"Recent reports about falling home prices have rallied support for the plan." [Rep. Barney Frank, Democrat of Massachusetts] acknowledged that the plan may not do enough to help homeowners or the housing market. Mr. Frank, chairman of the House Financial Services Committee, said that even after a bill like this, “you may need more.”
>
Stark housing numbers are coloring the debate in Congress regarding the impending Housing bailout. As of the most recent data, there are more than
three million borrowers in "distress" — typically, 60 days late in mortgage payments — and analysts forecast a couple of million more will fall
behind on their payments
in the coming year. Let’s ballpark it as 3 million people in some stage of delinquency, default or foreclosure — and that number may likely go to
4 – 5 million over the next 24 months.
Hence, you can understand the knee-jerk reaction of politicos who
are looking to do something(anything!) so they can tell their districts
why they should be re-elected. — even if it ultimately makes the situation appreciably worse.
What I find astonishing is that Congress somehow believes they need to do something to help prop up housing prices. When it comes to free markets, the quadrennial Socialists in Washington talk a good game, but push comes to shove, they don’t really believe it.
Its the same with half of the "Free-market" pundits on T.V. As long as things are going well, they want no supervision, no regulation, no interference with markets. As soon as the going gets tough, they come crawling to mummy and daddy for a bailout, begging for all sorts of FOMC and government intervention. Hypocrite is too soft a word for this ilk.
Back to Real Estate: Housing prices went ballistic thanks to the credit bubble. If you lend money to anyone regardless of their ability to repay it, you end up with enormous price distortions on that market. Home prices should be allowed to normalize on their own. This will actually be good for the economy, make housing more affordable, and speed up the process of market repair. (I’ll have more on this subject later this week). The alternative — not taking the write-downs, propping up market prices artificially — damned Japan to a decade plus long recession.
Instead, what we get instead is a giant bailout — a handout to borrowers who foolishly bought homes they could not afford, and an even bigger handout to banks & mortgage firms, who recklessly lent money to people who now cannot afford to pay it back. This bailout will only serve to keep prices artificially too high, and to encourage more recklessness in the future.
Via the NYT, here’s the Ubiq-cerpt:™
"Those stark numbers not only illustrate the challenges for the lawmakers trying to provide some relief to their constituents but also hint at what the next administration will be facing after the election. While the proposed program would help some homeowners, analysts say it would touch only a small fraction of those in trouble — the Congressional Budget Office estimates it would be used by 400,000 borrowers — and would do little to bolster the housing market.
Other proposals that have been floated in Washington include expanding the current plan to make it mandatory instead of voluntary for certain home loans; having the government buy loans outright from lenders; and providing some way and some incentives to let homeowners become renters in their own homes.
But not everyone supports government interventions. Some Republicans, like Senators Jim DeMint of South Carolina and Jim Bunning of Kentucky, say the proposal would use government subsidies to bail out reckless lenders and borrowers. They suggest that the housing market will correct itself more quickly if Congress does not intervene.
The biggest impediment to helping homeowners is the weak economy. In addition to falling home prices and risky loans, homeowners are now confronting a tough job market. The unemployment rate has risen to 5.5 percent, up from 4.9 percent in January.
To take part in the proposed program, lenders would have to lower each debt obligation to 85 percent of the home’s current value. Borrowers would stay in their homes but would have to pay a 1.5 percent annual insurance premium. If homes’ values grow and borrowers sell or refinance, they would have to share the gain with the government.
The program would be managed by the Federal Housing Administration and paid for by the insurance premium, as well as a 3 percent fee paid by lenders and a tax on Fannie Mae and Freddie Mac, the government-sponsored buyers of mortgages. (The refinance proposal is part of a broader housing bill that would also overhaul laws relating to the two companies and the F.H.A.)"
>
Source:
As Housing Bill Evolves, Crisis Grows Deeper
VIKAS BAJAJ
NYT, June 29, 2008
http://www.nytimes.com/2008/06/29/washington/29housing.html
~~~
responding only to the title question, your legislative powers are useless against the laws of supply and demand.
it is my thesis that rising energy, health, education, food costs will prove to effect a negative gradient on housing costs.
Rents — and the corresponding home prices — are always respondent to area after-tax DISPOSABLE incomes.
Housing is the one commodity good that we directly bid up to the point of unaffordability, and beyond.
