myself) who worked hard, saved what they could and bought houses they could afford will be forced to subsidize, through some sort of taxpayer sponsored bailout program, people who bought houses clearly above their means, with mortgages approved by institutions that should have known better. What this will amount to is a giant reward program for fiscal irresponsibility. How is that fair?
This "crisis" hasn't even gotten to the other dirty little secret in the mortgage industry that is going to explode: the recast of the negative amortization loan. A negative amortization loan is one in which the borrower does not have to pay all of the interest that has accrued on the loan. Instead, the unpaid interest is tacked onto the balance of the loan, thus decreasing the homeowner's equity. The buyer starts off with ridiculously low payments, but if the loan balance reaches 110% (or 120% depending on the loan) of the original loan balance, the loan payment is "recast" and the payment shock can be staggering-way higher than anything with a regular adjustable mortgage. The combination of decreasing values and increased loan balances is going to clobber this economy. Oh, and the number one holder of these mortgages is Washington Mutual, the largest thrift.
There are two sides at fault here: the banks and the homebuyers. There are numerous payment calculators that can be found on the web that allow a person to put in their income and it figures out the amount of loan they can afford. These calculators all produce results which are an excellent guide for prospective homebuyers to follow. If they use these calculators to determine how much of a loan they can afford to take out on their new home, then they won�t run into the problem of not being able to pay their payments. If a person is unable to afford the payments the wise choice is to keep renting, even though they would love to buy. Only a fool would buy an outrageously priced home and try to "make it work" with a special payment provided by the bank. The homeowner who bites off too big of a loan can only blame themselves for being too optimistic about being able to repay the loan; by using these calculators, the writing is on the wall.
Secondly, the lenders are at fault just as much as the overly optimistic and/or just plain ignorant homebuyer. It is the lenders that have tried to bend over backwards to accommodate these insane home prices, and whenever they come up with a loan policy that supports the higher prices then home prices continue to rise (thank you bankers for the extremely overpriced market!). Unfortunately, there is a breaking point that occurs when home buyers start to default on these loans � which is where we are at now. Soon home prices will start to drop because banks will realize that they cannot, safely and prudently, continue to make or take on risky loans. Everything soon comes back into perspective. The bankers can only blame themselves for their creativity in trying to allow people the opportunity to go into debt without a sound means of paying those loans back.
The lesson here is this, buyers shouldn�t take out a loan that they can�t afford (use the time-tested standard 30-year fixed rate to calculate the size of loan that your finances will allow), bankers shouldn�t make loans that are �creative� in order to provide financing when it is obvious that people are getting in too deep in debt. It�s called common sense. And as far as �the family down the street� picking up the tab to bail out the buyers/bankers who have made poor decisions, well, my opinion is that you reap what you sow. Let there be defaults, foreclosures and bankruptcies! Only then the market will get back to where it is supposed to be, a little rougher on the edges, but wiser and better for the experience.
Should the government step in when the stock market crashes after a bubble? After all, that may also cause a recession and destroy the savings of people who were suckered into the system by irresponsible banks and investment advisers.
When will we start hearing about the biggest subprime and Alt A lender--- FHA?????
The idea that people "got in over their heads" is an oversimplification. This really comes from the point of view of non-first-time homeowners. Many first-time homeowners who bought in the last year or two rented while watching prices skyrocket. Any broker or agent that these buyers could talk to would attempt the not-so-hard job of convincing them that buying NOW without a down payment, in any loan they could get, was the only option that made sence, considering that prices were increasing faster than any buyer could reasonably save or accrue interest. A great many of these "risky" buyers, especially the more recent ones, were SCARED into these loans!
The sub prime's come with unique terms that should have been explained to the buyer, by their bank, and the lawyer that they paid for. The bank made me pay for the bank's lawyer, as well as my lawyer. One of these lawyers should have told the borrower, if the bank was unwilling to explain the financing. My lawyer explained it very well. "This document states that if you dont pay on time, they get the house.(please initial here)" Not many people walk into a mortgage blind. The buyers knew up front that they could not afford the mortgage, if the rate increased, and that should have prevented them from getting the mortgage. Also, the usery rates imposed to the sub prime croud also boarders on the criminal side. The bank gets 3-5% more than they should, and the credit card people can charge up to 30%. Where does it cross the line between service and racketeering? I think that they crossed it with some of these sub prime loans. As Clinton pointed out, they should be able to refinance into a standard fixed 6.25%, 30 year term rate. Lowering the rate from 10% down to 6% will give them breathing room. If that can't be affordable, they need to hand over the property and walk away. Lending practices, such as some sub prime loans were way out of hand and the banks that pushed this junk, need to take some of the hit.
If borrowers were truly preyed upon by unscrupulous lenders, their governmental recourse should be through judiciary channels, not legislative (tax-funded) channels.
Any bail out of subprime customers would be a temporary band-aid. There is a reason they are subprime customers, they are bad with their money. They don't usually make rational decisions when it comes to purchases. Sure, there are the few who have bad credit because of medical bills, but that isn't the majority. Bailing out these people would be a slap in the face to those who have been more responsible with the money and decisions. Heck, even we struggle!
I think a bailout is a ridiculous idea. I'm a 24 year student who is graduating in early May. I'm looking to get a good downpayment secured before I buy a house. My wife and I realize that we may have to rent a little while longer, but that's better than jumping in over our heads. The idea that we're supposed to bail out people who made bad financial decisions in the first place is insulting. While owning a house is part of the American Dream, the American Dream is something you work for, not something you have handed to you by the government.
I agree with Roubini that we need to first look to the stakeholders (companies/shareholders/home owners) to finance the way out of this. I also would have liked to be in a better home/school but I am here in my fixed rate 30y mrtg because I knew I could afford it.
I am amazed at the information I hear about consumer credit card debt. Are we going to have this same conversation in a year over whether to bail out consumers from their consumer debt. Maybe we ought to allow these companies to take the hit and then the market would stop rewarding companies for being so shortsighted in going after short term profits over long term prudence.
Should the government bailout all gamblers that are unlucky. Let's face it, these loans were gambles from the start on behalf of the borrower and the lender. The odds were in favor of this problem, not the reverse. So they got caught and now have to pay up. Maybe its time the drive a cheaper used car and not go on vacation so that they could pay the bills they, themselves created. Folks made a choice to get into that home and that loan. Don't penalize those of us who've did our homework and didn't gamble.
Those buyers who continually pushed prices in many parts of the country to exceedingly high levels where the average hard working educated American could only afford the home by taking out an "exotic" mortgage and/or having unusually high mortgage payments, essentially robbed those of us who were not willing to take such extreme risks, from the American dream of owning your own home. To bail them out with anyones money would not only be unfair to who ever paid for it but it would continue to deprive other more fiscally conservative individuals from being able to own their own home. Unlike most other products, housing is a necessity. Home ownership adds to the stability and functionality of our society and culture. Affordability with traditional mortgages should be the goal the government is trying to reach, and if that means some people will loose their homes...so be it.
So, the wise and smart people who waited on the sidelines and didn't get involved in the pyramid scam of the 2001-2006 Housing Market are going to get "PUNISHED" for not doing stupid things like an ARM or Liar Loan?
So instead of the housing market correcting, we are going to "reward" stupid people who got in over their heads....amazing.
If we bail people out on this, then we are saying it's ok to make a HUGE mistake and you have no reprecussions.
These people that got these ridiculous loans KNEW most likely they could not afford a house to begin with. They knew they shouldn't be buying a house but they did. They knew the risks.
So again, it's ok to reap people of their earnings or overchange for housing, flippers and so on because everyones making a profit, but as soon as the ---- hits the fan we have to bail people out? Just amazing. It's called lesson learned and valuable experience, however how negative. Maybe this would have taught people financial responsiblity and also teaching their kids about their mistakes and what not to do (like buy a house until you have a nice savings and pay 1/3 of your monthly salary towards it) but if we bail them out it's going to speak volumes about living in debt and it's ok to make massive mistakes that ruin the economy.
Again, just amazing. The fact that this is being discussed at all show's just how stupid the government is. They knew this was going on and chose to ignore it. Don't believe for a second they didn't. Everything is rosy when people are making $$ and the economy is strong.
Let is sort itself out. NO HELP!
Here we go again. The good people who properly manage their lives get to pay for the greed and stupidity of everyone else. Let them crash and burn. I will buy them a house to rent with my good credit in a prpoperly priced housing market.
Let the free market economy handle it for once and we'll see that both the consumer and the lender learn their lessons. I bought and sold during the market and kept it within my means.
I'm now watching the idiots with the teaser rates and 0 down loans now having problems and they are not taking responsiblity for their own fiscal irresponsibility and it's appalling.
The Government needs to leave the market alone!
Senator Dodd's bailout idea is just another example of Democratic interference in the free markets. Let's be honest with ourselves - both borrowers AND lenders are at fault. I have read way too many stories of homeowners who were surprised to learn of their "teaser" rates (as low as 0%) being reset to higher rates. Did these borrowers truly believe that they could borrow at 0% forever. Over the last three years standard fixed-rate mortgage rates have been at historic lows, yet borrowers still opted not to lock in these low rates. The delusion of being able to refinance out at a later date helped by a never-ending rise in housing values was simply ignorance. Home ownership is a serious investment - for buyers not to do their homework is their own fault, not the government's.
For anyone who has taken Finance 101, their is a simple tradeoff: risk vs. reward. The reason subprime lenders can charge higher interest rates is due in sole part to the increased credit risk they are exposed to (for example, investing in Treasuries offers little risk, hence lower returns). It is the lenders sole responsibility to manage this risk-reward tradeoff. That involves truly evaluating loan-to-value ratios (including projected ratios in the event of a downturn), debt-to-income ratios and the overall ability of the borrower to make good on its loan. Simply because a lender couldn't properly evaluate the risk in the loans it was originating (or in many cases didn't even try) does not mean the government should intervene to correct their wrong. If the housing market had continued surging the lenders would have earned their high returns - and unfortunately the inverse works as well.
It's all about personal responsability.
It needs to be enfoced by law when dealing with large sums of money and property.
You will find most of the sub prime loans and subsequent forclosures are the result of mortgage brokers overcharging or lying to borrowers. Some studies have already proven that connection.
The homeowner and the lending bank are now stuck with unworkable loans. It's the Mortgage Broker who stuck them both with the loan, made huge comissions, and is laughing all the way home in his Hummer to his million dollar McMansion.
The answer is all very very simple.
We do not allow anyone in this country who handles large amounts of money or deals with life or death issues to do so unlicensed.
No one gives $10,000.00 to an investment house to buy say Microsoft Stock without dealing with a Licensed stock broker.
Why? Because if this person lies, or makes mistakes it will go against their license.
Too many complaints, then no more licenseand no more career!
We do the same with Doctors, Lawyers, Appraisers, etc.
The same needs to be done with Mortgage
What the worst thing that could happen when you give someone the title to your home? Someone that you never met, never heard of before, their company has been in business for less than 10 years and has no accountability?
You could lose your home.
And that is happending in America today.
i think government intervention in any way is an appalling example of abuse of power. it will socialize our society even more, and is clearly against our constitution. it is way past time for individual responsibility.
Supidity is not a defense.
If you don't read the fine details of a contract or have some one explain it to you, then why should the public bail you out? Why not bail people out? The public bails out the corporations of this country all the time, yet the conditioned mass seem to take this as par for the course. Where are all these conservatives and Clinton haters when the airlines need a bail out, when the farmers need subsidies?
If we don't want to bail out the indvidual, perpuate the free market, the let us really do it. No more gov't inervention in anything! Let information flow freely, let people make their own decisions and suceed/suffer accordingly.
Oh by the way, Kenyesain economics, you know the thought that rules our lovely little republic, is no way free market approach!
Aren't these people who lied on their mortgage application with regard to income supposed to go to jail for bank fraud when they are forclosed upon. When the tech bubble burst, I lost my money. I didnt see any bail out then. The big brokerage houses made huge profits back then just like the lenders are now. Let them take their lumps.
I stayed on the sidelines for five years, watching the prices rise always just out of reach. We lived in Paterson, NJ and saw the decline of our neighborhood while seeing tiny Cape Cods in Hawthorne go for $400k. We watched overpriced homes being put on the market without even an attempt at staging or dressing, easily 40% above what they were worth two years ago. In short, the market priced out every blue collar worked in New Jersey, and half of the white collar force.
Now I'm supposed to see two sides to this story? No. For me, there's only one: reaping what you've sown. People flipped their way into homes they couldn't afford, signed loans without doing a cursory attempt at internalizing reality, and now someone is going to paint me a picture of misled innocents? I'm not buying it, much like I didn't buy your overpriced Cape Cod in Waldwick (note to Waldwick: you're not as great a place as your real estate suggests, get over yourselves).
Let them be foreclosed, every single one. Let the lenders suffer the notes. Put the houses back on the market. Let it correct itself. No bailouts, for anything. Otherwise, you've taken my example of self-restraint and delayed gratification and turned it into nothing. I won't have it.
By the time any of these things are implemented the market will have turned around. I hope the feds don't get involved and let the market correct itself.
Yeah right, wishful thinking, I know.
As someone who has just recently gotten a mortgage (with almost 100% financed, but on a fixed rate 30 year mortgage) Let me address some of these comments:
1) It would allow future lenders to behave in a similar fashion
Yes, that is possible, if the legislation, etc. is written poorly. It can be written in such a way to prevent future happenings like this.
2) Its the borrowers' on fault.
Yes, but its also the lenders' fault for not being up front with the borrowers. There is also the problem of the market itself. It became over inflated, leaving normal people unable to buy a house they normally would have been able to afford but with the social pressure that they should be able to afford it.
3) The abusers will also be bailed out.
Paritally true. Again, with well written legislation it is possible to help those that need it without helping the predators. The best way to handle it would be to send borrowers who fall under certain criteria to go through a legal arbitration. That way a judge could decide on a case by case basis, rather than just a blanket hand out.
4)People will take advantage of the system.
People are already taking advantage of the current system. No matter what system is put in place, someone will be able to abuse it. All that can be done is to craft the legislation in such a way as to limit the abusers while still helping most of the people.
One of the things this country was founded on was protecting the innocent at the risk of protecting the guilty; 50% of the bill of rights focuses on that. Just because some legislation will do the same in a different arena doesn't make the legislation bad.
I asked a builder that was building yet another $1.5M McMansion on spec in my neighborhood - "How can people buy this things?" - He responded that with interest only loans it's very easy, and he makes 28% on what he builds, so what does he care. "Oh, I get it, then they flip the property and reap the appreciation before they're mortgage rate adjusts higher."
That's great, except like many multi-level pyramid schemes, when you're the last one in line, and there is no willing to give you your money back, plus the appreciation, you are SOL!! Considering the decadence of these homes to begin with - I mean "Gee, do you really have enough room for you and your two toddlers, 6 bedrooms and 5 full baths and a foyer right out of a Hilton Hotel must get a little tight from time to time." It's hard to feel much sorrow for people that greedy. It's also hard to believe that there were that many people willing to throw caution to the wind. It was all so inevitable, it wasn't IF, it was WHEN.
- yet again we get "Reverse-Robin-Hood" ideas
- so folks that cannot afford homes that have been inflated into the stratosphere have to pay taxes to bail out the fools who bid up the prices into the stratosphere; and in the process prevent house prices moderating so they can afford to buy a home with - surprise! their own money!?!
- wow - this reminds me of Margaret Thatcher over in the U.K., who doled out $40 per head of population to make sure Brits couldn't get cheap vacations on Freddy Laker's airline, which was putting overbloated British Airlines out of biz
The Gov't stepping in will make a bad situation worse. Let the market correct itself - we'll all "learn our lesson" and do better in the long run. And for heaven's sake, will someone please lock Hillary in the closet until this is over!
So the public gets to pay for another banking bailout...Savings and Loan scandal all over again.
The banks and the individuals in trouble need to solve their own problems.
Many of these borrowers cannot qualify for the normal A type mortgages and are duped into these lenders as a last resort. I saw one of these lenders named who closed on a mortgage in Oct,2006 and generously charged the borrowers 9.35% when the market was in the low 6% levels. And of course the lender added in a 3 yr prepayment penalty.
"The real-life choice for many families in bubble markets isn't between a fancy McMansion and a modest older home. It's between a house in a school district that works, and a house in one that doesn't."
This is an insult to me. I stayed in the city, in a 1300 sq ft condo that I could AFFORD, and sent my kids to the Boston public school system, fighting them every day at every level to FIX IT.
The apartheidists who went running off to the suburbs will NOT get my tax money. I am sick and tired of teachers from white suburbs telling my kids about Rosa Parks and diversity, meanwhile driving past deer on their way to work.
