Tax dollars and bail-outs in the mortgage mess
Moms View Message Board: The Kitchen Table (Debating Board): Tax dollars and bail-outs in the mortgage mess
I'm posting this because I just read an article about a man who is gathering signatures opposing any use of tax dollars to bail out homeowners and/or mortgage companies in the current mortgage/foreclosure mess.
I don't know where I stand on this.
Some thoughts:
I saw a chart in the newest issue of TIME that shows that housing prices in 4 areas - Miami, Los Angeles, Washington (DC) and San Diego rose more than 150% from January 2000 through June 2006. When I bought my house in 1992, single houses on this block sold for $140,000-150,000. A house on this block just went up for sale, at $236,000 - a more than 70% increase. (I live in a "moderately priced" area of a suburban area about 15 miles NW of NW Philadelphia.) Some single women in my office are looking at condos and small houses, wanting to own rather than rent, and are finding prices and potential mortgage payments well out of their price range - and my firm pays fairly generous rates for its secretaries and paralegals.
There is a lot of information out there, some of it very dire, some of it conflicting, and much of it confusing. I have read articles about people buying houses well above their financial means - ARMs, no principal payments for a period of time - with various motives, such as (1) expecting the market value of homes to keep rising so they can refinance at a lower interest rate in a few years or sell at a profit; (2) being "steered" by mortgage company employees or brokers into one of those kinds of loans when they actually qualified for a 30-year fixed rate mortgage at a decent rate, because the mortgage company or broker made a higher profit on the mortgage actually issued. I've read of companies advertising on the web that they will provide genunine-looking paystubs or provide phony employment verifications for a fee. I've read of people who falsify income information on their applications and little or no verification done by the issuing mortgage company and its employees/brokers. I've read of mortgage companies bundling mortgages into packages which are sold to another company which then sells these packages as investments - which gets the mortgage companies off the hook but leaves investors with worthless investments. I've read of blocks and neighborhoods in towns where 50-70% of the homes are either up for sale or under foreclosure proceedings, devastating neighborhoods and municipal tax bases. I've read that mortgage companies are laying off hundreds of employees and one of the largest national companies plans to lay off 12,000 employees. Some say the drop in housing prices and the mortgage mess is seriously affecting the housing construction industry, and combined with the effects on the financial markets could lead to a recession.
Many blame the lack of federal oversight of the lending/mortgage and banking/investment industries; others blame individual greed and lack of realistic thinking on the part of homebuyers; others blame greed on the part of mortgage companies and/or inadequate reviewing of mortgage applicants. All agree it is a serious mess and not getting better, with fallout or "trickle down" affecting many beyond the individual homeowners and lending companies.
What are your thoughts?
Yikes, sounds like a potential for a serious mess.
My first thought is that no matter where the dollars come from (taxes, higher interest rates, more difficulty qualifying for credit, etc.) we are all paying for this mess right now. If anything can be done to "fix" things (and I don't know that it can) it will benefit everyone in the long run.
Ame
I have very mixed feeling about all of this. With dh being "in the business" I hear way more about it all than I care to! LOL No matter what, there is no easy answer to any of it.
I may be way too simplistic, but I think the bottom line leads back to greed and wanting an EASY button for everything. Our kids want to move out of mama and daddy's house and live like mama and daddy without working for it. Mama and daddy worked hard for 20 to 30 years to get where they are. And our children want everything instantly. They want a big fancy house and brand new car. They want designer furniture and designer clothes.
I base my negative opinion on a young friend of mine and several of her friends and my own kids. But this particular young lady makes 6 figures, single and just bought a house. She drives a new, nice car and every stitch of clothes she has is designer and $500 purses and of course paid retail, etc. And you know, she told me the day after she had just got paid, she was broke??? My purse is $12 with Tinker Bell on it from Wal-mart, my van is 9 years old and my house payment is very reasonable and within my budget even with dh out of a job right now. Go figure. I buy my jeans at Target or Wal-mart. And I'm not broke.
There are some situations that I would agree if the fed government bailed some out. But for the most part, I'm tired of paying for the poor judgment of others.
We stayed at the very bottom of the estimates that the bank told us we could afford. I don't have the fanciest house, but we can pay the mortgage just fine. We did start out with an ARM for 3 years, but now are in a fixed mortgage.