The only way to prop up home prices would be to:
1) pay direct subsidies to borrowers (and cash-buyers) either via subsidized below-market interest rates, direct tax rebates like the home-mortgage deduction, first-time buyers credit, etc
2) cut income taxes across-the-board again, indirectly freeing more income to go toward new buyers’ PITI or reduce property tax levies
3) Stimulate the wage-price spiral like what we saw in the 1970s
I agree with you 100% on this. Plus, if you think about how the government wants to encourage homeownership (believing that this will encourage them to take part in their community), this has two benefits.
1. When houses are cheaper, more people can afford them
2. When people are underwater, they refuse to sell, forcing them to take part in the community they’re in currently. And, wasn’t that the point of this whole thing in the first place?
The sooner they allow gravity to take hold the sooner we can be in a realistic recovery phase. “Saving” home prices is just for the leveraged debt instruments attached to them. They care nothing for the actual homeowner.
Wrapping themselves in a flag and waving it for all to see is getting old….have we not had enough of this???
Let them fall….the irresponsible (both individual homeowners and the I-banks) that refused to account for any risk will be washed out of the market.
…..but I understand the psychology of saving the system from itself….too bad most American’s pocketbooks do not.
Ciao
MS
Foreclosed on people do not go homeless because the do not have NO INCOME, they just don’t have ENOUGH income to stay where they are. If they had NO INCOME they could not stay anyway So, they move to a place they can afford and someone who can afford their place eventually moves in. The foreclosed on people have income freed up for consumption again and they new people come in and redecorate, etc. Good for the economy
Loans get written down, figure 5 million x $100,000 per house= $500 billion in write downs. That is doable for the financial system, in fact getting close already.
So, lets let our leaders fall all over themselves turning a $500 billion problem in to a $2 trillion problem that drags one for a decade instead of a couple years.
Does anybody here ever think that we could literally pick 550 people at random from the voting rolls to staff the Congress and we would get a better group than we have now?
Seriously, what an incredible failure in leadership this whole mess is. It would be laughable if it did not have such dire consequences for my kids.
Sorry, I have to disagree with your framing.
Here’s a question: Since no one ever talks about any legistlation being for the benefit of large corporations or rich people, does it follow that no legislation is in fact for their benefit?
A related question: Are ‘politicos’ fools living in a fantasy land that any internet poster can clarify for them, or… are there actions and agendas set by an entirely different set of priorities than their public pronouncements?
Congress (particularly this congress) could care less that 4 million people are under water on their loans. Most congressfolk will get re-elected regardless of the effectiveness of this legislation, or, of their vote on it. How? Money.
Could it be that Congress is really trying to bailout the large financial interests of this country?
Conclusion: The bailout crowd is not just preaching to the infotainment masses on TV, rather, they are in control of the legislative process to an astonishing degree (Can you say Bank of America? I knew you could)
Implication: I agree with your fundamental point: America is now, and has for a long time been a Socialist state for large corporations. What’s really ironic is that they forgot that, and push so hard for more power, that they screwed things up just like they always do. And until the perma-naive wake up the effects of their actions will continue to concentrate wealth while annhilating stability.
let the prices cotinue to fall. As you clearly stated this kind of garbage killed japan, why are we going to repeat the mistake. it just doesn’t make much sense to me.
I wonder how many of the 3 million currently behind lied on the loan application when no doc. loans were getting done.
I wonder how many of the 3 million currently behind have no personal savings or reserves in place in case they lose their job.
I wonder how many of the 3 million currently behind thought the house they bought was affordable because 50% of their monethly income went to the interest only payment they chose at closing.
I wonder how many of the 3 million currently behind took a HELOC to pay for the kitchen renovation they HAD to get done.
let them fall.
~~~
BR: I don’t know the answer to your question, but the FBI has now arrested nearly 500 mortgage professionals for fraud.
I simply don’t buy the Predatory lending meme…
It is the perfect Ponzi scheme – when you run out of suckers, pass the losses to the taxpayers.
Then, to pacify the taxpayers and keep them from revolting, all you have to do is tell the Republicans it was necessary to keep business running normally, while telling the Democrats that it was required to keep children in their homes.
The Founding Fathers of this nation created the greatest experiment in liberty and freedom in human history. The forces of human nature have destroyed what they so gallantly fought for. I suppose it was inevitable that greed, corruption, dishonesty and a host of other human weaknesses would eventually catch up with us.