We drive by ghetto on our way to school. I don't need to hear about Rosa Parks and diversity from apartheidists who won't send their kids to school with my (white) kids.
Let the apartheidists take the mess they made and solve it without my money.
My wife and I bought a home in 2005, when the market was just about as red hot as it could be. I bought when I was 23, making about 40,000 combined.
I was careful, I remembered the tech bubble fallout (from when I was 18). I knew there were a lot of sharks in the water looking for fresh blood. I was offered a 3/1 ARM by Wells Fargo for about 50% more than I wanted to spend on a home.
I did my homework and found a traditional 30 year mortgage that I could afford, and could buy my house. My wife and I did buy a home we could afford, and in no way do I want to help bail out idiots who decided, just as the .com's thought, that their investment couldn't come back to Earth.
The government didn't refund my $100 that I lost in the tech bubble, and I don't think they should help out buyers/lenders who got in over their heads. If it sends banking stocks into the dumps...who cares?
The annoying aspect of the "sub-prime" market being thrown into the lime-light is that the networks all came out and stated that the "sub-prime" market preys on "low income" family with higher fees and rates. That's not at all true. Sub-prime mortgage companys charge higher rates and fees because of the risk factor of the borrower. Credit scores are the main factor of obtaining a certain rate or program. These customers are people who 2 or 3 years ago were a conforming borrower, which is to say they could walk into any bank and get any rate that they could because of credit worthiness or score. low income customers are often turned down because they can't afford the loan they truly need where the lower credit score customers make enough money but just don't pay their bills. That spells one word and one word only. RISK!! These people are shopping for money and don't care if there is a prepay penalty on their existing loans because they just want the money. The mortgage companies or a large number of them are not to blame here folks. It's the customer who shops for money using the equity in their homes and rates, fees or prepay penalties are of no consiquence to them. Any bail out should be footed by the government and the tax payers it is the home owners or a majority of them that they are in the spot they are. Lets point the finger in right direction.
I do not believe that the government should bail the lendor or borrower out. There are consequences for lending to sub-prime customer's as well as for customer's who have borrowed more than they can afford while putting 0% down on an interest only loan.
I feel no pity for either side. Everyone knew what they were getting into and no one thought that they would get caught with the pants down. I'm not paying for someone else's mistake. No one paid for mine when I could not pay my credit cards while I was in college. I had to learn the hard way for my stupidity and so should they.
What a fantastic opportunity! How can I get myself classified as a subprime mortgage borrower? Is there a website or an 800 number where I can sign up? I can easily put myself at risk of defaulting � that�s not a problem at all. I just won�t make any more mortgage payments on my house.
Let�s take a moment to think about all of the benefits:
For Me: It will save me money. And since I don�t use any online billing systems, it will also save me time and postage. And it would increase my personal happiness. Just the thought of limitless trips to Starbucks, daily massages, and fine dining at restaurants makes my mouth water.
For the Economy: All of the money that is being wasted on my mortgage can be used for consumption to expand the economy (obviously there�s no sense in saving any of it). I can spend it on lots of terrific items that the Chinese ship to this country. Or I can purchase a gas guzzling SUV. Hmmm�which makes me think of another possible Government program for subprime auto loan borrowers�but that�s a topic for another day.
For the Mortgage Lenders: They will be sure to receive their money - from the Government of course, not from me!
For the Government: The U.S. Treasury will save money by not having to give me a take break for the mortgage interest that I pay.
For Other American Homeowners: I�m sure that others would also love to take advantage of such a wonderful program.
What a fantastic free lunch Senator Dodd has proposed. The government can call it something catchy like �Home Security� or �Homecare� or even �Homecaid.�
Where are the priorities of these legislators talking this nonsense?
Not that it is the way to go, but...Doesn't it make more sense to just provide new houses outright for the victims of Katrina? At least these good people were victims and had less choice in the matter.
Uncle Sam has a problem with admitting that there are problems out there that even the US taxpayer can't straddle with their hard earned cash. We're a nation of debtors because our leaders can't say no to any cost.
Those same legislative voices want to screw the conscientious saver twice for the greed of others. Once when they flip their share of the tax bill and the second time when they want to then go and buy a house at the artificially high prices cropped up by Government interference in supply and demand.
We should add a choice on our ballots every time we vote in a national election. One box for each party and one for "flush" which requires all elected officials to serve out their current term and go.
Whatever happened to Laissez-faire
Why should I, some one who had the werewithal not to get myself or my family into a 'subprime' mess, be literally held accountable for the stupidity of both borrowers and mortgage lenders. I'm sick and tired of being 'responsible' while talk of 'bailing out' the irresponsible is being considered.
Clearly, the system needs to be changed, but a bailout is certainly not the answer. I think a lot of financial suffering by both borrowers and lenders is in order ... otherwise, this episode is bound to repeat itself in the future.
And for those of you who argue that the economy will be rattled into possible recession over this mess ... well so be it ...
If the goverment wants to talk 'bailout' ... how about a bailout for the states of Louisiana, Mississippi and Alabama .... after Hurrican Katrina !!!
Why should I help pay for a bailout because another homebuyer made a stupid decision and got in over their heads. NO way will I agree to that. If the economy implodes then let it implode. It's a dangerous thing to manipulate the market like this.
I have not bought a house in the Bay Area because I felt it was totally unjustified. My taxi driver told me he had bought two "investment" houses and was going to sell at the end of the year. Why should I bail out these people or people that made incredibly greedy decisions?
I rent to save money to buy a house in a reasonable market. For my scrupulous saving and sound financial habits, I will be punished by allowing people to keep their houses artificially inflated? I don't think so. As soon as we start rewarding people for these types of decision, I am taking my graduate degrees and income somewhere else.
Thank you Steve for making the one point that everyone else has missed. Those of us who waited until we could responsibly buy an appropriate house for an appropriate price have watched housing prices skyrocket precisely because those with little money who got exotic mortgages increased the demand. Because of their irresponsibility, my ability to afford a house has been compromised. I have no sympathy for them if they lose their houses now. Maybe this will increase supply and bring prices back down. The few thousand dollars that they shelled out for closing costs should be considered the price for borrowing a house beyond their means.
I'll be G*d Da*ned if there is any bailout. I sold a house and bought a house in order to trade up during the last "housing boom." I could have easily gotten a No interest, or adjustable mortgage and built a house 2x the size on 10x the property. But instead I used a 30 year fixed mortgage beacuse although the interest rate is higher, it was the responsible thing to do. If people want to play with loaded guns, then let them, but don't make me clean up the mess
I strongly oppose the Government bailing out both the lenders and consumers. To use public funding to help out people and big business that knew exactly what they were getting into would be wrong. People that have leveraged themselves to the hill, so in the short term can live in a bigger house and drive expensive cars should have to pay the consequences of their actions without the help of the government. They put themselves in their mess, they should have to get themselves out of it. Being a former mortgage broker, I knew of many borrowers that didn't care of the long term effects of having adjustable mortgages, just that their mortgage in the short term was as low as possible and the house was as big as possible. Lender practices have become extremely easy in the past 3 years, and they are certainly a big part of the problem, as well.
Unless the purpose of bailing anybody out of the "mess" is to implement the ultimate nanny state, I suggest we take it easy.
The lenders well knew what they were doing all the way through - subprime lending has been provided at a premium for centuries. Everybody who claims he didn't know there was an extra risk to this form of lending [which is why it is provided at a premium] is either stupid or, well, stupid.
The borrowers aren't innocent either. Of course we all want to live well but ultimately it is up to the borrower to think things through before he signs on the dotted line. If even an insignificant increase in monthly payments will make a difference, then not signing is probably the best solution although it will mean no new car or plasma screen this year.
Don't push the bill for the faults of the parties above over to the rest of us, thank you very much.
.... unless of course what you really want is a nanny state.
The bubble has been forming for years and only when people stop making money does anyone listen. It didn't take a genius to figure out what was going to happen. I do not own a home because a lot of people bought homes they couldn't afford and priced me out of the market. I've had to live with their decision, now let them live with it too.
While I agree with most of what was written above, I see references to "Banks" and "Lenders" who should pay....
But for the most part the "Banks" are out of the picture. The "Lenders" have sold the loan to Investors and have already been paid.
The real question is how to we reform the process where everyone involved in making the loan to start with has no stake in it. The brokers get paid, the Originators get paid, the appraisers get paid. So now we have faceless bondholders. (some possibly the pension plan of hard working people like you and I left to take the fall.
While there should not be a bailout, make no mistake we will all pay in one form or another, (less access to credit, reduced earnings in pension plans).
One group that doesn't get mentioned is the builders who often worked together with the lenders to get unqualified people in these houses. They would walk aaway scott free. I think the builders and the lenders have to take a hit and they should be the ones to make it so that their customers can stay in their home and help stabilize the neighborhoods. Otherwise, all the other people around them will suffer as well, as the neighborhood goes downhill.
I don't think that any kind of bailout should be used. These subprime lenders got themselves into the situation with unsculpulous lending practices in order to fatten their own wallets. They can bail themselves out.
I also don't feel bad for the homeowners. It takes little intelligence to look at a deal and figure out that it's too good to be true. If you're living in a $100k home, don't go buy a $200k home just because interest rates dropped. You couldn't afford it before, why would you think that you could going forward? The borrowers were just as greedy as the lenders in wanting to improve their quality of life beyond their paychecks.
Let the greedy lenders who made the loans take the houses back in foreclosure, and let the greedy buyers who wanted to live beyond their means have their credit destroyed.
This is just another excuse for the Hillarys of the country to make silly claims about the market being 'broken'. It will only be broken if the government steps in to fix it. I second the comments that the lenders are not the only 'culprits'. Hey, we all want more than we can afford, and the less responsible among us will ignore the realities of things like ARMs and Negative Amortization loans in order to try and live beyond our means. When my tax dollars start bailing out those who want to live better than I can afford...I'm going to scream long and hard.
Actions have consequences, and it's about time everyone learned that. Those who make foolish investments SHOULD lose their shirts, and if Clinton and Dodd want to provide new shirts let them buy them with their OWN money. Why is it so difficult to understand that stupid behavior should not be rewarded?!?!
But why am I getting so steamed up? I'm retiring to Brasil in a few months (where I'll be paying cash for a modest house I can afford), so I don't care what mortgage rates are - prime or subprime. I'll vote absentee for the Libertarian candidate, but that's clearly too little too late. Good luck to those of you who will be stuck subsidizing Hillarycare or Obamacare or Rudycare or whatever else the feds mess up.
Folks, I think that it is counterproductive for our society to call everyone who makes a mistake a "victim". Today, we have far too many "victims", which means people who made a mistake and now want someone else to foot the bill. Whaterver happenned to individual fiscal responsibility and prudence? Sure, there are some victims of of deceiptful lenders out there, but these are exceptions, not the majority of cases. The majority simply let their wants get ahead of their needs and their abilities -- these are not "victims". By classifying everyone as a victim, we're encouraging and condoning irresponsibility, which makes life more difficult and expensive for the rest of us who do not indulge in such behavior.
Complete crap. They should let them all default, learn a lesson the hard way. Yeah, it'd suck for the economy, but hey, what else can they do? Eventually, you have to make people take some responsibility damnit. With all the defaults, maybe it'll make my commute easier since less people will be driving in the county I have to go through to get to my office. :)
The guy who brought up BMW's and big screens is right on the money. While I've rented and busted my rear to save for the last few years, I watched an acquaintance refi and take out HELOC's like there's no tomorrow. One time, he pulled me aside and asked me if I'd ever seen 20 grand cash. Unbelievable!I knew right then and there that trouble was coming. The next thing I know, he's got a new jacuzzi, the biggest TV I'd ever seen and a new BMW. What do ya know, a year later and his business is on the fritz and he's got a stack of credit card bills on his counter 2 inches high. Now he's being foreclosed on. I really don't want to see his life fall apart, but if he sees a dime from a bailout, I'm moving to Canada. Perhaps in my next post, I'll bring up my jobless flipper "friend" who can't sell his house to avoid foreclosure. All I can say is POOF!
The government shouldn't bail the out. Instead, those who made a killing on the housing boom should do. It is only unfair for us who rented all the time because of the high cost of homes to pay for the mistake of the greedy people.
Any bail out will send the wrong signal.
To banks, to investors, to borrowers, ... everyone will think it is OK to play high risk because if it is doesn't work someone will bail you out.
Did anyone believe that a 2% teaser rate would not be changed?
Even if the real estate appreaciates and one get's a profit he has to sell or still pay the higher rate. If he intended to sell he is an investor that should have known the risk of investing and isn't in need of protection.
Homes are worth less? Really? Every source has different figures. And even if the price has fallen 10% in one year, thay most likely rose before that 1-200%. Did anyone think that a double digit appriciation can go on forever?
I relocated from Germany to the US and first couldn't get a mortgage, then only ARM products, .... finally I bought with a 30yr product.
A few weird things happened:
> at one point it was easier for my wife to do a no doc loan as it was for me to do this fully documented (the holy credit score)
> I was offered ARM first ... shouldn't a low credit score indicate that someone is inexperienced and a risky product might not be the right thing to do?
BTW I'm now paying less in rent/tax/insurance than I did before renting
These loans were knowingly and fraudulently made and ample documentation has been made public to support racketeering charges.
The states have victim compensation funds for victims of violent crimes, but not for victims of financial crimes, which can be more devastating and longer in recovery, if ever. I support compensation to victims as long as it comes from fines levied on the perpetrators.
Imagine this scenario! I live in a home for 10+ plus years. I raise my family, pay my mortgage, and I�m generally a good citizen, until real fallout. A true recession, not this little hiccup, forces me out of a job. The Lender forces foreclosure. Is there a bailout? No, of course not. Why? Because; I have paid down the principle on my mortgage. Now the lender can recoup their costs. The lender still makes their cut by selling the property at a reduced price. But this is really a tragedy. I�ve lost 10 or so years of hard work and that�s where the discount comes from, not from the lender.
You can�t cover the cost of a loan that is only 12, 24, or 36 months old. The risk to the lender is in the first 6, 7, 8 years. After that, appreciation and principle �pay down� take over. Lenders who were in it for the short term forgot what made real estate a safe investment. And that was the long-term gains. Let them eat crow. The buyer has lost very little in my opinion and can bounce back easily. Either way, it doesn�t help the common guy. Unless!
Capitalism can save this situation. Tighten loan standards (LTV<90%) and keep interest rates relatively low until mortgages no longer have the presence they do now. Until, say, small business loans dominate over mortgages. Or create incentives for small businesses. Investors need an excuse to leave the Housing market and place their money somewhere else. Interest rates can then move and only slightly affect the economy through the sub-prime market. Loans will not reset at a higher rate. Money gets pumped back into the economy, both locally and nation wide. Inflation would rise but compensation needs to follow. And, then the economy can begin its gradual downturn with interest rate hikes. But that would call for corporate responsibility.
What plagues us is Illegal Immigration, and domestic jobs being sent overseas. Corporate America will inevitably find a way to keep salaries low. Either through hiring of illegal workers, or sending jobs oversees. Look for your politicians to battle these problems. Some will say that assimilation and an influx of workers are needed to keep America moving. That�s just a way for them to avoid the problem. You have 2.3 children, but your tax dollars are spread thin to cover the costs of 5 students. How do you combat that? No state tax and higher sales tax. You can make money �under the table� but you can�t spend it there. If you can�t tax every dollar a person makes (because it�s illegal), you can tax every dollar they spend. That will also help cap inflation. Why? The inflated cost is tax revenue, not income. If not, next the Illegal will be living in your foreclosed home.
I'm in an Adjustable rate (2/28) with a subprime lender...and guess what? I don't expect anyone to bail me out. I don't expect the lender to help me out. If I fall behind on my payments, that's my fault. I went looking for the house, I went looking for the loan and I signed on the dotted line. I also read all the pages concerning the adjustable rate, Adjustable Rate Rider, I also read all about the pre payment penalty, Pre Payment Penalty Rider. If a person is going into forclosure because they bought too much house and borrowed too much money then tuff! Take responsibility and get another job if you have to, to pay the mortgage. Too many people these days don't take responsibility for there own actions. Own up to your problem! I hope no one gets bailed out. This is a great lesson learned in economics for every home buyer who owes more than the home is worth.
This is the most "ridiculous" notion I have ever heard of having the government even "entertaining" the thought of getting involved with mortgage buyouts. The housing market must cool as it is. Hopefully this is someone's crazy speculation and wishful thinking.
Making mortgage lenders the culprit for college educated families, unable or unwilling to perform basic math and assess the impacts of an adjusted interest rate, is equally ridiculous. Does anyone take responsibility anymore???