The politicians we have now will not be able to fix this, it is way past the fixing point. Freedom and liberty require decency and integrity….I fear we have a severe deficit of those traits in our government and the market place.
We need a viable 3rd party to break up the cartel the repubocrats now have.
I’m truly living in Bizarro world. I like Barney Frank quite a bit as a legislator, and DeMint and especially Bunning are morons. But I have to say here that they make more sense to me than Frank does.
Anyone know how this bill plans to prevent perfectly solvent borrowers from defaulting on their mortgage when they see their less responsible neighbors getting their mortgage balance discounted by 30,40,50 percent simply because they were irresponsible?
Of course the homeowners should get bailed out. The govt. hand out bailouts to big biz all the time so why not for the average Joe?
If the markets were actually “free” then I’d say no, but since it’s all Fantasy Island anyway, who cares. The house of cards is crumbling before our very eyes, might as well keep the populace fat and happy as long as possible.
If they’re going to bail out the banks, they better bail out average dumbfuck homeowner as well.
First, this isn’t a free market economy. Asserting that it is ignores every possible data point across all asset classes. Second, I think that you have missed the point here. Speculation is a natural part of the market place, free or not. This is not a moral issue. Third, the banks are already insolvent (negative core assets as of Feb 08) and are the ones who really need baling out. It is ridiculous to even mention housing speculators if you are going to ignore the derivatives ‘white elephant’ in the room. Banks essentially never changed after ENRON. Up to 70 times the assets of BofA, Wells Fargo, Citibank,etc. are off balance sheet items. If the market were really a free one, these items would never have been allowed. As an individual investor, I have no problem screwing people out of their money, but getting ‘religious’ about it is, well, retarded. Their is no ‘right’ move here, only a more efficient, productive, accretive, etc. one. The homeowners cannot be bailed out precisely because they are the linchpin in the global trade system in its current incarnation–and this baby’s got to go with the dirty water. We need a little ‘creative destruction’ to wrest away our industrial base from China. Money isn’t moral, it’s just delayed production realization. The question isn’t about the past, but about where we need to be in the future.
“The alternative — not taking the writedowns, and propping up the market prices artificially — damned Japan to a decade plus long recession.”
A very good point — Japan could have finished its economic cold shower in two or three years, and been back on the mend. Instead, a long “progressive disclosure” of bad bank loans stretched out the misery for a decade and a half.
We see the same process underway in the U.S., as government officials still absurdly deny that we’re in recession. Meanwhile, in another monumental act of denial, the prevailing doctrine at the Federal Reserve holds that Bubbles can only be identified in hindsight. Yet it is only because house prices Bubbled so far above trend that the collapse now is so severe.
Greenspan, the abominable Pied Piper, should be crucified on a cross of gold. Offer him one last Ayn Rand cigarette, imprinted with a golden dollar sign, before driving the cruel spikes through his skinny, age-spotted, turkey-wattled wrists.
Even on their own socialist terms, Congress is fecklessly failing to vote a timely bailout. They just went on Fourth of July vacation without approving a bill. Yet when the average economic contraction lasts only a year or so, every week counts. These clown-suited, hair-styled jerkoffs couldn’t manage a lemonade stand, much less a rescue of housing finance.
NO BAILOUT!
My parents never got bailed-out. I never got bailed out (when I lost my ass in 2000) and these people don’t deserve a bail-out either.
The free market will handle this problem much more quickly and much more efficiently.
Lastly, all parties need to get off this bit of free markets on the what up and Government hand-outs on the way down. If you can’t handle it, then don’t play the game. That includes politicians, bankers, investors, speculators and consumers.
Lastly, if laws were broken then those people must be held accountable for that as well. If enforcement agencies are too damn lazy to enforce these laws then they should be dealt with also.
It’s time to tighten up and get a little discipline back in the Free Enterprise System. Our entire Financial System is turning into one big p0ker game. Is that what people really want?
A couple of things: The “creative destruction” mentioned above is a horrible concept. It is that Friedman disaster capitalism, no regulation bullshit that got us into this mess. Let’s not create a situation in which we allow more wealth to be gutted from the dwindling center buy a handful of the well connected.
That said, hell yes, let housing find its natural price level. Artificially propping up prices just adds more floors to the house of cards; and with borrowed money no less. The biggest difference with this financial mess vs. others in our history is that America is so far in debt that we may just not dig out this time. An overall lower standard of living is the likely outcome. Funny how alleged conservatives have run up virtually all the national debt, and continue to deficit spend as if it were a virtue. Add that to the boomer retirement and the contingent expanding drain that Medicare and Social Security outlays are about to effect (particularly Medicare) and I’d say the pooch is good and screwed and this country will continue to rust away. Unfortunate. It certainly didn’t need to happen this way. It was not inevitable that we got to this point. We got here through policies of our own choosing. Raptly following the Friedman dogma and that giggling douche bag Art Laffer’s supply side nonsense we put ourselves here. We did. With our eyes wide open.
I’d recommend reading, or rereading, D’Toquville’s Democracy in America. His uncannily accurate prediction of the economic downside of human nature mixed with democracy was spot on, and we are voting ourselves into the third world right now. It’s a brilliant treatise by a young man (all of 21 or 22 as I recall)who spent only a year here. It and the Federalist Papers should be required reading for every politician, hell, everybody for that matter. Of course, as Civics and History are barely taught in schools these days, perhaps an action comic book series of same would be a necessary device for comprehension. Any one out there think the current occupants of the seats of power have read any of it? Nah, me neither…Although I’d bet W does love action comics.
..oh, and I know I probably misspelled the brilliant frog’s name…but, I was on a roll.
If you can’t handle it, then don’t play the game.
Having shelter and food?
Go back to Ayn Rand and your basement fortress of solitude.
I for one, can hardly wait to help pay for people’s houses who have higher incomes than me. Damn, I’m a sucker. I should have bought some million dollar house and got my fellow tax payers to help me pay for it.
So let me get this straight – My neighbor who took out a no money down liar loan on a house for $1,500,000 that is now worth $1,000,000 can get his loan balance reduced to $850,000. Instead of sitting on it until it someday rises in value (and he has to give the profits to someone else) he sells it next week. Then he buys the house two doors down. Presto! Out of debt and still own a home (if he can get a mortgage on it, that is).
In the meantime, I put 30% down on my home. I’m not underwater. I don’t get any bailout. If I sell now I lose my 30% down payment. My neighbor loses nothing.
Sometimes it doesn’t pay to do the right thing.
Here we go … from neocons to neolibs. Something that they both have in common is the religious conviction that only big, very big government can save us from ourselves.
Hey, it might be a good time to host another tea party.
Even more annoying… in my case laid out above, if the neighbor stays in his home he now only owes $850k on it. He put very little down. I still owe $1,000,000. I put $500,000 down. How is this fair??!!
I can understand why Senators from California, Arizona, Florida and Nevada would want this, since most of the “bubble” is in these states. I don’t understand why people in places like North Dakota, Wyoming, Kansas or Iowa would want to underwrite this.
85 cents on the dollar for that toxic waste that the banks are holding? A bad deal for the taxpayers. 60 cents on the dollar would be more like it.
> It is the perfect Ponzi >scheme – when you run out of >suckers, pass the losses to >the taxpayers.
>
>Then, to pacify the >taxpayers and keep them from >revolting, all you have to >do is tell the Republicans >it was necessary to keep >business running normally, >while telling the Democrats >that it was required to keep >children in their homes.
Posted by: Winston Munn | Jun 29, 2008 6:50:28 PM
Brilliant. Exactly right. That is the best summary of what is going on that I have heard.
-philip
quote from above “handout to borrowers who foolishly bought homes they could not afford, and an even bigger
handout to banks & mortgage firms, who recklessly lent money to people who now cannot afford ”
but … they all made this game play out the last 36 months for all (probably longer)
ie: factory orders, building, lawyering, tax payments … 2nd tier – lunch, beer, new sofa, new staple gun, computer printer ink, road repair
(I’m cool with it if this is Americas cash, otherwise its stealing/borrowing outside the family)
I am really struggling with jungle and intelligent design lately
I been drinkin, gonna stop, good night
ps
balance … brain needs the body … muscle needs the mind
ie: corp top needs workers … workers need a plan
balance … get it?
Probably impossible to know how many people lied but I’m sure it is up there.
I don’t buy into the predatory lending nonsense though either.
The person makes the final decision on how far they want to stretch that monthly payment.
I can almost hear the person saying, “they told me I could afford the mortgage” as if they walked into closing so blind to what their income was, what the mtg. payment was going to be (or could be as I’m sure tons of these people behind did ARM’s) and whether or not they would be stretched.