It always comes down to one thing: greed. Greed on the part of the lenders, greed on the part of homeowners trying to catch the wave of unsustainable 15-30% yearly increases in home prices. Homes are finally being viewed again as places to raise families, entertain, etc rather than a place to make a quick buck. So ... no bailouts. BTW, I'm a young doctor looking to buy into the outragiously priced SF/Bay area mark and it'll take me a full 1-2 years saving as much as I can to get that 10-20% downpayment on an entry level townhouse or home.
No bailout. I have little sympathy for those who live beyond their means.
I pay enough taxes and don't want to spend anymore on people who are basically morons.
If they lose their homes by pulling out equity for cars, boats and vacations, they can purchase a tent at Walmart for 25 bucks.
For those who are trouble due to illness or job loss or a streak of misfortune, I am all for helping out and will gladly support that.
How about Prop 101 �Personal Accountability�. If you can�t balance a check book you have no business buying a house. Every mortgage application should begin with a simple math quiz. Everybody is to blame on this, from creative lending practices to individuals that convinced themselves that they could continue to �rob paul to pay peter� by buying a home that they couldn�t afford and then juicing the �perceived� equity to buy a BMW. Basic economics, not rocket science.
Let me tell you a parable. Two brothers left home to strike out on their own. One rented a loft from an elderly couple while working and going to school. His father had done this before getting married and felt it was a safe way to leave the nest. The other purchased a home of 5 bedrooms in a nice neighborhood with no money down under the terms of an interest only mortgage. He knew he would have to work 2 and a half jobs to make ends meet but was hoping to stay long enough to allow the home to appreciate so he could dump it for a profit. Neither is purchasing Plasma TVs or gold plated SUVs. After 3 years both brothers needed to move. Who is in better financial shape?
If all were to remain as it is today, the first brother would have money saved up for a down payment but the cost of homes is still so high that he couldn't put down 20% without selling organs on the black market. If Senator Dodd's bailout were to occur, the second bother would be rewarded for taking on such a tremendous debt without taking into account the possibility that the economy might soften. Neither brother is in great shape but neither are any of us when we have so much of our personal wealth wrapped up into our homes. Combine that situation with the colusion that occurs between banks and credit card issuers once a person is late with a payment and you end up with an economic situation that cannot end well. One late payment to any creditor allows a credit card issuer to raise rates to 30% and higher overnight. That is akin to wolves pouncing on a wounded animal. A bail out helps the culprits of the fraud more than the victim. If we do nothing, it may take better part of a decade for property values to right themselves to normal levels. How many of us have parents and grandparents who bought their home in the early 1930s? We might be headed for that kind of economic restructuring again.
The only "saving grace" here is that any potential bailout isn't probably going to come from your pocket, it's going to come in the form of additional unfunded deficit spending. Why not bail out everyone who lost money in the market? We'll just print more money to hand out to those people who lost money! Who cares how many billions it costs? We've already got billions of dollars in deficit already! What's a few more billion, right?
The problem is the federal government already has the same economic sense as house flippers who got burned, so the real question we should be asking is, who's going to bail out the feds when it all comes crashing down on THEM?
You have got to be kidding me! Are we really talking about bailing out greedy, irresponsible people and punishing the patient and the responsible? Obviously there is a bigger problem here, once again, corporate greed, go figure. All I have seen in the last 10 years in real estate is one big get rich quick scheme. Everyone from realtors, appraisers, brokers (huge problem), and yes of course the home buyer. BTW, many home buyers were speculators, so it's time to pay for a bad decision. Believe me, I lost money in the market, is someone going to write me a check? So I learned my lesson, bit the bullet, sold my house, and now I'm renting. You all knew this was coming. people are walking on my head and I hear snoring all the time, but that's the cost of being conservative. Next time don't try to upgrade to 2400 sq feet in the heart of Irvine, don't buy a second home, don't buy that 745LI with your home equity, and of course don't spend 100K on upgrades, just so you can invite guests over and show off. It's called conspicuous consumption.
There are simple solutions for these issues. Waive the prepayment penalties off of these loans and help borrowers to refiance them into lower rate 30 year FIXED term mortgages. Let the lender cut their profits which are high enough as they are. On a 200,000 at 8% interest they are making $16,000 per year on interest. The forclosures would go down the deliquency would go down and home values would not be as affected. You could also lower conforming rates to help increase sales of homes, but tighten the guidelines where you could not obtain financing in categories like subprime and alt-a without a downpayment. Most of the comments on here are from responsible people who feel they will be directly affected from other peoples mistakes and lack of financial responsibility. Those same individuals will be more affected if foreclosure rates sky rocket and their home value decrease due to a flood of homes on the market. Why not applaud those folks by lowering the rates so they can afford more home or lower their existing payments and let the ones who are in this pickle get out of those loans and get back on their feet.
You must not allow the same thing to happen in the future. What you have to realize is these alt-a loans are for people that have good credit, but typically can not show income. Why do you think they can not show income? Easy answer they are not paying taxes on what they make. I am surprised to learn how many American these days are not paying taxes like they should be.
We can easily fix the problems in front of us by everyone coming together and everyone taking their share of responsibility. The main concern is to make sure once the problem is fixed that it is prevented from happening again in the future.
It is a sad day for some hard working employees and consumers. I have read many comments about the government staying out of it I am glad to see our government seeing a concern and looking into helping the problem. We are blessed to have a government that is trying to protect us.
Bailing out the morons who over-leveraged themselves is like trying to pump all the water out of a sinking ship- without plugging up the hole!
Senator Dodd is a parasite. Why don't the politicians open up their wallets and bail out the system- since they are soooo compassionate!
Let the system work out the excesses- or create a worse bubble down the road!
It never ceases to amaze me how stupid politicians are- that goes for both parties!
Dear Senator Dodd,
I am one of Millions of American Victims who bought his house at the peak of the real estate market bubble. I believed that there was no end in sight to the appreciation in the real estate market and, as the result, fell Victim to the following:
1. My real estate agent
2. The mortgage industry
3. Peer pressure
4. The US Treasury
5. Banking regulators
6. The Public school system
As you can clearly see, I am a Victim of all these public and private agencies. And, this is not just an isolated incident, but rather one that affected masses of unsuspecting, honest tax payers.
The latest comps reveal that I now owe $300,000 more on my home than it's worth, which places me, a Victim, in a rather precarious financial situation, with kids to put through college, and all.
Would you be so kind as to mail me a Government bail-out check in the amount of $300,000 dollars (along with all other Victims), so that I can be made whole again.
P.S. you can count on my vote when you come up for re-election, assuming I get the bail-out check, of course.
We're afraid the crisis can trigger a recession. Why don't we just lower the interest rate, home loan payment will go down, recession risk lowered, government doesn't have to spend a dime. To a certain extend, the home owner has to take responsibility also.
I am a loan officer for a company that does not do less than -A paper. My company retired a product that had a negative amortization feature the second the rates bottomed out a few years ago. I have friends that worked for other companies that sold payment option arms and d grade paper on a regular basis. Its no secret most of us would not put a french fry on lay away for most of these borrowers. Their credit is usually abismal they have rarely paid the bills on time in the past what would make a company think that they will be able pay with more debt. These companies should suffer. The payment option arm is per haps one of the most consumer unfriendly loans that could have ever been thought of.
"The majority simply let their wants get ahead of their needs and their abilities -- these are not "victims". By classifying everyone as a victim, we're encouraging and condoning irresponsibility, which makes life more difficult and expensive for the rest of us who do not indulge in such behavior."
Well said. To not "rescue" the so-called victims is being spun as a "moral" failure for the rest of us.
I think there is a failure of the lending companies, perhaps even the Feds for not regulating...the only moral failure I see is the amount of opportunistic greed driving this crisis. But how is any of this a moral failure for someone like myself -who is priced out of the market and yet has worked and saved most of my adult life for a downpayment? It's not my responsibility to bail any of these borrowers out.
Just what the country needs...another bailout.
Why don't we just give federal refunds to all those that have claimed bankruptcy during the last 5 years for emotional distress?
40% of all home purchases in the last several years were speculative: second homes, investment properties, etc. This spurious demand is what instigated the astronomical rises in housing prices, that left the conscientious and financially literate unwilling to buy homes at such high premiums. So, we are going to reward the financially illiterate (subprime borrowers, speculators, flippers, etc) by taking from the financially savvy? The subprime borrowers in many cases took out unstated loans or grossly inflated their stated salary; make sure these people get investigated for fraud before they get bailed-out.
Any politician who supports a bailout of the greedy speculators will be voted out!!!
Absotlutely ridiculous! No bailouts for irresponsibility.
I do not feel sorry for the banks, brokerage firms, and people involved. The corporations have to deal with the losses of the high risk game they played. Just like any investors who takes a risk and may at some point take a hugh profit or losses.
The American Dream is the American Dream because of the hard work generally involved in saving and purchasing a home. People need to be educated and deal with the sacrifices of homeownership.
I too would love government assistance in maintaining my 20 year old home. But where do we draw the line?
I think the dollar is too weak, and the federal government is way to far in debt to bail out all of the Subprime and Alt-A borrowers who made very foolish decisions. Bailing out these borrowers and assuming the debt would be catastrophic to the US Dollar and interest rates will go through the roof. Home prices are going down no matter what the realtors say. There is nothing the feds can do if they want to keep the Dollar strong.
Agreed. I've worked hard. Paid my taxes (a heap of them when I was single with no home). And now work hard to pay taxes, keep an old small house going and raise a family. I'm already in the totally screwed group that probably won't see a dime of Social Security or Medicare that I am paying for .. but to bail out high-rollers because they got in way over their heads? LIKE HELL! LET THEM WORK THEIR OWN WAY OUT.
Republicans bail out corporations and airlines. Now the Dems want to bail out risky mortgage signers. Got news for you all. We don't have any more buckets! You foolishly ask what will happen if we don't help these poor chumps. I ask you what will be left of our economy if we fail to cap the national debt going through the roof? Noone will own a home, a business, a car or anything! Hell, we might not even be able to pay for our ever increasing dependency on imported food. Picture that scenario.
Remember Savings & Loan scandal years ago. The same thing is happening under a different scheme. The lenders and borrowers very well knew what they were doing. The tax payers who played by the rule should not be asked to pay for these scandals, period.
The deterioration of our financial infrastructure has many causes; 1) a chronic mismanagement of our institutions; 2) financial permissiveness without adequate supervision; 3)a mis-allocation of funds for housing; 4) extensions of credit with essentially no restraints; 5) accommodation of special interest groups; and 6) an excessively easy monetary policy.
Managements have been given more and more freedom, or license, to compete. Managements, responding to apparent economic necessity, or because of greed and/or incompetence, have engaged in reckless financial practices. Little wonder that many managers abuse these discretionary powers to enrich themselves and their collaborators.
In retrospect, these institutions should have been subject to more intense, not less, regulation. In re-organizing our financial institutions the first requirement is to recognize that the competitive freedoms of the mercantile marketplace cannot be applied to the institutions that create our money, or protect our savings.
The scope of the operations of these institutions must be severely circumscribed and subject to rigorous and informed supervision.
I�m one of those guys down the street that has been renting for 5 years now. Being a single dad of 3 kids and one is in college and paying more then my fair share of taxies. I shouldn�t have to pay more taxies because a husband and wife making 80k to 90k a year goes and buys a house for 600K or more if living in San Diego. You made your bed!!! Now Lay in it. Take a second job. Better yet, you and your wife take a second job. Get rid of the BMW, shop at Wal-Mart. And take your medicine.
Enough already, I bought what I could afford and I work two full time jobs to afford it. If they got in over their heads, too bad. They are not innocent sheep, they are people who mismanaged money to begin with, and they need to be accountable for it. If yet another handout is given out while I am scrambling to boost my 401K because I've been told not to count on the Social Security I have paid into for over 35 years, I swear I will lose my mind...
I think if anything, you put this all on the lenders. Make them redo their terms with their customers so that they can get payments, even if it means that they will lose a lot of money. If the consumer should still have a hard time paying, then they need to foreclose.
Who is John Galt?
I sympathize those homeowners who cannot afford their loans now. However, lets don't forget whose ultimately should be responsible for one own finances. Last time I checked, our Constitution gives no one the right to own a house. We are all adults who should carefully evaluate our ability to finance a mortgage before trying to be a house owner.
A government bailout for borrowers would be a national disgrace. How can we reward people for irresponsible financial decisions? I have some compassion for people losing their house, but they shouldn't have used a liar loan in the first place! For the relatively few people who were truly preyed upon by a mortgage lender, they can get their recourse in court. Most borrowers are facing problems because of speculation and greed. Many outright lied on their paperwork because they couldn't get a traditional prime loan. The government didn't refund anyone's 401(k) investments in Cisco or Lucent during the dot com bust, and they shouldn't step in for housing bubbles either. Caveat emptor.
Not to mention we don't need the government propping up housing prices for those of us who have actually saved for a downpayment and a real loan.
The only government bailout I would support is if the banking system itself is threatened. Nobody benefits from another Great Depression scenario. But I absolutely doubt that will be the case, since subprime is still a small percent of all loans originated in the last 10 years. Let the risky fly-by-nights like CountryWide and New Century crash and burn. That is capitalism. They made bad business decisions, they are being forced to buy back the early default mortgages from the securities packages, and many will go bankrupt. The U.S. government should do the same thing it did with Enron--prosecute all criminal behavior, but otherwise let the free market behave normally.
For the borrowers themselves, if they have decent credit then they can probably find another bank to refinance them into a normal 6%, 30-year fixed rate loan. If they don't qualify for a normal loan, they will have to give up their reckless purchase and go back to renting. Considering most of them were on 95% or 100% loans, they aren't really losing any of their own money anyway.
Bubbles produce stupid behavior. It is not the government's job to prevent people from being stupid, except if it negatively affects the people around them.
Let the markets work - lenders and borrowers go bankrupt, and next time they will all be more careful.
Washington is part of the cause - encouraging everyone to buy a house whether they could afford it or not.
For the person talking about "oversimplification", sometimes it's that simple to apply to things.
I am a graphic designer. I am wise with my money. I have been taught the fundamental values of savings from my parents when I was a high school/college kid. 1/3 of your salary should goto your home. No more. That other 2/3's is for savings (for a rainy day) and for spending/services and so on.
For those saying people caught up in losing their jobs, illness, etc IF they had followed the time tested formula wouldn't be in over their heads, would have savings and not be spending 2/3-3/4 or more of their salary on their over expensive house.
When I have no experience in mortgage, housing, etc and YET I can sit there and say something is wrong with the housing market and their standards just by simply figuring out things like "this person doesn't make more then me, how can they afford a house", or "housing is only going up because people who shouldn't be qualifying for loans are and they are inflating the demand" and "nothing is easy and money doesnt grow on trees, how are these people affording this" ....ya know..sometimes it is that simple.
You don't need the specifics. Just like the dot.com days, the simple economic question was "How does your company make money?"
Do you know how many people were blasted for that comment with the reply "You don't understand the new economy or .com generation of companies and how they work."
Who was right? And when someone wanted their money back for their investment, that reply didn't hold jack. They wanted to see returns on their $$$ and when they realized it was all hype and a pyramid scheme, the bottom fell out. Guess what we have here?
Its the same BS mortgage companies were spewing when some economists and normal people like myself were sounding the alarms about a false economy from equity being pulled out of houses, and demand being generated by flippers and people not qualified to own in the first place. If we have 2 million + homes on the market due to 2 million non qualifying families due to shady practices, then 2 million houses shouldn't have been built for demand. Meaning that housing demand didn't really exist and housing prices will be coming back down to 2001 prices.
Simple questions usually yield the correct answers.
Not a dime of MY tax dollars had better be used for a bailout!
I did the math and chose not to get in over my head in this market. Now the government wants to reward the foolish with my money?
What I am laying unfavorable witness to; is an overwhelming majority of federal taxpayers bestowing an unbalanced amount of reproach on sub-prime borrowers while ignoring the equity of accountability that lies between borrowers and lenders. With regard to our current economic environment, I believe both politicians and economists are looking to avoid any macro-economic catastrophic events that could potentially spur or accelerate the very REAL prospect of an economic recession. I think many of you underestimate the adverse effects on the economy should all sub-prime borrowers go into default! The adjustable rate mortages with hidden fees and tenuous interest rates designed to trap consumers into high interest products, the complex no-doc, "piggy-back" and interest only products that are attractive to borrowers but contain dire consequences in the event of late or missed payments are just the tip of the iceberg regarding irresponsible lending and borrowing behavior. As much as some of you may think that your existence and personal comfortability is independent of these "sub-prime" borrowers, let me remind you of this; in the event of a depression, everyone suffers. There must be a concession between all parties involved and new regulations must be imposed to prevent these events from repeating themselves.