It’s unfortunate that this is even a question. The answer is so obvious, I cannot even believe this is a question being kicked around.
When you REALLY think about it, the suburbanization of America has led to a large number of our current “issues/problems.”
Although some of what he blathers is B.S., Paul Krugman actually had good commentary on the incentivization of home ownership on America–that maybe it wasn’t a good idea?!?
When you really think about it in retrospect, all of our cities should have been built taller, and the lands surrounding should have been farms. Some of these midwest/rustbelt cities have the right idea now. Just start mowing down the foreclosures. Save on utilities. Turn the land into usable farming estate.
– AT
i will vote for whoever is after a smaller bailout. Both parties will do some kind of bailout. That is the game.
I wonder which agency has the money to prop up something that global money pumped up. If any tries today, it would be crushed (Fannie and Freddie reluctance to lend proves that).
When the law comes through, it will put in a floor for housing follow by 10 years of no growth while inflation goes so high that housing won’t be seen as investment for next 10 years. Do a trendline analysis and you will know what i mean. All this political talk is noise in the stats.
HELLO???
Where were the politicians when this Ponzi scheme was roaring, and strawberry pickers (migrants) were bidding up real estate. And now these fu*kers want to provide a backstop — LOL! They’ll just make it worse.
Besides, any attempt to prop up home prices, screws up the American Dream for the next generation of buyers … PERIOD! The cat is out of the bag, and this process of prices searching for fundamental value is an absolute must!
Who is responsible for a homeowner having a home that they can not afford? If I choose to live a liftstyle that I can not afford, whose fault is that?
Seems like it’s all mine. (Not counting fraud.)
There was no problem until home prices dropped. Now that prices did drop, people want out of their obligation.
I believe many of the problems were a result of no-doc loans. No-doc loans make it too easy to lie. I think we all know why we are not allowed to do no-doc yearly income taxes :)
Another data point showing the causes are varied, five people in Sacramento were arrested for mortgage fraud. They submitted fake applications for dozens of homes.
http://www.mercurynews.com/breakingnews/ci_9730769?nclick_check=1
No, congress should not intervene to prop up home prices (not sure how that could be done). But, if congress were to modify the terms of the loan so that some homeowners could still make their payments and stay in the home, then that sounds reasonable.
Hm. Although instinctively I agree with you that the prices have to find their own level, I find myself dismayed at the tone of the comments. (Strawberry-picking migrants? Terrifying tone here.) Fiscal education is nearly completely lacking in our educational system (we depend on having parents with common sense to learn fiscal good habits).
You can question how much is owed to people who made bad choices, but let me ask you this– how much of our recent prosperity has been milked from wishful thinkers making bad choices? How many media articles and banks and politicians encouraged many of these people to run up debt that they couldn’t afford? If the so-called experts told people that things were safe and all their neighbors were doing it then how do we really expect people to distinguish the truth across the board?
I agree with Rock above that I would tend to support a modification in some of the worst terms in the affected loans. Unfortunately, as the article notes, that won’t help many as their bad loans are only the tip of their credit problems– second mortgages, maxed out credit cards, etc. The US has long been dependent on a toxic approach to credit to power its consumer spending. It will be a bumpy landing for many sectors (not just housing) to kick this particular habit.
I’m not a huge fan of the “let them suffer for their mistakes” school of economics, since the ones who love talking about “pain” and “austerity” seem to assume their own innocence with poor financial decision-making. The sad fact is that we are all responsible. It takes two sides, reckless lenders and reckless borrowers, to create a housing bubble.
But I have to agree with you, Barry. Artificially holding up housing prices will only make the recovery take longer. Prices went up too fast because demand went up because loans became easier to get. Higher prices meant fewer people could afford houses using traditional, conservative mortgages, so they needed to borrow more in creative loans from banks willing to lend like crazy. Demand up, prices up, more riskier loans, demand up… And round and round.
We should look to cushion the blow from the effects of the bubble deflating. Help people who are suffering–absolutely. That’s what I pay taxes for, not to occupy illegally a foreign country, no, but to help Americans in need.
But the government should stay out of the mortgage business. If our genius bankers screwed it up, I’m not at all certain our well-intentioned Senators and Congressional leaders will do any better. Possibly worse.
During the real estate frenzy that peaked in 2005-06 here in central Oregon, a hot spot for bubbly housing markets, we put a large payment down and got a fixed 30-year mortgage. We did not buy into the “it can only go up mentality” that was ubiquitous around here. Instead we bought a house that was within our means, on terms we can afford. I do not feel sorry for the speculators here- and there are plenty of them- that got caught holding the bag on houses they did not plan to keep, and cannot afford to.
Having said that, it does indeed take willing lenders as well as irresponsible borrowers to create a housing bubble. As a hardworking taxpayer, I don’t like spending those dollars to bail out irresponsible borrowers any more than the next person. But I find it interesting how many here are preaching tough love for individual homeowners. What about the big investment banks that marketed, funded, repackaged and sold this crap? We’ve already bailed them out to the tune of hundreds of billions of dollars. Perhaps the middle class did get irrationally exuberant about cashing in on the real estate boom. They certainly aren’t doing anything but treading water with their dead end jobs and stagnating wages, so the desire was certainly understandable.
If the big banks deserve a bailout, why doesn’t middle America? Surely this “bailout” can be tailored to houses below a certain value, and only to owner-occupied properties. Unfortunately, there is no way to keep the bailout from benefiting some “speculators” who don’t “deserve” it. But frankly, I don’t think ANY of the big banks deserved a penny of my tax dollars. At the salaries they draw, those fuckers should have known better- it was not ignorance but greed that got them into a jam.
In light of the $500 billion we- the taxpayers- have already put up for the big investment banks that fueled this fiasco, it seems only fair to spread some of the bailing out to the masses as well.
large caps into small and mid, it has longer-term bullish implications and doesn’t bode very well for the masses
who seem to be looking for 1300 on the S&P. I noticed even the bullish Carl Futia has joined the 1300 fray
recently. With so many wanting a major selloff from here odds are it will be a minor one.
Very interesting video: Will the market crash???
http://youtube.com?watch?34343hjih
They are attempting to resuscitate a freaking popped bubble as if astronomical ungodly home prices was a GOOD thing…
(“can’t we just, ya know, bring back the good times”?!?)
If crack addicts voted in large numbers (and had a well funded Lobby) you can imagine the legislation and the rhetoric to match…
“But Senator, poor Johnny Butane, and millions just like him, have the shakes tonight. That is why i am proposing my “Stimulant Package” for America’s suffering junkies, because A WASTE IS A TERRIBLE THING TO MIND”!
Well, at least we can take some small comfort in knowing that our politicians are no less wise than those of other nations. All seem to have exalted views of their power to control the the inevitable tides of human affairs, whether it be politically or economically.
Asian states may buy shares to aid markets
The effects of such efforts could be unpredictable, e.g., will some of these governments have to sell dollars to raise cash for the purchases?
I do not think people here understand the popular support for bailouts.
Lots of home-owners who are fiscally sound – mortgage paid off/Fixed mortgage/pre-bubble purchasers – all have seen the riches produced by mark-to-market.
Because they have seen prices explode higher in the bubble, they all want that pot of gold. They all want the free wealth produced by bubble prices.
That this is not possible – that govt bailout for keeping prices high will come packaged with eroding purchase power of money, or that if everyone tries to encash their house at bubble prices, the prices will crash, that true wealth is not be created by marking assets to higher market values – all this understanding is lost on this vast middle.
It’s not just the flipper who is for the bailout. There is a vast majority in the middle, who are NOT in any mortgage trouble, who believes that the govt can convert their house into a pot of gold by keeping prices high.
It is these people, who want to keep their paper wealth, that are screaming for the bailout
Bumble:
These people may be screaming, but they aren’t heard as loudly in D.C. as the big contributors from the financial sectors. If the big boys weren’t pushing, the Congress would tell the rest to go _____ themselves.
As the Onion asks, Are politicians failing our lobbyists?
No damned bailout! People who are stupid enough to want to buy a house/lifestyle they can’t afford deserve some pain for being so foolish. Businesses which lend those stupid people the money to bring those wishes true deserve to pay through the nose for operating contrary to proper business principles. Both sides have a good, well-merited butt-kicking coming.
The people who DON’T deserve any of the pain from this situation are those taxpayers who didn’t go for the “living large” lifestyle. They were cautious and prudent despite the popular trend; consequently, they’re only worried about their equities going down, not being out in the street without a roof over their head. They shouldn’t have to pay one damned dime toward bailing out either the spendthrift deadbeats or the greedy businesses. Let both fail and their pain be widely seen. It’s an object lesson this country sorely needs.