There are two groups hurting here - Consumers & Lenders.
Consumers - There are smart consumers and dumb consumers. Smart consumers make good decisions. Dumb consumers make dumb decisions. I've been in the mortgage business for 10 years and it never changes. I've done loans where I've consolidated over $40K in credit cards and save them over a $1000 per month, only to have them call me a year later with another $40K in credit card debt - rich, middle class, poor; it doesn't matter there are dumb in all economic classes. This consumer also tends to only want to hear "what is my payment" and not care about anything else - terms of loan for example. I've tried for years to sit down with customers and educate them on the finer points of mortgage loans and financing. My guesstimate is that only 20% of the people I talk to care to learn. I would also guesstimate that only about 30% have an understanding of mortgage loans already. So according to my guesstimates only about 50% of consumers will ever get it. I'm actually amazed the problem isn't even bigger than it is. About half of the people out there don't know about mortgage loans and don't care to know. They just want to know - When is the first payment and how much is it? It's a free country, we can't force people to be smarter.
Lenders - Sometimes business is good, sometimes not so good. If it gets real bad, then you go out of business. That's it.
Government shouldn't come in and try bailing out anybody here. It doesn't force consumers to become better consumers and doesn't force businesses to become better at business.
Final thought - If I read more article about somebody going into foreclosure after they were laid off from their job for 8 months and couldn't make their payment, but bleam the loan officer because their 560 credit score only qualified them for 8.99% rate - I'm going to scream. Folks - if someone had a 0% interest rate and lost their job and didn't make payments for 8 months - they would still get foreclosed on. That's just the way it works - you don't pay, you can't stay.
I think both sides of the story need to pay the price for this mistake. If you were a lender that was approving loans for individuals that didn't necessarily meet the financial criteria, you deserve what you are getting. If you overextended yourself to buy a home outside of your financial means, let this be a lesson. However, if you truly are a victim of loan fraud, visit www.loanlossmitigation.com to learn how loan loss mitigation can help stop foreclosure.
The following is not true: "The real-life choice for many families in bubble markets isn't between a fancy McMansion and a modest older home. It's between a house in a school district that works, and a house in one that doesn't."
The real-life choice for many families in bubble markets is between buying a house in a school district that works, and renting a house in a school district that works. The assumption that the families that bought was that their house would be a cash cow.
This country is a broken shell of what we all hoped it would be. Since when did illegal immigrants, irresponsible borrowers and large corporations become victims? The only victims in this country are people who do the right thing. Don't worry though, there are fewer and fewer of them around by the day. NO BAILOUT!
Nobody needs to buy a house. If you didn't read the fine print and bought into this pyramid scheme, you deserve everything that's coming. "But I was pressured into buying this house!" Cry me a river. "But I didn't want to be priced out forever!" Would you like some cheese with that wine? "But I'm just a victim of the evil mortgage companies!" Please. The only thing that you're victim to is yourself.
Hopefully the financially responsible 20 and 30 year olds, like myself, will now be able to buy an affordable house and start our own families.
The government should not bail out foolish lenders or borrowers. They should bear the full weight of their own poor decisions just like any other financial decision they may make. Those of us who bought homes we could afford on payments we could afford should not pay the tab for those that threw caution to the wind. Or maybe someone should bail me out when my stock portfolio heads south? Ridiculous!
I think nothing should be done. I live in LA and I've been deliberately sitting out buying for the last 2-3 years solely because I knew the S**T was going to hit the fan and that people were buying home THEY KNEW they could not afford. Rewarding people and lenders for being idiots is not fair. I am expecting 2 million to lose their homes so that prices come back to reality and I can buy. So what if people have to move and rent...it's not the end of the world. It's not my fault these people were suckers.
I am sick and tired of people telling me that because my loan is sub-prime, I am a sub-human. I work a full time job and did my best to get my children out of a drug infested trailer park. I bought a modest house, not too much money. I even told my lender I want a 30 year fixed rate loan. But low and behold when I got to the closing table, I was told that the arm was the only loan I could get.
Well by that time, the family was packed and everything was ready for us to move to the new house. I just couldn't tell my children that we were not moving. So, I signed on the line. The lender told me the same thing, you can refinance in a few years (after you pay your prepayment penalty). My interest rate adjusts up 3% a year. Soon we will have to make a choice, pay the 13.5% APR or live under a bridge by the highway.
Thanks again corporate America!!!!
Looks like people who can read CNN money intellegent enough not to get into speculative type of mortgages.
Why do you think that lenders weren't that smart? About 2-3 years ago I made easy prediction that we would read about lenders , how crooked and terrible they are.Some of them will testify in Congress,some will go to the jail to the great satisfaction of general population. So Enron 2 or SLB . New laws will be produced. Then another obvious pyramid skim will start. Very few people ever learn from past bubbles
The great Ronald Reagan stated in his first inaugural address, "You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we're not bound by that same limitation? We must act today in order to preserve tomorrow." I believe that this about sums up this crisis.
We shouldn't see any government bail out. The people in trouble should refi or get out and rent. I expect to see these stressed folks start moving from the coastal states to the middle of America where they would be able to start saving from scratch.
The federal government even if it wanted to bail out will not be able to help much. We are still paying for Katrina, Iraq, and Afganistan. We had a budget deficits for a awhile not, so we can't really afford to bail out anyone else.
My guess is that banks and individuals will take a big hit. The consumer spending will decline and as a result Federal government will see lower tax revenue. Either we'll see some budget cuts or increases in tax, but no bail out for banks that were recording billions in profit. It won't happen.
As far as consumers the only possible bailout would be for senior citizens (since they could be really in trouble and they are the ones that vote).
Victor Fama from NY. You are so right. Everyone is talking about ARM. The "pay option ARMs" "pick a payment loans" are 10 times worse. Wait till the recasting starts. There are so many lenders here in AZ pushing these loans and twice as many borrowers trying to get out of them and they cannot now...because they owe more than the houses are worth! Hold onto your hats people...this is just the beginning!!!
This whole "BUBBLE" and "HOUSING CRASH" is nothing but a media invention. On the east and west coast, values are holding up just fine. I know this upsets the new political movement called "Housing Socialists". There is no housing problem on the east or west coast. In fact, historically, there is no foreclosure problem on the east and west coast. I am trying to buy one of these foreclosed properties. I'd love to add one to my property portfolio. Where are they? Answer: The foreclosed homes are in the Midwest and Gulf Coast. Fact is, many people in this country did not invest in real estate when it was undervalued. You made a huge mistake and you set your family back generations. It does not how many tears you cry. People are not going to sell their east and west coast homes for change. You blew it.
Let's bail out all the folks who bought on 80/20 loans, no money down. No money down? I got that!! Six months later, they pulled 200k out of their home on a refinance and then blew the cash on expensive toys. I know people in Arizona who make less than 50K and are one million in debt on several properties. I ask all of you to start calling or writing your congressmn and senators. This is beyond ridiculous. Senator Dodd should open a booth in front of every horse and dog track. When the losers exit, he can reimburse the victims.
There is a very simple solution to the matter at hand. If a homeowner is getting ready to have their first payment adjustment, or even if they have absorbed an adjustment and are getting ready to adjust again. The lender or servicing company could roll the note or extend the note into a 3yr, 5yr or 7yr period before adjustment or even a 30 year fixed rate all of these rates could be tied to todays prevailing rate for the same program. Charge the borrower minimum rollover costs and do a basic short term title search. The lender would not have to worry about the value of the property. There would be no cash out allowed and this program would only be for borrowers that have a clean 24 month mortgage history. FHA used to have a similar program it was called an FHA streamline refinance that was used when rates were dropping. They can do the same thing now that rates are on an upward movement. No one would get hurt under this program. The lenders would not have massive forclosures, property values would not plument, Congress would not have to bail out anyone and the prepayments periods could continue for whatever time that is left under the original terms of the borrowers note. And most of all the homeowners can keep their homes without the major expenses in refinancing and high payment increases.
Here's what we ought to do:
- Fire ALL members of Congress. Either they were sleeping when all this mortgage fraud was going on, or they chose not to do anything about it because these fraudsters financed their election campaigns. Either way, they should go - NOW!
- Bring the fraudsters to justice. No punishment is severe enough for these crooks. Hang them.
- For the people who bought homes they couldn't afford - let them get what they deserve - bankruptcy, foreclosure.
These folks ever heard of renting? Ever heard of living within their means?
What I think will happen, though...
- There will be a taxpayer bailout
- My taxes will go up as a result. And that after I have been a responsible American and lived within my means, and didn't lie and cheat and borrow over my head to buy a house I could not afford.
- The fraudsters will get their money back
- Americans will again get the lesson that they can borrow and live life well. When they can't pay back, the government will make them whole and rip off the rest of the hard-working taxpayers.
There go the right wingers and the ignorance hard head again. A few years ago these same people that now oppose the government intervention to help all these Americans in trouble, are the same people who support the "intervention" and invasion of another country. they were so wrong five years ago, that by now we have more than 3,000 dead soldiers and tens of thousands of innocent people sacrificed.
They pretend now that they have the solution to the problem, but they don't have the slightest idea of matematics in economy. Yes now they want to do the same thing with our investment and homes,leave all these people in the street and provoking a recession that will take years and years to get back to normal. Not only in the real- estate market, but in the whole economy.
Please open your eyes readers, and dont let these kind a people take over this delicate situation that will affect us all in one big way or another.
People that rent are human beings too. You don't have to buy a house if you can't afford one.
A simple (relatively) solution:
1) Cap the mortgage interest deduction at some reasonable level, say $400k, no inflation adjustment, forever. It is a transfer of money from the poor to the rich.
2) Provide workout money to ginnie mae. Lenders must take a haircut, borrowers too. Anyone who walks away from their loan loses any money invested, anyone who stays gets a fixed-rate loan.
No one should be bailed out of this mess. everyone is responsible for their own bad investments. Lending money the way it has been lent is careless, but it is only a fool that exercises bad investment choices. Take away the easy money and let the markets correct themselves! It didn't seem like a problem when the house prices were rising far past the fundamentals, so why should it be a problem with the prices falling?
Everywhere I would look there was some organization funding certain buyers to make housing affordable for them, this is bogus! All it does is make prices rise. You can't make housing affordable by throwing money into their hands, the market determines the prices. If housing is out of reach for someone, it's for a good reason.
Historically, the ownership rate has been around 65%, now it is artifically at 69%. It needs to go back to 65%!
I've said it before and a more than happy to say it again.
The fed can't lower rates anymore, the only thing they can do is keep it flat for as long as they can before they raise rates again...and they will raise them.
They have no choice in this global economy, to much outside pressure on the Fed to raise rates.
Why do you think China has so much cash and growth, it's on our backs, our problems are their profit.
The thing is, WE did it to ourselves.
Buying cheap foreign goods and outsourcing industrial jobs.
You want to cry America, go ahead...but know this, it's our own damn fault.
The only way to fix it, is to let the economy crash and reset.
But we are too proud(stupid/lazy) to let that happen, so we'll print some more money and throw it on the fire.
Good luck to all of us.
Gary McCabe... This is a different day in age. I have friends working in the mortgage business here in so cal and they are telling me all the money is in foreclosures now. FYI.. New Century is in So cal!
Bail outs? With my tax dollar?
Maybe the goverment should subsidize every bad investment. Next time I lose on a bad stock pick they should pony up.
From someone who has been sitting on the sidelines and wathcing the whole market implode, any cushioing rewards bad behavior.
Round up all the lenders and put them in prison. Round up all the delinquent buyers and make them indentured servants. For life.
Gary McCabe form Boston,
You are one of the stupidest people that has ever blogged. Just go to www.realtytrac.com and see for yourself how many east and west coast forclosures there are. Thousands and thousands, and this is just the start.
House prices were in the norm 5 years ago, the tech bubble created this false housing bubble. And now it's going to correct, just like every other market does. Except there is nothing outthere to bail out this bubble. And the government is just talk, they don't have the balls to bail out this slump/crash. The fit and smart will survive and you, Gary, will continue to be a failure.
Personal Responsibility!!! I am a faithful american, however AMERICA is digging its own grave. This is just another reason our country is crashing. Our society no longer believes in personal responsibility. With frivoulous lawsuits, and fear of profiling, 1st amendment rights being stomped, taxes upon taxes, tolls for roads paid off years ago, our own country is robbing us of the rights that our ancestors gave us the CONSTITUTION. This topic is just another of many that makes me sick to my stomach. The time is nearing, that the middleclass step up and revolt against this anarchy. The rich and poor are the only ones who are getting the benefits of the hard work of the middleclass. My only fear is bringing a child into this forsaken world.
Let the "heads-I-win-tails-you-lose" borrowers and greedy lenders all go down together in a flaming implosion is how I feel in my heart. My head, however, tells me there can be no justice in this mess because the debacle with no rescue would crash the economy and hurt many innocents here and around the world. A bad recession now would pop another bubble that we don't hear much about: Newly laid-off workers would soon see that bankruptcy was inevitable and would draw down those $15,000 unused credit card unsecured lines of credit. Immediately a small, safe credit card balance becomes a large uncollectible debt. Has anyone noticed recently how much of bank asset bases these days are mortgages and credit card receivables?
BS .......... owning a home isn't a "Right" ! These lenders made their own problems so let them pay for it.
This problem smells to High Heaven. Seems like some of the POLS are "Taking Gifts" again.
Hosuing values should be allowed to return to their long-term trend lines. The correction will be painful, but is necessary for the healthy long-term functioning of our economy.
A government bailout would only server to further reward unhealthly and highly risky behavior on the part of individuals and corporations. Building wealth should not be linked to the same types of behaviors often associated with individuals in casinos.
So Democrats yet again want to tax me more in order to give the poor and stupid money. And this is news because....
Wow, a lot of people here don't want to see a bailout. Many make strong cases. A lot of people are savers and should be commended. But, I think people here are unrealistic about how bad letting this crisis (yes, crisis) run full course would be for EVERYBODY. Allowing this crisis and the pending option ARM crisis to blow up would mean financial crisis for the whole country. Many people working in different sectors (retail, hospitality, financial, et, etc) are going to suffer from the negative GDP that will result. So, you may be the "responislbe" homeowner who perhaps runs a spa, or an electronics store, or a plumbing company. Your business will suffer from the lack of liquidity and real money in the market.
Another thing, the gov't is pissing BILLIONS of dollars away on this war, subsidizing mega-corporations like oil companies for them to be alloed to make record profits. Is it so bad that our tax dollars goes to saving a family from being homeless rather than to Boeing for a new fighter jet? Before we go on preaching about what our gov't should do with the money, maybe we should look at where these funds are going now and decide if propping up a collapsing housing market is such a bad idea. People make bad choices all of the time. Our President (actually our vice president and his cronies) made a terrible decision to go to war, now we are paying dearly for that. What's the difference?
It is simply the investors problem.
I have a solution to bail people out. People who go through foreclosures do not get hurt, that much, on their credit score. Fair enough?
I was over leveraged in the early 90s, and had a BK and two FCs within 4 years of getting started.
I'm glad there was no "bail out" available back then. Although I would have gladly accepted the money at the time, I would have undoubtedly repeated the mistakes without learning those painful, yet valuable, lessons.
Rewarding irresponsibility is the surest way to encourage it.
Michael of Sanger TX:
But low and behold when I got to the closing table, I was told that the arm was the only loan I could get.
They played you for a sucker. You should have been pre-approved and armed with full knowledge of how much you qualified to borrow. If you lock in a rate, then you can go shop for a house. You let the rats eat your lunch with a lie at closing time.
I guess the only other word here is OOPS! But should we have to pay for your mistake? No.
If these people who got in over their head, get their principal reduced, I will go insane. We shunned the overpriced areas in our metro area. The thought that they get assistance for getting in over their heads is the most ridiculous thing I've ever heard of. Tough love is the way to go. They need to learn a lesson here!!!
So you would like to take MY money, and give it to my neighbor the reckless-borrower, to help him with the late payments on HIS Hummer??
Reading these comments, I am so thankful/relieved that people are up in arms about any mentions of a bailout.
A lot of the media seem to be portraying these people who foolishly bought in the past few years as sad sack "victims" who are going to be thrown out into the streets, homeless, once they are foreclosed.
This image is patently false. They are going to be RENTING a home. And the cost of that rental will likely be a FRACTION of their monthly mortgage payment. So they'll be just fine.
The losers in all this are going to be the lenders and banks. THAT is who Senator Dodd is trying to protect. Check out a list of his primary backers. It's all banks and financials who are going to get creamed by their stupid greed of the past several years.
Dodd could care less about theses homedebtors. If he had cared about them at all he would have spent the past 5 years fighting tooth and nail for oversight of these lender crooks, not to mention telling the NAR to put a lid on it. Ditto for Hillary.
The housing madness of the past 10 years has been the one of the most despicable episodes in US History. Let's not make the damage any worse than what's already in the pipeline.
Count me as a Democrat No More. Sickening.
I'm not sure why there is a general assumption that foreclosure is such an awful thing. I am a responsible renter who understood that I couldn't go buy a house right now so for the past several years I've been renting and saving (and paying much higher taxes, BTW, since rent is not tax deductible like the interest on these exotic mortgages)... now you're asking to use MY tax dollars (I use "my" because all those people who overextended didn't pay many taxes due to their tax shield) to bail out greedy people and keep the price of housing high so I still can't buy as martgage risk premia inevitbly rise. And why? So these people can avoid the wordst of fates: having to rent again. Owning a house is not an "American Right" it is the "American Dream"... and it is one that will be denied to many renters if there is a bailout just to keep greedy, irresponsible people squatting in our homes!
yeah keep your job ,for what? another year or two
accountability will have to be practiced someday
why not today?
if you made bad choices, deal with it
if the companies are scumbags, dont use them
i would change the typical political response ,but we know thats not guuna happen!
think and inform yourself
others can't always do it for you
Fred Mertz of Patterson, NJ -- YOU ARE A GENIOUS and said it very well --- Let this thing shake itself out so reality can set it again so the rest of us that restrained ourselves can jump in and be market players....(essentially).
Real Estate values have soared on hype and easy financing for years.
I'm a very successful builder that makes it my goal to help those of modest means experience home ownership (not McMansions), and I've seen those that earn an honest living get consistently priced out. It's disgusting.
Does anyone find it particularly revolting that as Dodd and Hillary clamor for bailouts, subprime lenders are still going strong?
The TV ads for -no job, -no FICO, -no tax returns, etc. are still a 24 hour thing.
How is it possible to talk about bailouts when the next set of foreclosures are still being set up?
Not everyone affected by the subprime mortgage crisis purchased homes that were beyond their means, or kept refinancing to cover credit card charges. I have a modest home and absolutely no credit card debt. Due to a divorce and ex-spouse repeatedly not paying child support I am stuck in an ARM that has doubled my payments in the last four years. I have attempted to sell the home but because it is in a depressed housing market -- I am stuck.
My current interest rate is 13.85% with another increase expected in July, 2007. I need some relief!!
If we are going to talk about loose lending practices in the mortgage industry, we ought not let the credit card industry off the hook. They require little to no documentation of one's ability to repay the amount borrowed, they are never amortized payments (hence the term revolving), and are at a much higher rate of interest. The borrower is not as often as one would think the poor old lady taken advantage of by a shady mortgage broker. They, like any one else, continued to see the value of their homes rise - to very unreasonable prices - and take that equity for their own reasons. Most of whom have little of that equity turned to cash left on hand. It would have been nearly impossible for any simple, hard-working American - loan officer or borrower - to see: 1)that the bond yield curve would become inverted, making short term ARM loan rates equal to or higher than that of 30-year loans. 2) that housing prices would decrease at the rate that most have, and 3) that the indeces most of these ARM loans are tied to would increase so rapidly. Most of us are not economists and with all of the factors that went into this subprime blow up could not have seen it coming completely. The investor (loan servicing company) WILL decide to negotiate, whether they are forced to or not. They do not want the headache of owning millions of homes, and losing money at that. If they can still collect 70 cents on a dollar (or 7% on a loan set to adjust to 10%) they are still ahead in all of this, don't kid yourselves.
Dear Mr. Fed,
I'm a stupid American who got in over my head with buying and flipping houses. All my friends told me this was the best new way to make money. I tried the stock market and bought a lot their, but then I lost it all. So, I thought I would try to make money in real estate, but now my payments are going up and my houses are worth less where I bought them.
I need your help Mr. Fed so that I can feel good about myself and look for the next big thing. In the meantime, I'll keep my 9-5 job for another year or until I win the lottery. Please Mr. Fed, I'm 32 years old and ready to retire. I've done my share, now I want to be able to relax and just let the money flow in. I deserve it, I'm a lazy American generation X'er. Please Mr. Fed, fix all of my problems so that I won't have to.
this housing problems are going to push US economy over the edge.
What a bunch of commie crap....Worse what a bunch of take my tax dollars to bail you out of a bad deal crap...more facist totalitarian than anyone could think and the worst part is who benefits the most the big lenders who already benefit from the tax deductability of mortgage interest inflating thier rates and thus another payment form taxpayers to mortgage lenders via the circumlocutious route to obsfucate the corporate give away. Stop the welfare and let the market cycle work its wayt without grandstanding communist politicians getting in the way with my tax dollars
This is a true story:
My brother, who I think is a typical american, in 2003 wracked up 20K in credit card debts. My parents paid his debts by "loaning" him the money at 0% interest. What does he do?
He turns around and buys a brand new car.
A few years go by and he cries poverty. My parents give him a 2K loan to help with his bills. What does he do?
He turns around and buys another brand new car.
Why does he behave this way?
Because he expects to be treated the way he's been treated in the past.
How can anyone expect the typical american who's gotten himself into a mortgage debacle to expect anything different if we, the prudent taxpayers, fix their mistakes?
People who don't/refuse to learn about responsible spending of money ARE NOT VICTIMS!...except maybe of themselves which is not the responsibility of those around them. Risk is a four letter word that should only be uttered by those who can back it up and/or deal with the consequences themselves. I am categorically against ANY form of "public" bailout for these people or companies. This would be WELFARE for the rich and ignorant and would send a devastatingly bad message to the so-called "free market"!
BTW, it's seemingly easy for some to bash the Democrats for trying to find some sort of public condoning resolution to this situation but I have yet to read about contempt for the irresponsibility of the greedy Republican government that had a hand in starting/permitting this situation and unavoidable fallout from happening in the first place. Is anyone really surprised about this bust following such an uncontrolled frenzied boom? This was a gold rush and the perceived economical growth was a boon for the Bush administration for which they created/permitted this unrealistic, irresponsible and dangerous practices to obtaining the "American Dream". They selfishly ignored the obvious concerns and used the opportunity to tout figures of increased home ownership under their reign when it was really more about home flipping to credit unworthy customers at artificially high market prices.
The only proper thing to do now is allow the irresponsible people/companies to bust-out and allow responsible people to achieve their "American Dream" on those failures by being able to buy the devalued properties at more realistically appropriate prices. It's the way of nature and true capitalism and any public bailout would set a destructive precedent to responsible values in this country, for those who have refused to gamble on a promise of something for nothing and for those who have done it in a reasonably responsible manner.
Our society is increasingly becoming a nation of extremely high risk gamblers rather than calculated risk takers. There is no way to avoid a major bust with this mentality being approved/promoted by all levels of the market including the government. Reality will take hold at some point and those responsible should be the only ones forced to pay. Unfortunately, the fiscally irresponsible Bush Administration is partly responsible for their "condonement" and may end up paying for this dilemma with (middleclass) money which they've never had any trouble spending. It's ironic that a laissez-faire government approach to allowing these predatory and risky business practices is now forcing an intervention in an inappropriate way when responsible intervention from the start would have prevented/mitigated the situation. If the government doesn't regulate dangerous/harmful business practices then who will and then whom is the government really serving?
What if this were to be reversed? Home prices kept soaring, and equity kept building? Would these now winners in the real estate market be in line with giving some of that profit back to those that were disciplined enough not to take a bad loan? I doubt it. I know for a fact that a high percentage of these buyers were not looking for a home, but a quick way to get some real money like the people who bought before them (2003). If the U.S. is so worried about the effect of housing on the economy as a whole, they should have raised rates earlier, by larger margins (1/2 pt. each time) and let the people know that this wasn't going to last forever. Instead we go on and bail out the foolish yet again. I say let them (lenders and borrowers) work it out amongst themselves!
Is it any wonder that presidential hopefuls are talking bailout. These political prostitutes would do anything for a vote. Any talk of a bailout is infuriating. My wife and I are GenX'ers working our butts off so that our children will have some sort of future. All the while our hard earned tax money, along with millions of other middle class families, is wasted in a so called war and now will be wasted with yet another TAXPAYER bailout. I guess the morons in DC haven't learned from generations of welfare recipients. Throwing money doesn't solve the problem. Any sort of bailout talk is just ridiculous. It would be very, very funny if it wasn't just so very, very sad. The lunatics are definitely running the asylum.
Do we expect anything more? The sub prime borrower's most visible role model for spending and saving is the US Gov't, which is in deeper debt than any other single entity in the world. We have much bigger problems than Sub prime defaults. How about the value of the American dollar and the sanctity of American life without the world's strongest military?
This housing CRAP is not the end of the world. I heard this all before with the 1980's gold and silver rush - remember the Hunt brothers? We survived 18-20% loans; the Dot-conomy crash; 9/11; and now this.
For all you greedy losers, consider this a lesson in life. I am going to pay off my congressmen NOT to fund this insane idea. After-all, I will BUY YOUR HOUSE for cheap. Hopefully make a profit off YOUR mistake.
So those of us who sat on the sidelines in effect would get jacked again by such a policy? What a bunch of..
You want my public money to bail out idiots who borrowed too much and act like they couldn't read english and to help out unscrupulous lenders who perpetrated the whole affair. Guess its time to stop paying taxes!
And now I'll go be like the rest of the lemmings and get a loan so I can have daddy government give me a bailout. Does it pay to be responsible? Apparently not!
To Leann in Harrisville: You obviously can't afford your home. Why don't you just move? In a few years, if you get back on your feet, start over. Why should America give you relief? I'm divorced, and left the house to my Ex-wife. I now rent, and just came home from the taxman with a HUGE bill because I no longer have the Mortgage write-off. Why should my tax dollars go to you?
Looks like yet another way to get ahead without working - and don't say it's investing. Builders, developers and lenders, plus flippers and owners who have borrowed their way to fancier homes, cars and vacations. Ok, a few didn't know better but the vast majority did.
My wife & I have lived frugally in the same little house for almost 20 years and have nearly paid our it off, while nearly everyone around us kept moving up and adding debt. So now I get to subsidize someone living in a nicer place with a newer car!!! And not just now, wait until my generation of boomers retires and wants the government to cover that too - because they spent and borrowed everything they had. With the boomers the AARP will be the strongest voting block ever seen and they will get anything they want, regardless of cost or breaking the bank i.e. the federal government - oh, wait I forgot it's already broke.
Any politician who votes for a bailout will not get my vote ever again. Foreclosed families will go BACK to renting, not live on the streets as crack addicts. Banks that gave out bad loans will have to take losses. Mortgage brokers that approved people for bad loans will go out of business.
Any 'Bailout' will only serve the purpose of making the housing recession last longer and stagnate the economy for a decade or more, rather than allowing it to correct more sharply, so that we might begin growing the economy again within 3-5 years.
As for the 'victim' families, they have civil courts in which to pursue judgements against predatory lenders. I suggest the government sieze the assets of the boards who ran these companies to pay off the lawsuits. The only 'bailout', then, would be to abolish the personal property protections of corporate owners who have been convicted as predatory in a court of law.
Blame the fed first of all. For whatever reason we will never understand, they decided to lower rates to 1 percent even though the country was in a minor recession. This overreaction simply created a more dangerous bubble after the tech stock bubble. Money became way too cheap and everbody all overtheworld gambled with it. housing is part of it, there are hedge funds and derivatives using this cheap money that could implode. Also the "cheap" money gave us inflation. The best thing to do is raise rates and let the dust settle. If the govmt interfears it will only worsen the fall.
CHEAP MONEY, USA DEBTS AND EXCESSIVE DOLLAR PRINTING ARE THE TRUE ROOTS OF THIS PROBLEM. The Housing boom/bust and subprimes are jsut symptoms.
I worked for a subprime Co. and was let go Wednesday along with about 15 others.
I don't think the Gov. needs to do a bail out, I agree that some of the people and it should be reviewed should be refinanced and see if they can recover. I really don't think some of the people new what they were getting into, lack of understanding, they wanted the American dream for their families and they just didn't understand.
This Poor wowiz Me subprime crowd knows nothing about lending. If you have a 570 Fico score. Your Lucky to get a loan. and you know what since you could not even seem to pay the minimm due on your Sears card. Why should I give You a loan. Tell Yah what Mr. 570 Fico with 6 charge-offs, 3 collections and student loans in defualt, if you want a loan It is 9.35%. Your lucky I am talkin to you. I lent money as a broker for 8 years and this is a sub-prime borrower. Everyone else's fault everytime. People wake up, 90% of these people are manipulative liars who will do anything and sign anything never thinking of more than a 2 months in the future. ps. Countrywide and WAMU are devil? C'mon, these borrowers are trash.
Do we want the gov't to reward people for their bad decisions? Not with my tax money! The older generation, (pre-WW2) saved, saved and saved until they could afford a home. Now, most everyone has bought into modern slavery - credit. My grandparents, rented until they could pay cash, on 3 separate homes - no mortgage. The were blue collar, working class, not rich. That whole generation did this.
People have such short memories, and they need to talk to people in the nursing homes. Life was different and even better then.
If we keep rewarding people with debtor behavior, China or India or another will rule over us in the near future. Financial or otherwise.
I can't believe the unmitigated gall of you CNN readers. We aren't talking abstract economic theories here, we are discussing real people. People who have the American Dream, just like you. You all seem to be fine with your houses and your loans because you are the ones who drove up the housing prices to begin with. Oh sure your house doubles in value twice in the last six years so a 10% drop in prices this year is no big deal. That's 190% profit for you all.
But for those of us who were forced to take out negative amortization loans just to qualify for a house the absurd prices that YOU drove them to be, we are feeling REAL PAIN!!! At 14.25% adjusted rates this year (and still climbing), there is no way we can afford these payments and now we get to lose out home and have our credit ruined. And no, you snide commenters, our $850,000 house is not a "McMansion", that only buys 700sq ft here in the real world.
A bailout is the only fair thing to do. You homeowners have been benefitting from the run up in housing prices, benefiting from the government protecting your property and responding to your 911 calls. It's time to give back to the system you benefit so much from.
Remember, you will also benefit by the mortgage bailout too, it will keep our house prices at an appropriate higher level. If there is a housing crash, we all lose together, and it's the fault of the CNN readers and their holier-than-thou attitudes that will be to blame.
In the 1980s and 90s I worked for a large corporation that moved me (at their expense) every two years - essentially providing me corporate subsidized flipping of my homes at regular profits.
Guess what, in the early 90s I left that company, got caught with a house going down in value while interest rates soared, had to bail out at a huge loss. I then moved myself and three daughters into a run down condo whihc was all I could afford.
The idea that someone would bail me out from my stupidly never crossed my mind - thankfully.
Today, with the help of my wife and lots of good friends and employees I've built a multi-million dollar business and, fortuneatly, learned from my mistakes. I manage both my business and personal finances with an eye toward taking on reasonable risk while always wathing to not let the downside potential get ahead of what I could handle.
The moral of the story is to let people learn from their mistakes, stop seeing everyone who gets into trouble as a 'victim', and for all of us to recognize that we're ultimately responsible for our own lives and our own choices - which is the way it should be. And, it's the truly wonderful thing about living in this country. Take that away and we're no different that the central-government controlled economies and systems that have come and gone before ours over the centuries.
Absolutely no bail out. There is opportunity in chaos and for the disciplined saver who didnt roll the dice on a no money down sophisticated mortgage, these homes will be revalued and back on the market. Enough of the kid gloves. Let the market work, it will be better in the long run and the prudent mortgage holder will not have their cost of financing impacted by the ill advised and irresponsible. There are repercussions for ones actions - regardless of the square footage or sophistication of the paperwork. You signed it. It's your debt. We're not in Kansas anymore.
Everybody here keeps discussing the irresponsible lenders who underwrote the subprime loans and the even more irresponsible homeowners who got in over their heads - nobody is discussing the responsible homeowners who are not in over their heads but will suffer significant equity loss should we let this subprime & "liar loan" mess play itself out. Playing this out will effect a lot more than just the irresponsible lenders and buyers, it will very likelt effect the whole housing market (including "responsible" homeowners, especially those who bought in the last year or two) with depreciating property values.
I smell a class action lawsuit - responsible buyers versus lenders who cost them a significant amount of equity, even depreciated equity.
You have got to be kidding me...Didn't anyone learn as a kid if you put too much food in your moutn you are going to choke...I would say 95% of people who over extend them selves once, will continue to do so especially now that there is the govt out here ready to provide them another easy way out...I work for a large lender & there are a ton of "mortgage brokers" not lenders who are the shady ones...We all know them, they are our family, mechanic, or even supermarket bag boy by day and "make some money" broker by night.