Otherwise, it’s just another case of “privatizing the profits, socializing the losses” and I’ve seen too damned many of those in my lifetime.
I think everyone is misunderstanding the term “correction” by not looking at it on a region-by-region, city-by-city, and neighborhood-by-neighborhood basis. There are some regions/cities/neighborhoods in this country where prices need to roll back a full 10-15 years adjusted for inflation. In others we’re looking more at a 3-5 or 5-7 year rollback. Congress cannot arbitrarily decide that 85% will do the trick nationwide. Also, those of you who live on the coasts shouldn’t assume that the bubble wasn’t pervasive in The Great Flyover. You might wonder how a $250K house could be overpriced, but–just remember–the average household income in a state like Kentucky is quite low. And it was just like everywhere else. Everyone was rolling over fictional “equity” to reduce the average monthly payment on a house that was fictionally overpriced. Prices were ignoring the old location/location/location rule. They were getting flimsier and farther out. Yet prices still went up. Of course, this just exposed them to higher fuel costs for commuting, which will eat away at their home value and equity until 60 mpg cars become pervasive.
“A WASTE IS A TERRIBLE THING TO MIND”
Posted by: jojo
LOL thanks for that good one
:-)
>> The sad fact is that we are all responsible. It takes two sides, reckless lenders and reckless borrowers, to create a housing bubble.
Huh?? Plenty of people were neither reckless lenders nor reckless borrowers. How can you tell? Look around and see who’s not going bankrupt. There’s a lot of us.
I’m not suggesting “the list of people to blame” is short. It’s long. But, your comment is way too broad.
I agree with you 100% on this. Plus, if you think about how the government wants to encourage homeownership this will have two benefits-
1. When houses are cheaper, more people can afford them
2. When people are underwater, they refuse to sell, forcing them to take part in the community they’re in currently. And, wasn’t that the point of this whole thing in the first place?
The people who DON’T deserve any of the pain from this situation are those taxpayers who didn’t go for the “living large” lifestyle.
No bailout. Privatizing profit and socializing risk is wrong. The CEO of Freddie Mac made over 10 million dollars in 2007. If these entities are in trouble, they should immediately curtail the excessive amounts of executive pay for such terrible performance. It’s an outrage that a CEO gets rewarded for performance that causes his company to need a bailout.
The legislation that purports to be helpful to homeowners is really a bailout for lenders. Remember, the decision to get an FHA refinance with the lender. The borrower is at the mercy of the lender. Given, the terms call for a 15% write down on the mortgage, which loans do you think the lender will want to refinance? That’s right, the worst loans are going to be put on the backs of US taxpayers via the FHA.
There is an excellent article on the Seven Flaws of the Bailout available at http://www.UsHousingMeltdown.org. Also if you want to sign a petition to stop the bailout, Freedom works has one at http://www.Angryrenter.com
I say let prices fall, too many people played this (flip this house) game. like any investment it has its risks, just like the stock market. The truth is many of these houses are not worth what people paid for them. if you could’nt afford your house you should’nt of bought it. buy a house to live in NOT as an investment.
Let home prices fall. There are plenty of people that will buy homes if they’re affordable. The fact is home prices got disconnected from fundamentals. Income to home price being the primary fundamental.
Subsidizing and artificially supporting home prices is bad policy. It also traps us into a cycle of having to continually provide additional subsidies. This is expensive, unnecessary and a waste of tax payer dollars.
Cheap money and exotic mortgages temporarily enabled borrowers with excessive purchasing power to bid up home prices to levels that cannot be sustained once the temporary purchasing power is removed.
Enable a borrower with a 3% interest only loan, with a $1800 a month payment he has the ability to service a $720,000 mortgage. Add a healthy dose of hype where prevailing belief becomes housing is a can’t miss way to get rich and you have people bidding up home prices to levels that can’t be sustained.
Once a return to more normal lending conditions this same buyer still has the same $1800 to spend, but now it’s a 6.5% fully amortized, fully documented loan. His payment now can only services a $284,000 mortgage. The difference between the 720k and the 284k is the bubble.
Don’t be foolish and blindly plunk your money down without doing some basic homework and learn what drives home prices. I ran across a website http://www.UsHousingMeltdown.org that has a Home Price Realty check where you can type in a zip-code and see how overvalued your area is and the price level where prices can be supported.