Oh heck no, if there's a bailout, then maybe it's time to overthrow the government, plain and simple. The US government has absolutely NO authority to hand over the public purse for the stupidity and greed of a set of people and bail out a bunch of corrupted scumbag mortgage corporations.
The government needs to get slapped down, and hard, by the US citizenry. The place of the government is to stay the he** out of the way, spend as little as possible, and serve to guard our essential constitutional liberties. Anything other than that, IMO, is a step towards tyranny.
In scanning these comments what is very sad is that this all appears to focus on the individuals who borrowed too aggressively, on one person in politics, or a group of lenders who cut corners to push product. While all of these are correct,none of them go to the core of how our monetary system is built.
Recently I was reading Dr. Henry Bretton's book, The Power of Money, which was written in 1980. His view was that in 1980, fewer than 1 in a million Americans understand how money works. I was say from my research for The Investor's Mind, that their are fewer than that today. But there is a growing grassroots effort to learn, and in 2007, it will be more crucial that ever.
If you really want to understand this enormous morass, then you must begin studying the powers of money in history, since they are almost the same as they were 100 years ago. You must understand that the recent loan problems are a reflection of a monetary system that has been corrupt since 1913. In 1912, our nation's national debt was almost the same as it was right after the Civil War and stood at 2.9 billion. Within 7 years it was 10 TIMES larger and hit 25 billion. By the time I was born in 1947 the number was up to 292 billion. In 2006 it topped 8.6 trillion.
The safest thing one must understand today, is that mortgage defaults and massive bank problems are not going away anytime soon, and the rhetoric of a strong stock market is an illusion that will crush many many investors and advisors as this period of boom to bust unfolds. Financial markets do not live in a vacuum, although a massive dose of printing more debt by the Federal Reserve to pay for yesterday's debt, can certainly give one the illusion that all is well and that assets are "growing" in value.
To all, be very very careful and start learning our monetary history. I would suggest Michael Hodges Grandfather's Economic Report website, and The Mises Institute website for starters.
What a joke. If the loan involved fraud on the part of the lender there is already a solution - a lawsuit. I'm waiting for a class action against New Century (with a connection to the deep pockets of the big lenders supporting, and profiting from, the subprimes like BOA, Citi, and WF). Otherwise, it was an arms-length transaction with risk and reward weighed by both parties. Where were all the complaints from the last 5 years when all the ARMs were at 2 or 4% and all the 'risky' borrowers saved so much money? Even if the Congress is serious, I don't see any realistic way to reverse or 'remedy' the millions of loans outstanding. A mortgage system won't work if a bank can't make accurate risk calculations. And the unbelievable default rate from loans after news of a buyout or subsidy? People took these loans b/c for one reason or another they WANTED them. The level of entitlement expectations (without a comparable level of effort of course) in this country is just embarassing and getting worse. Ideals and ideas like this are why I'm so disgusted to pay taxes to the parasites of this country and why I, and millions of others, have to waste so much time and effort lowering my tax burden.
Folks, there will be no direct bail out. But this hot-air from the politicians is supposed to be warning us that they WILL do something behind the scenes.
Specifically they print lots and lots and lots of money and inject it into the system via the traditional vectors:
1) They will funnel this new money in through massive increases in existing direct subsidies (Social Security, Farm subsidies, "green" subsidies, corporate wellfare, subsidized daycare, Block grants to schools)
2) They will increase defense spending and "homeland security" not to mention all the traditional pork programs that are availible to dump the money into.
3) They WILL (both dems and republicans) institute national healthcare and pay for it with the money they print up.
4) more minimum wage increases.
This all infuses money into the system and will increase peoples wages. When peoples wages go up, they will be able to make thier payments. And this has already been in the works and practice for YEARS!
The message to savers is, try to find a place to put your savings that will keep up with this hyperinflation and preserve your purchansing power. But since you were smart enough to avoid the Housing ponsi scheme, please DO NOT fall into the opposite ponsi schema which is gold and other preciaous metals. Gold, like a $500k McMansion, only has absurd valuations because somebody higher on the multi-level marketing scheme has you convinced it is and is willing to sell thiers to you.
do we not understand yet that consumer and corporate bailouts, in exempting people from consequences of their actions (including innocently unwise choices), encourage such behavior in the future? the world would be a great deal more responsible - and would tolerate a great deal less government intervention in the economy - if there were no bailouts.
almost all of the specific proposals betray ignorance of basic economics. prepayment penalties (which saw for many years as a mortgage underwriter) are extremely helpful provisions when used properly: in exchange for protecting the lender against early payoff, the borrower gets a below-usual-market interest rate and saves all kinds of money on interest over time. the problem is that in the sensate, range-of-the-moment culture of today, people see the shiny low interest rate and don't prudently assess the consequences of choosing a prepayment penalty loan. similarly with many of these other proposals - the vast majority of homeowners are not being lied to, they're making imprudent decisions in the hope of saving, or making, more money.
want real reform? start teaching logic, critical thinking, and supply/demand economics in school - before the senior year, too. discourage victim-based thinking and encourage people to be responsible, proactive, and prudent.
0 down intreast only , sounds to me like they have been renting from the banks not buying anything. worked 2 jobs and saved every dime for four years to buy a house . Those four years tought me to save and watch my spending everyone who buys ahouse should have to go through that!
This is going to be an ongoing problem for the whole economy. Personally I think it going to take 4-5 years for the Real Estate market to get back on solid ground. The problem with the subprime market is that it allowed people that should never have been able to buy a home, actually buy one. What this did was make the new home market explode when it shouldn't have. Now there are new and existing homes on the market and very few buyers that will actually quallify for them. This isn't only going to affect the housing and mortgage business but every other business to some extent. Credit won't be extended to people with foreclosures on their records and that will slow even more consumer spending. I don't think the banks and lenders need to be bailed out but they need to bail out the borrowers!! Don't adjust the rates when they come due or atleast give them a break and don't adjust them to their full amount. Adding $300-$400 to someones payment, who can barely handle the current payment, is definitely going to cause an astronomically high amount of foreclosures. With the already 1million more than usual number of homes on the market now, the huge number of foreclosures will saturate the market so much more prices throughout the country will drop like a lead weight. A 20% drop will be considered small. We will see 30-40% drops in more of the country. I hope someone on capital hill will realize what is happening and use some common sense. This will be worse than any stock market crash and it will take years to come out of it.
2.2 million home foreclosures will be completed before Congress passes a bailout program...When it passes,it will be designed to bailout hedge funds...
The lenders should pay, not the general public. They over-extended their loan portfolios without adequate reserves in most cases, and now they are suffering the consequences. To the extent this impacts nearly everyone, we should try to mitigate the fall-out, as long is doesn't preserve the lenders who carry on with such reckless behavior and indeed, greed.
Seems to me like foreclosing on a home that someone couldnt afford in the first place is merely putting them back in the place where the subprime lender found them... What damage is done that is so extreme that taxpayer support should allieviate it... a bailout of these homebuyers seems like just another shocking example of an entitlement mentality that has gotten way out of hand.
To the people suggesting that proping up a market is not such a bad idea, I tell you it is a terrible idea. It will help sustain artificial prices and will only create further dislocations in the market. When the tech boom came crashing down, the government didn't step in to prop up the stock market despite the fact that people were watching their retirement plans fade away. Why? Because it would've been price manipulation. If a bail out is necessary, let the Wall Street firms come together and bail themselves out like they did with the Long Term Capital Mgmt debacle. But throwing money at people who do not understand the risks and terms of their own mortgage is the same as throwing money away. We should not subsidize people who live beyond their means.
San Antonio has gotten inundated with developers because land is still reasonable. The lending practices written about here is what I am seeing happening now. Developers and lenders have just "moved on", moved on alright to greener pastures and gullible people. So what does that mean? More people to bail in the future?? Criminal.
I don't think the government should bail out these borrowers, lenders, mortgage brokers... the whole housing market. All of the above needs correction. 7 years ago one can buy a beautiful brand new house here in tampa with a fair value of 90K. Now it costs 220k. In addition, To use our tax money to bail out other people's greed is not even fare. shit. It seems Hillary has such a stupid head.I need to declare I am not a supporter of her in the up coming election.
The only fair bailout is trading your McMansion, or home in a good school disctrict or whatever, for the amount of money that I have saved in these same years by renting and willing to pay now. . . on the auction block! Fair and square.
I never heard of any proposals of sharing home appreciation with renters and savers who did not splash head-long into the crazy housing market, so why should debters take a dip in other people's savings?
Market goes both ways. In fact it's the rapidity with which free markets creatively destructs that makes capitalistic economy work: by ensuring efficient capital allocation. Taking money from savers to spenders only exacerbate the current probelm of lack of savings.
Leanne, there is a relief valve built into our system already; it's called Bankruptcy Protection! S*** happens; that's why we let you start over in seven years. BTW, if your rate is 13.85%, that means the lender thinks you are indeed borrowing beyond your means! dah! Rent a comparable house, and seek bankruptcy protection will cut your monthly housing expense by at least 60%! The current rental return is only around 5-6% for landlords!
No bail out. No way. Dodd and Hillary, go home an retire.
Everybody keeps saying that the banks are going to recieve the payout.
Do you realize that the "banks" are not real people? The people who worked there over the last few years already got paid hundreds of thousands of dollars, and they invested it wisely.
These banks will do the same thing thier clients are doing to them: Which is declare bankrupcy and live off the money they already earned.
A bailout will go to "help":
1)people who took risky loans on too big of houses.
2) The pension funds and investors who bought these loans packaged as bonds.
3) The Federally chartered programs such as Fannie and Freddie who bought a signifigant portion of all these different loans (prime, A-, sub-prime, etc)
The government created the housing bubble (clintons re-design of Fannie/Freddie/etc in the 1990s) and the government will get itself out of it.
I think a bailout is good idea. It was not my fault I had to buy new car and got behind on my loan. Everyone in Orange County has a new car. Must have one for respect of the neighbors. Also its important buy things to keep the economy floating. I have nice new Mercedes but now I might lose it. That makes me sad and makes my wife sad and children very sad. My loan is going from 1400 a month to 2500 a month due to reset. This not my fault because the bank said I need to do this to have a nice place. We all want a nice place, right? Now that prices not going up, now we need help. The government should protect us and give us money to pay our banks.
Why is a 30-40% drop in housing price a bad thing? How gullible do the tax payers have to be if they are asked to foot the bills for both affordable housing and the bills for keeping housing prices up?? Makes absolutely no sense.
Sure a big drop sucks for anyone who has to sell now . . . but hey aren't they more or less the same people who saw their houses going up in price drasticly in the most recent past?
Foreclosure does not mean homeless. Those who should not have borrowed to begin with would just go back to renting, and at much lower monthly payment because nationwide the return on rentals is only around 6% for landlords. What's being proposed is in effect a bailout of irresponsible lenders.
To Leann with the adjusting ARM:
It is a shame that somebody who appears to be reasonably savy with their finances would make the incredible blunder of taking out an ARM loan.
And to make matters worse, it sounds as though you did this several years back, when rates were at historical lows?
I'm sorry you made such a big mistake when choosing your loan and such a big mistake when choosing a husband.
But here's the thing: Those are YOUR problems and YOU are the one who has to deal with them.
The question you should be asking yourself is : "Why did I do that? What was I thinking?" And the answer you should be hearing in your own mind is: "Never again. From now on, I will do due diligence before signing a contract".
You might also add: "I will never again make the mistake of believing/wishing that "RE always goes up", no matter how many sleazy realtors and lenders insist it does."
Sell the house and get yourself into a good rental now- it will cost you a fraction of your exploding ARM payment.
It is absolutely not true that your "house won't sell". Price it low enough and it will sell.
Good luck. May you learn well from your mistakes and go on to a fufilling life.
Jason- again, nobody is going to be "homeless". There are many many beautiful rentals SITTING EMPTY, at a fraction of the cost of a mortgage.
These people can rent and repair their credit and save a downpayment. In a few years, when they are ready to buy again, houses will cost much less than they do now and these same people will be ready to buy again, sanely.
When people are foreclosed on, they have MONTHS to make other plans for a new living arangement.
So please everyone think this through logically- they will not be "homeless".
If you gamble at the racetrack or Las Vegas and lose,
I don't believe they reimburse you.
Let's face it, our monetary system is one big gambling
The stock market gamble up til 2001, when Qualcomm
goes from $50 to $700 a share.
After the crash,Gee! Housing prices start rising quickly.
Now the bubble is deflating and the stock market is rising again.
Where to gamble next? Follow the money.
And for those that equate a rising stock market with a growing economy, check the amount of manufacturing
jobs created in the next jobs report.
San Diego, California
PEOPLE DON'T WORRY!!!
WE HAVE NO MONEY TO BAIL ANYONE OUT ANYWAYS! We can't borrow one more trillion to bail out the 1-2 trillion that are going to explode. This quack Dodd (dude) has no support. Without support all he can do is run his mouth with his blow dryed hair. No worrys.
To Bonnie in SF who was "forced to take out a neg Am loan" so she could buy a house and is now enraged that people don't want to bail her out:
Ummm... So who was it that "forced" you to do this?
Somebody held a gun to your head and "Forced" you to make a stupid financial move?
Is there a new gang of criminals out there that's been forcing people to buy overpriced homes? Scary. Hope they don't show up in my town.
All I have to say is thank god there are still some Americans with a little bit of financial sense and common decency. No Bailout!!
Out here in the land of "equity" idiocy, Orange County, I can smell the sense of fear. Its as if a collective sense has taken hold and people are realizing that their 1.5 million dollar track home in Irvine is in actuality an albatross around their neck not a path to untold riches. To me its still amazing that people cant figure out that houses went up >4X in 10 yrs because marginal buyers used first io then payoption loans. Like houses were really going to go up by 20% yoy forever or that housing prices that are >11 times household income are sustainable. Californians are truly the most gulliable people around. Please write, call, annoy, email all of your reps in congress to prevent a bailout
I'm amazed at the ignorance of the public. Hasn't anybody ever read the "Carpetbaggers"?, hear of a Ponzi scheme?, studied the real estate industry? Aware that the FBI labeled the real estate industry "Organized crime" 4 years ago?
Do you all really think the entire public suddenly got stupid in 2001?
I will not vote for any politician that suggest or is aligned with the suggestion of a bail out.
Let people learn from their financial mistakes.
Let the market correct itself like it supposed to do. Bad biz practices must pay for its mistakes. This is the principle of capitalism and reality. The Demo National Committe better tell Mr. Dodd that he will kill the Demo's chance in 2008, if he keeps on this kind of stupid comment.
President Bush said he was going to make the dream of home ownership one of his priorities. Allowing anyone breathing as a qualified buyer,this set the stage. When I bought my first house 30+ years ago, the banker wouldn't talk to me without 20% down. A $600,000 home for $1500. mo. Didn't sound right to me. Its simular to the dot com crash or a peramid scheme. Were doomed
I've found the comments on this page to be very interesting. For those of you who beleive you understand the present housing market in California, do you think housing prices will go up or down, by what percentage and how long will it take. Thanks.
I've found the comments on this page to be very interesting. For those of you who beleive you understand the present housing market in California, do you think housing prices will go up or down, by what percentage and how long will it take. Thanks.
I predicted that talk of bailouts would occur, and sure enough it did. The lenders and the Wall Street investment monkeys er bankers got us into this mess with careless abandon.
I love how the Republicans promote free market economics. This is what free market economics promotes - wreckless greed, and consumers who end up taking it in the chin while the boys on Wall Street by their new red Ferraris from their bonuses last year.
The mortgage industry lobby needs to be regulated, big time. Fannie May & Freddic Mac need to start caring more about consumers, rather than their own self-interests. All of this is coming a little late in the game, but our market will be healthier at the end. Until then, consumers will be feeling the pain while the jokers at Merrill and Leahman keep coming up with new ways to take advantage of hapless consumers at any cost.
I do agree that the lenders would be smart to drop the idiotic pre-payment penalties and re-negotiate loans rather than foreclosing. Lets see if they are smart enough now to save their own skins. Don't hold your breath.
Does anyone take responsibility for their actions? The recent news on "subprime lending" is now the big headlines. The banks,mortgage lenders and investors have reaped the benefits for years on all the loans that have been originated with above market interest rates. No government bailout should even be a solution. The main reason people are approved on subprime loans are due to past credit history or employment history. The bottom line is the consumer that accepted this loan was probably due to the fact they have a history of not paying their bills. The old saying you take the good with the bad fits perfectly for the situation. The lenders that chose to make the loans should have to deal with the losses on their loans that default just as they have collected profits in the past on the good loans.
I'd love to stop hearing about people "forced" to buy overpriced homes with questionable loans. What about renting, moving to a less expensive city, or simply getting up and walking away from the closing? We rent in a city we dislike because we can't afford to return to the place where we grew up. We are waiting for the housing prices to drop 40% to reasonable levels.
How frequently is the government planning on bailing out these subprime homeowners? If they're bailed out one time they will have no reason not to continue to act irresponsibly and rack up their credit card debts and take out more HELOCs and not pay their mortgages no matter how reasonable you can make their payments. Do we then have to bail them out from possible foreclosure every single time they get into trouble financially?
Letting people deal with the results of their bad financial decisions can teach them quite a bit. Bailing them out will do nothing to keep them from continuing to live above their means and rack up more debt.
Not sure why you people are so upset this has zero chance of happening. All your comments represent the opinion of the general public and the hell no's far out weigh the lets do it. I am surprised anyone in politics would even touch this issue as it is political suicide.
This is the dumbest idea i have EVER read. The Democrats are a shoe in for the next Presidency, this single issue is the only thing that would cost them an election.
If you want to see a march on Washington use my tax dollars to bail out some over extended home debtors. Taxes for war, unpopular but necessary, taxes to help some guy keep a house he sucked all the equity out of to buy some fancy new car/remodel/vacation[home] NO EFFIN WAY.
For all those worried about the subprime meltdown, hold on tight. I am in the business and when a 2/28 adjusts, the payment is mildly higher. It will hurt some, but not most. The real problem will hit over the next 18 months. Negative Amortization loans which were popularized over the past two years to prime borrowers will hurt hoardes more if values take a dip. 90% of borrowers who took these out are only paying the minimum. Once they hit 115% of their original loan amount, a majority will be forced to foreclose because their monthly payments will almost triple. So forget subprime, forget interest only and forget liar-loans. I boggles my mind that this isn't covered more, because they (negative amortization loans to prime borrowers) are the hammer that will crush all.
Unfortunately, I feel the problems go a little further back than the purchasing of a home. I see the root of the problem in our education system. What am I talking about? As far as I am aware, there is no formal education in the schools regarding credit. Credit is such a basic prerequisite to living a good economic life for everyone. I happen to be a loan officer with a mortgage brokerage, and it never ceases to amaze me that people just don't understand how credit works. It is such an easy concept to teach. All of my clients have a very good understanding of how credit scoring works and how different types of lenders evaluate risks, and how much extra money they are spending on credit due to having "less than perfect credit", but this is only by the time the loan process has been completed. I specialize in the subprime market and in general, people just don't get the concept at all. Noone has ever explained it to them. Every news source available is loaded with details of the current meltdown of the subprime market, yet on a daily basis, I still have people with no jobs and minimum wage jobs calling, with no money in the bank, and they want to get 100% financing for a $200,000 home, or more. They've been through bankruptcies and still noone has educated them about how credit works. It's not limited to the subprime market either. Most, and I do mean most, people with even perfect credit don't understand how risks are evaluated and credit scores are formulated. I would love to start a program that travels to schools for a seminar with the entire student body, with a 2 to 3 hour time frame. That's really all it would take to teach someone enough to clean up credit around the country. With an opening line of something of the sort, "How many of you would like to buy a house someday, or perhaps a car?" I would think that would get a lot of students' attention. Easy, everyday examples, to teach credit is a piece of cake. I wish I had the motivation to take the initiative to try to actually get something like that started here in PA, but then our Governor seems to be to rapped up in more important things like getting casinos here. For now, I'm not that motivated and will continue to educate borrowers one at a time. These uneducated borrowers waste so much money in extra interest charges because of their poor credit, and they don't even understand that the bills they don't pay amount to less than the extra interest they pay on other items they do pay for. When I show my customers that they have unpaid debts amounting to $7000 (for example) and because of that, they are going to pay an additional $120,000 in interest charges over 30 years on their mortgage because of those unpaid debts, it's quite an awakening to them. I could go on and on with the point that I am trying to make here, but to sum it up, I don't think that it's entirely the fault of lenders, but a much deeper rooted problem. We have borrowers that don't even understand why tbey are paying a higher rate, rather than having an understanding that they are buying homes out of their price range. As far as they are concerned, if they can get the loan, then they surely must be able to afford it. Any solutions that don't include getting back to the basics of educating the public will ultimately fail. If you have a speeding ticket or two, you loose your license and maybe have to take your driving test over again, and take a refresher safety course, etc. Why not require that anyone that misses payments have all further credit shut off until they have taken a refresher course in credit? Seriously, more people ruin their lives with credit issues than with auto accidents. Anyone that dismisses my thoughts just plain isn't thinking clearly.
Rather than a bailout which we will all end up paying for one way or another let's implement some solutions that will benefit everyone. Here are some examples:
1. Encourage more lease to purchase programs that will transfer up to 50% of the monthly lease payment into an interest bearing account that will later be used for down payment and closing cost.
2. Create a tax credit for a portion of rent paid to an apartment complex.
3. Place a cap on the outrageous interest rates that subprime borrowers are being charged.
4. Including the property taxes, and insurance into the monthly note should not be mandatory as is the case with most subprime loans.
5. Affordable housing should not equate to a 3-2-2 900sq ft in the middle of a ghetto, barrio, or by a trailer park where the chance of ever selling it diminishes with every hour.
6. Create some tax incentives for the developers to either do lease to purchase, in-house financing, or affordable housing in new communities.
7. Make more grant money available or create tax credits for improving older homes. The TCO (total cost of ownership) on most older homes can be higher than newer ones due to a lack of wall insulation, non energy efficient central a/h, and etc.
8. Stop the price gouging the new home builders are doing like charging an extra 10K for granite or marble countertops, and the like. In Texas granite is $2.25 a sq.ft.
9. Create a mortgage insurance that covers the borrower in the event involuntary unemployment.
10. Eliminate early payoff penalties.
Now if only someone in Washington would stand up for this.
Why should my tax dollars be wasted helping people live beyond their means? The only ones to blame are the borrowers, that knew they could not afford their mortgage. They whined when they couldn't get a loan to buy a home. The lenders then gave them the chance to own a home, now they're whining because the lenders gave them a chance and they blew it. Blame the borrowers not the lenders. Don't encourage these actions by bailing them out.
The fact of the matter is, if a bailout is in order, it is only to save the hide of the lenders, at the Taxpayer's expense, as well as people, who were to F**king stupid to understand what they were getting into. I say, let the whole system collapse. It is a shame and a farce, as is the 16th Amendement, and the Federal Reserve System. The US is sinking under the weight of it's debt, thanks to the globalists.
What happened to being responsible for your own actions, no matter how stupid they were? There should be no bailout for either lenders or borrowers. Why should everyone pay for the actions of others? Also, I wouldn't vote for any politician in favor of any type of bailout !!
Let me start off by saying I agree, there SHOULD be no bailout for the idiots who bought during this bubble.
But I do have to say this housing bubble along with the tech bubble was engineered by the investment and consumer banks that are behind the federal reserve.
I believe it was engineered to extract more wealth out of the poor and the middle classes and the semi-rich.
The tech bubble, then the housing bubble then the bailout.
google search "jekyll island federal reserve" sure it sounds like it could get kooky but....
Let's reward greedy, unscrupulous lenders and borrowers with a bailout at
tax payer's expense. Let's reward reckless behavior, what a great plan.
No, these entities deserve exactly what's coming to them. Forclosures, bankrupcies and no X-mas bonus for the greedy CEOs of various mortgage corporations. They need to learn a hard lessons. Instead they're learning the lesson that greed and reckless behavior are OK; worst case scenario: stupid taxpayer to the rescue. They keep the rest of us that handle our finances responsible from getting what we deserve by running up the price of housing. Now they are supposed to be rewarded for that behavior??? I hope the electorate remebers the nit wits like Clinton that suggest anything like a bailout.
I agree with that was written above: "Absolutely no bailouts for flippers. Maybe for families who really got suckered into loans they couldn't possibly afford by unscrupulous mortgage rokers. Go over to http://bubbletracking.blogspot.com/ and take a look at how many people bought multiple properties with "creative financing." The vast majority of the forclosures we are going to see aren't going to be families losing their homes, they are going to be flippers losing multiple properties. It isn't 2.2 million American "households" it is 2.2 million American "houses."
Posted By Justin Bloomington, IN : 3:30 PM"
I personally know someone who went out and bought 4 houses as well as a commercial property (which is and has been sitting vacant for a while now) who then went out and bought a personal residence by mortgaging one of the other properties for a 10% down payment and adding the closing to the loan. On top of that paying $4k over the asking price just to get the house because it had an inground pool. All of this on an annual income of less than $70k. Every loan was with a subprime lender.
Should this person be bailed out? I think not!
NO BAILOUT. I am a former mortgage lender who left the business in late 2005 at the peak of the bubble. Yes, it was a housing and lending bubble. I never put my clients in those horrible option arms, or ticking time bombs 2/28s. I always put my clients in a 5/1 arm at the least and tried to push 30 year fixed. It was so obvious we were in a bubble. The real estate agents, lenders, title attorneys, sellers and buyers thought prices would go up for ever. Now everyone must suffer the consequences of their actions. I sold my house and have been renting because I knew the bubble would burst. I am not paying for other people's problems. In a capitalistic society you have business cycles. That means expansions and recessions. No one wants to plan for the tough times. Everyone wants a free lunch. Well I have saved and am ready for this housing crash. So are other renters and homeowner's how got a real fixed rate mortgage. Asset prices go up and down. There is no guarantee on asset prices. After the dot com bust stocks went down 80%. Did anyone get a bailout. Unfortunately, this will be a lot worse becausee the whole banking system will be in trouble and people have debt associated with their homes. Yes, the goverment should go after the lenders and brokers who acted dishonestly. 70% of the US public owns a home, the 30% of renters should not pay for this mess. NO BAILOUT.
Guess I better hurry up and buy a house I can't afford, so the government will foot the bill for me.
Someone on this board said that Right-Wingers are against this bailout. I think your name is Michael.
Michael- I consider myself a leftist. But, I also think a person should have common sense. Let's not throw Iraq into every discussion. We tell people on the right not to use 9/11 as an excuse for everything. Let's not make the same error.
I have followed housing for a while now. My grandmother with an eight grade education could have predicted that this would backfire. There is no such thing as a free lunch.
I would be the first one to enjoy blaming corporate America. After all plenty of times corporations in my view are getting off with murder. But- here I really think different.
While lenders should be held accountable, so should people. Easy lending, and greed has pushed prices up to unbelievable heights in some areas. So, as a liberal I should be upset because people that live modestly have been kept out of the market.
I bought a tiny home in 98 that I could never afford to buy right now. But I also know that I would have never bought right now.
Personal accountability and being a leftist can go in one sentence. Let's not blame it all on big brother and the man. We have to see what we as individuals can do to live a life that is prosperous. There are exceptions when people are ill or have a tragic event happen. But most of the guys taking out these loans have been irresponsible. And it does not matter if I am a right-winger or leftist it does not take a genius to see why things happened the way they did.
NO bailout at all. If I have ever believed in self-correcting, now is the time. Why? If we bail people out nothing about overconsumption will change. We will get deeper and deeper into a mess. ALl of us will have to pay far more down the line. Sure, a recession will hurt, but it might bring common sense back into our lives.
Is it possible to send the responses in this thead/comments to Senator's Dodd and Clinton to show them what people really think about a bailout?
I think this would be an eye opener for them to see how high the #'s are against and and how passionate people are about not paying for other's mistakes.
My take: there ultimately won't be a bailout, and even the senators who are proposing legislative solutions know this. Each one of them is spinning a fairy tale about an impending bailout targeted at whichever group of constituents matters most to them (e.g., investors, mortgage banks, lower-income homeowners), hoping to score points while knowing that an actual bailout is politically untenable.
Funny thing, isn't it, that borrowers just keep getting "supider" and more "irresponsible" the more we underregulate lending, investing and finance?
I agree that a bailout that in any way benefits the mortgage lending industry is unethical and would create the wrong incentives for the future. But the people who are commenting here lay far too much blame at the feet of borrowers. The simple fact of the matter is that the vast majority of people are very economically unsophisticated, cannot make accurate economic projections, have no sense of when a particular asset is overvalued, and will use recent history to project the future. This is just how people are. Like Pat Regnier said, the overwhelming majority simply try to get a nice home in a safe neighborhood with good schools. Howling about how stupid and irrational people are, and how they therefore somehow deserve this mess (which by the way is hurting absolutely everyone who owns a home, not just the "idiot" borrowers), is like hating people for by and large not being 7 ft. tall - almost everyone is just incapable of doing it. It is the lenders, who are in the business, that could have and should have known better. Blame right-wing economics and its armies of simple minded ideologues for ever giving you the idea that regular people could consistently make the right decisions in a highly complicated, global, deregulated financial environment. In the aggregate, they never have and never will, and we should make policy with this understanding firmly in mind.
The kind of economic misjudgement we now see on such a wide scale is the inevitable consequence of the whole "ownership society" and "democratization of finance" thing that conservatives have pushed os hard for so long. This is what happens when regular people are left to the tender mercies of incompetent/unethical lenders, brokers, and other financial operators and free financial markets (it goes well beyond housing - look at the "201(k)" debacle). The whole mess just goes to show - again (after the S&L crisis, the late 90's dot com bubble, the corporate governance scandals) - that highly deregulated financial markets mess up badly with incredible frequency. As a society, we need to stop slavishly adhering to free market ideas. In this case, a simple cap on mortgage interest rates, while anathema to the free market clowns, would have prevented this whole problem.
Maybe FHA loans will serve to bail out subprime borrowers?
Everybody wins this way.
A few simple facts
> to own a home is not for everyone
> it doesn't make any sense to give people with subprime credit scores risky loan products (high risk+ high risk)
> employ underwriter at a lender and not blindly believe in Credit Score, it should be one factor but not the only factor
> who buys a house to make a short term profit is an investor (then a 2/28 might make sense)
25 pages on the economy and mortgage ins and outs, and a million misspelled words and grammer mistakes. Is there any wonder we can't manage money? We can't even coherently write our native language! Disgusting. And these are the people who are on Money Magazine.com!
Your "grammer" is OK, but your spelling sucks!
As if the RE market wasn't bad enough, now subprime lenders are going belly up. I think most of the people commenting about this issue fail to see the bigger picture, the housing market is in trouble, forclosures are eminent and lenders should be held accountable for their lending practices. The national economy is at stake here folks!
First off, the market is saturated with seller's trying to see if they get a bite. They are not really motivated to sell, only curious to see if their house would sell and for how much. Second, national builders have over-built in most cities and show no signs of slowing down. Third, and the most recent threat are all the ARM loans set to be recast this year. If the majority of Americans that own homes with these ARM loans were to default, it would flood an already saturated market with distressed homes.
I believe lenders should be required to allow borrowers in trouble to refinance at favorable terms and without penalties. It is in their best interest to re-negotiate with the homeowner, rather than face the grim foreclosure process. It costs the banks money to foreclose. Remember, they are in the business of lending money, not owning real estate.
I agree with a lot of Americans against more governmental control. But at this point, their intervention is desperately needed. I am also unsymphatic to those that purchased more home than they could afford. But that is the American way of life, right? Living beyond our means. Understandably, there are the few of us that did wait to by a home and now feel robbed because people are crying out "bailout". But lets not cut off our nose to spite our face here people. This market is destined to crash if the government doesn't intervene.
The Blame Game:
Blaming borrowers and lenders for ignorantly using ARM loans and now requesting bailouts, and refusing the assistance is like blaming Republicans for our current state of affairs in this country, cause we voted Democrat and we shouldn't suffer for the election......it is irrelevant at this point! Democrats and Republicans alike are Americans. We live in America and the real estate woes will affect us all.
To Dave, Monroeville PA
I have to agree about financial education being virtually non-existant - If I could make a living at it and not go crazy talking to the wall of fiscal ignorance I do it. As a bank credit analyst/commercial lender I have talked to educators for several years and they admit that personal finance is probably the same 1 term course I took 20 yrs ago and that almost no one likes to teach it - too much reality. Look at our examples - politicians and a government who live on funny math/money so they can promise something for everyone and it won't really cost anyone (cuts if you pay taxes and spending programs if you don't) - the secret, just keep borrowing & printing. Society doesn't want reality, candidates who say it may take some sacrifice are quickly eliminated, so we watch our info-tainment tell us we can have it all, regardless, look the Jones' are doing it and we'll lend you the money to keep up. We are setting ourselves and our society/system up for a major fall in the long run - how long do you think it will take to get to a true federal surplus - not the funny math one of the Clinton years. Then to run a surplus long enough to repay a majority of the debt and cover Soc.Security & Medicare/aide with the boomers. That will only happen if a vast majority gets their personal financial house in order, and unfortunately I just don't see it. The only other driver would be for other foreign governments/US creditors to get spooked and start to shut us off. Another Dave.
I think a lot of people here understand that the RE crash will negatively effect the whole economy. I know I do.
Guess what? We NEED to get this insanity over with so that the US can someday get back on a firmer footing.
In fact, we have needed to get this over with for about 5 years now. And if we HAD done so then, things would not be as bad as they are now.
So your solution is to keep this malaligned party going a while longer, huh? WHY? So that we can REALLY self-implode in another 3 years?
Any politician that would just come right out and say: "Things got out of whack, now we've got to pay the consequences for that so we can set things right again" would get my vote. Because I WANT THINGS TO BE RIGHT AGAIN!
Do you know that there was a time in this country when a teacher/tradesman/etc. could save a few years for a 20% downpayment on a house and then go buy one, comfortably , without worrying about ARMs resetting, bankruptcy and foreclosure?
THAT's where we need to be. And after this RE puke party of the past 10 years, it would be delusional to think we won't have pain getting back to that sweet place.
These guys like Clinton and Dodd who want to "fix" things so "nothing will change" scare the heck out of me. They would guarantee that the situation gets further and further off track. As it has done the past 5 years. Do you really want THAT?
To the guy in CA. who wants to know how far prices will fall: I'm estimating between 50-80% all up and down the west coast. Based on past experience with RE. Find out what the median income is in your area. the median home price should be 2-3 X income. Right now in most places on the west coast it's more like 10-15 X. Which is why people were taking out these crazy loans in the first place. That's why we've got a LONG way to fall.
Back to the subject, count me as a voter who will under no circumstances vote for Dodd, Clinton or any other Dem who even so much as mentions a bailout for these RE pigs and fools. I don't even care that the bailout wouldn't or couldn't materialize. The mere fact that they mentioned it is enough for me.
And while we're at it, let Fannie Mae and Freddie Mac implode now. They have done nothing but drive up the price of homes in this country.
You don't get it. People WANT the housing market to crash. This market has been the source of extreme frustration for a whole lot of people and if it does not crash HARD soon, well, I don't know, I just feel a lot of pent up anger out there over these insane home prices.
I bought my first home at age 26. It was 35K and totally affordable on a 15K/year salary as a school teacher.
How many 26 year olds can do that today? I don't blame them for being pissed. And if they want to march, I'll be marching right beside them.
This insane housing mania has, hopefully, run it's course and will now correct in a major way.
Next time you want to run up prices, how about stocks? Keep that nonsense away from the roofs over our heads.
The real estate industry has pulled off another monumental Ponzi scheme and gotten away with it again.
Flood the planet with licenses so complaints are minimized, pay off the politicians, eliminate ethics, create an appraiser program that helps grease the skids, set up horizontal and vertical relationships and take the public to the cleaners.
The so-called boom was nothing more than monumental fraud. Don't blame people for living above their means, or signing something they weren't forced to. They were tricked into it by people who know no boundaries when it comes to a mortgage.
Bonnie in San Fran: You're a selfish fool! You made the decision to purchase the home at the higher price you're now complaing about. No one forced you. Why should the savers who are waiting for the right time bail you out and keep YOUR value high, and not be able to buy a home themselves? I bought some gold at $739 oz. Will you give me back my $100 oz. loss? GET REAL! You made a poor decision, now deal with it!!
Wow! I thought I was the only voice in the wilderness who told my kids three-four years ago this would all end badly, with people foreclosing and banks going under. Already been down this road, though this may be the worst the US has seen. Can we tap Greenspan's account for any of this mess?
When I was too poor to afford a house, I knew it. Only when I knew I could actually afford the payments, taxes, etc., did I build one. NO BAILOUTS for anyone!
Well, after reading all the wonderful and great comments, I am very concern how the Southern part of the world (New Mexico & Texas) will be affected. I am homeowner, investor, and a business person that i believe that if someone doesnt have the resources to support their investment or "Dream Home", they should not considered any type of asset but rather a rental to achieve an affordable home in the future. As for the bankers vs buyers, they should have taken extra precautions to prevent this but instead acted on greed. I always preached to my kids and friends, "Lived within your means" and the rest will take care of itself. I would love to have all the wonderful toys in life, in which i can now, but I know that in the long run, it will kick me in the butt. I know i wont have some funds or cash for a rainy day in my life especially when you have family, bills, and retirement to considered down the road. My motto eversince i was in college has been and will ever be is: "We dont plan to fail, but we fail to plan" Those are some pretty big words and hit it right on the nail for future homeowners and for the entire world. God Bless and All Americans and our Military now and forever.
Of course individuals are to blame, however don't forget that Maestro Greenspan inflated the housing bubble to help us recover from the Dot Com bubble in the 1st place. So, bad monetary policy as well as lax lending standards are to blame. A substantial dollar decline will likely restore the global and domestic economies to balance.
There is NO SUCH thing as a "government" bailout. The government doesn't earn money, it TAKES money, or it PRINTS money. The government TAKES your money and then gives it to somebody else, that's fair...NOT! or the government just prints MORE money, which is the same as taking your money since it is making the dollars you currently have worth less, so you're getting shafted NO MATTER WHICH WAY YOU LOOK. The government should only be in the business of national security (military readiness) and maybe the postal system. Everything else they screw up royally. If the free enterprise system were truly allowed to be set free, this country would once again be a great nation, until then, we are quickly becoming a second rate nation. It is truly SAD!
To Ted from Irvine, CA. You have brought up a very alarming subject, the Negative Amortization loans. Is it ture when the property price droped 15% from the original loan value then the mortgage payment goes up 2 times? How did you figure that?
here is a solution, create a filtering process to determine what home owners are need of the most help(those that fell victem to predatory lending or those that fit a certain profile of "the bank setting them up for failure via a adj rate that wasnt fully disclosed")
have the government subzidize(buy down and renogotiate their current mortgage to a manageable payment. Now the fed governement as well as the lender share partnership in a reduced risk.
then, slap a federal lien(for the appropriate cost of "buying down points") against the property - repayment for subsidizing the renegociating of their loan.....after all, what is a lien on title going to do if said homeowner is the average american(one who stays in their home vs flipping it) wants to keep his home but cant due to financing options not being available to him due to new restricted guiglines not allowing him to qualify for a fixed rate loan now that his rate is adjusting?
see, there is a way for the fed to intervene without billing it to current tax payers.
No bail-outs with my tax money; we rented for 8 years to save the 20% down and now have our modest 2 bdroom 1 bath house 75% paid-for. Why should others be rewarded for their greed or stupidity or waht-ever? Let the "markets" sort-out the mess that they created
Reality is that the markets (housing, stock market, and U.S. economic) needs to crash. The economy is propped up on govt debt, temporary tax relief and mortgage debt, and the sooner it falls to justifiable levels the better.
The only victims of this ridiculous housing market are those of us who, after 10 years of working as a professional, cannot afford to buy a home without assuming undue risk, because the median house costs 10-15 times our income.
I cannot begin to explain the frustration felt by this segment of the population. To intervene with a bailout will only worsen the skewed housing prices.
No government intervention.
If borrowers were defrauded, settle it in court.
Let the markets fix themselves. If the greedy never get burnt, then the system will be broken.
NOOOOO!!!! I WILL NOT AND NEVER SUPPORT A BAIL OUT.
People chose to sign their oun lives away. People chose to buy speculative homes. People chose to refinance their homes to go on vacation, buy cars, etc. Investors chose to purchase homes.
Some of us saw the risk in a bubbling market. Some of us realized that we could not afford housing and rented. Some of us realized that ARM's would be too expensive in the future and bought a smaller home on a fixed rate loan.
Why and how in the hell can anyone consider bailing out the irresponsible individuals and companies that created this mess. What about us that acted in a fiscally responsible manner? Is the government going to cut me a check for my prudence? Is my lender going to lower my payments because I CAN actually service my loan. NO!!!
So once again I ask... why would anyone consider rewarding the irresponsibility shown by so many?
What happened to the free market? Noboby places caps on house appreciation when markets like Phoenix were going up at breakneck speed. Why should someone talk about placing measures in place to protect those who will suffer when the housing market goes down?
Yes, there are those out there who got truly scamed by predatory lending but I would be they are few and far in between. Those cases should be examined one by one. Lets face it, most everyone happily talked about all the money they were making in real estate. Those are not victims. The real victims will be those who restrained themselves from unaffordable loans if there is ANY sort of bail out.
One thing always confused me:
People spend weekends to find the new BBQ grill cheaper in different stores, but when buying a house they go to the first place they see and sign the dotted line.
All of these people think they have it all figured out! It is not just the stupid people. There are very smart people suckered into these loans because they are mislead by the brokers. They don't give the whole picture until you are sitting at the closing table. The lenders doing these loans are ripping people off in a big way. It is not just a little money. They also intentionally lock you in for a year or 3. Not for reasons like that is the only way they make their money back because they have already made it in closing costs. They are literally raping people. They should be punished severely for taking advantage of the public. I am very familiar with loans and have done many of them as a homeowner and investor. I was sold one of these as a great investment tool. I am just now (a few months later) starting to get the clear picture of how much this loan is actually costing me. Shame on these brokers and companies like Countrywide for taking advantage of home buyers. We will definitely have a lot of foreclosures and all the lenders need to do is refinance these loans to standard 30 year loans with minimal closing costs and let people out of the pre-payment penalties. It son't cost them what it will if they end up foreclosing on all these loans. The only way to stop this is with proper rules and regs enforced by the state. I have seen lenders charging people 4 points. I'm sorry that is never appropriate.
I am sick and tired of the "Blame the Broker" game. Most brokers are ethical, honerable and honest people. In fact, in my home State of Illinois it is the BROKERS who get held to a higher standard than the lenders. The big, bad Brokers have to pass an exam, a criminal background check and take continuing education every year. The lenders? NOTHING. Get convicted of a felony? Go work for a lender! You will never solve the problem of dishonest dealings until there is a uniform licensing standard for all mortgage originators. I am a proud member of the State and National Association of Mortgage Brokers. Our membership stands for ethical business practices. The Brokers didn't invent the riskier loan products - that was Wall Street and the investors.
Mortgage brokers help people realize the dream of homeownership. At the end of the day, it is the responsibility of the consumer to understand the features and benefits of their home loans. Changes in the market are no reason to absolve people from their responsibilities.
This is the fault of a Republican induced non-regulated marketplace that have selfishly lowered interest rates far beyond necessary to create this "short-term" boom in the housing and stock market. They are both insanely overvalued on a historical and financial support basis and they are/were both being driven into further overvaluation based on "bandwagon" mentality. The lure of easy money is a highly transmittable disease which causes these boom-to-bust situations. With this being a historically repeatable situation, it is the governments responsiblity to control it and not spur it on as the Republicans had done with absolutely no regulation, insanely low interest rates and flooding the market with capital borrowed on "America's credit card" (which was responsibly paid down by the previous administration). Of course, much of this irresponsible government manipulation of the markets was to help pay for this War while being able to rationalize tax cuts for the wealthy at the same time by saying our "growing" economy can afford to pay for this fiscally irresponsible behavior.
Now, just like adjustable mortgages where the danger is in short term benefits, the Bush administration's card house is beginning to fall. The irony is that they likely don't care since it is very likely that the Democrats will win the Presidency this next term and inherit all the Bush created problems which will allow the Republicans to criticize all the attempted (difficult) solutions that are tried to mitigate these fallouts. It's very similar to Enron where the executives f..d everything up and then hoped to reap only the rewards and escape the blame of their actions by leaving. In addition, they set themselves up for the following Presidential term when the Democrats fail to easily solve the pandora's box that this administration opened. Quite a brilliant strategy if they get away with it which they may (at the expense of non-risk takers) by further manipulation of the markets (for another year) at the expense of inflation. Unfortunately, housing and stocks can't keep this exhaustive pace anymore to reduce the impacts so there isn't any safe/good direction left to go for the Bush administration except try and maintain a stagnancy until they can hand the reigns over to whomever will be foolish enough to take them from him.
I really don't understand how is it possible that people sign a 30 year financial commitment with fees, conditions, fine print and not really understand what they are doing. You can only get suckered if you let yourself be suckered. We're talking about hundreds of thousands of $ here, not change for a soda. And if you find these things way above your head, pay a couple hundred bucks to a financial planner to explain to you the consequences in black and white.
Just because you did not care to take the time to learn and understand what you were about is nobody's fault but your own. Most people say: the realtor told me that I could re-fi or sell my house when the higher rates hit. 99.99% of people felt prety happy with that and went with it. MAYBE one in a thousand (or ten thousand?) bothered to ask... what if I can't do either and I'm stuck... can I afford that scenario?
And at the end of the day... with 30yr fixed rate mortgages at HISTORICAL lows WHY would you not take such a loan? - Greed. Plain and simple. The ARMs let you borrow more for the same payment (at least until the rates reset). I could have taken an ARM, save a couple hundred bucks a month. Now I'm just ohh so happy with my 5.75% fixed rate.
Ohh yes, and no one put a gun on nobody's head to force them into signing nothing. So what if you felt social pressure to buy up? No one forced you. So what if ALL the houses were that expensive... did you consider continuing to rent? If buying a house was SO important, did you consider moving to a cheaper city/state? What's more, if you hadn't bought up like your peers you'd be the one laughing now. Instead you are part of the herd.
Typical democrat...redistribute americans money. Horay for my VA loan at 5 percent. Not a bad deal for 20 years of Navy service
(Posted By CW, i do mortgages in SOCAL : 1:49 PM ) I agree with this article as well as a few others.
Some Homeowners were really taken advantage of by misclassification, misleading information and greedy people whom did not care if they Lost their home. They got the quick buck and ran. I think the sub primes that are foreclosing are just bailing and changing their names. I think the subprimes that are being purchase or in a merge deal should have to put Xamount of their profits into a fund just for Homeowners whom need help. They should not be aloud to just make a fresh start for themselves.(Read how much they are paying to the companies that are merging with them so they can stay afloat!)
We have access to 40 and even 50 year loan programs. Take the truely screwed homeowner,recontruct(their mortgage company starting them fresh-Putting all the behind payments into the new loan) the loan into a 40-45 year mortgage without throwing them into our 12%high risk rates. The mortgage company makes more money in the long run on their interest payments and the homeowner stays. The mortgage company does not want the home! How much interest would they make on an 200,000 home that is 16,000 in the lates if the 16,000 was added back into the mortgage and the loan starts over? Work with the people.
**No Loan Originator or Mortgage Company needed.
I also agree with the gentleman that said reset the option arms. If they are due to increase now. Without penalties and closing cost, change their option arms for another year or so-The payment then stays affordable for them until we all get through this. I do agree on the part of a good payment history for 24 months.
I am a loan officer having to turn away helping people that have been victims of such crimes. I have also had my share of homeowners whom put themselves where they are today. It is not that difficult to determine which ones are really not at fault.
its sad, some homeowners are in situations that could happen to anyone. So those that had "fortunate timing" should not hate on their neighbor that did a similiar purchase at a less advantageous economic times. Unless ofcaorse you have a nobel piece prize in economics and can predict the future, then you can say "i told you so."
you cannot call all the homeowners in trouble "irresponsible", THESE PEOPLE COULD HAVE JUST AS EASILY BEEN YOU! now im not talkin about the idiot that took out a hefty cash out neg am loan without calculating what his new loan balance and payments would be when their loan recasts, but im reffering to the Alt A buyers who bought at the wrong time with 10% down and their property has since depreciated 10%. this is a very small market segment, but i do think they are in need of attention. Yes, maybe they shouldnt have taken that 3 year arm, but it "seemed" the smart thing to do judging from the housing trends of that specific time(when the realtor and the mtg broker make the suggestion to buy and to only lock in a loan for short terms, does the avg homeowner take the advice of his realtor and mtg consulatant?) who would expect thier home to depreciate 10% over 3 years? and can that same owner go from a 5% loan to a 8%(weather 8% is the new fully indexed adj rate or the new fixed rate 100% refinacing or the new blended rate on a 80/20) loan? on a 250k home, that is a $500 jump in payment.
my point is, there is need for intervention, and it doesnt involve bailing out the subprime market, but a very small market segment of "credit worthy" "limited risk" homeowners.
free trade, gotta love it.
Many borrowers were only qualified at the "Teaser rate" and not the rate that it would likely adjust to. If they simply qualified for a fixed rate mortgage, they would not have been in this mess. When three out of ten homeowners have no idea what the terms of their loans are, then why should they be bailed out?
When an investor buys a security at 100x earnings and it tanks, is it up to the government to bail them out?
I applaud the recent stricter lending requirements and yes some people did get nailed when rates readjusted. Personal responsibility will help these people far more than a bail out ever will.
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