On HGTV tonight, they showed a couple looking for houses that were smaller than ours, and with only one bathroom, that were 239,000!!!!! We didn't pay anywhere near that for our house, but I do live in the midwest and we bought our house 11 years ago. I'm guessing the show was showing houses in California.
As someone who bought their first house in the middle of the housing boom, we were offered all of the fancy mortgages and questioned repeatedly as to why we did not want to take on a higher mortgage. DH and I decided on what we could afford monthly and set a limit...but based on our income the mortgage companies wanted to lend us $100,000 more. We said no. We live in a nice home in a terrible school district. We sucked it up and pay for DD to go to Catholic School.
I have to agree with imamommy...everyone wants the best of everything and they want it now. People know their income and they know what they can afford. They did have the power to say no. The internet is full of information about all of the ARM, interest only etc... loans. So IMO, there is little reason why the people with these loans should be suprised that they cannot afford their higher payments.
Unfortunately I think it will be hard on the economy and it's tough on homeowners who are looking to sell in the next few years. But I don't really think that the government should bail people out. Does anyone bail the family out who fell on hard times and has to forclose? I don't see why we should bail out those who knowingly got in over their heads. Will they give those of us who made better choices cash bonuses? No...we'll just end up paying for someone else to live in our dream houses with our higher taxes.
Two years ago, hubby and I wanted to move back to our home town nearly an hour away to be closer to our parents who aren't getting any younger. We did a lot of research in the local housing market, and found a newly built 1100 sq ft 3 BR 1-1/2 bath home for $134,000, quite reasonable given the prices of existing homes in the area and well under what we were pre-approved for.
But after a while it looked quite bleak as our current home wasn't selling. We had been in contact with three different mortgage companies who all offered us different packages for the new home so that we could move into it before we had sold our current home. They all seemed way too risky and involved a huge monthly payment. We knew what we had to do and we stood firm on that. We didn't want to move into the new one until our old one sold, period. We didn't allow ourselves to be talked into doing something that wasn't in our best interest. We realized that just because we could get approved for a mortgage didn't necessarily mean that we could afford it and still live comfortably.
I don't see why we were any different than anybody else.
(Oh, and we never did get that new home... someone with the ability to purchase it immediately bought it instead, and then we took our current home off the market.)
There really does need to be some governing over these mortgage companies, who are offering plans that are unrealistic and made to make consumers fail! Whoever came up with the idea of Interest Only mortgages should be shot! And, people really need to be more realistic about what they can and cannot afford. The idea of buying an expensive property and paying a fancy, low payment mortgage with the hopes of market value going up and making money on the deal is wonderful, if you have the money to throw away, i.e. you can afford it! But, if you are gambling like that with your primary residence and don't have a large nest egg, you are setting yourself up for failure, as well as financial devastation. Forclosures in my area (MA) have TRIPLED in the last two years! TRIPLED! All because of these "low cost - low payment" mortgages! They make you believe you can afford something you can't... and if you thought about it, you would realize you can't.
Ameriquest is in the middle of a huge class action suit because of all the money they bilked out of consumers, between illegal fees, huge payment hikes, etc. And I'm sure they are only among the first to get caught doing it!
Buying is better than renting in most cases. It's yours and your not throwing money out the window and into someone else's pocket. But, we have to realize that you can't live your life "Keeping Up With the Joneses"! Buy what you can afford, with a mortgage from a reputable bank! And, later, IF property values rise, trade up!
Only my opinion!
Angela, I agree with some of what you said but not all of it.
An interest only loan is a fantastic idea/program for certain people. People who put a large amount of money down on their home and/or they don't plan on living there more than a year or two is just a couple examples. In the first couple of years, your balance goes down very little on a "regular" mortgage. If you know your not going to live there but a year or so, why pay all that extra money?
I agree with this statement:
if you thought about it, you would realize you can't
I believe most of the whole mess is greed on the part of the consumer.
Yes, there are programs out there that aren't good for certain people to be in. BUT, they weren't designed for the regular home buyer. Financing has gotten very creative over the past few years. There are excellent programs out there for people who could have not gotten into a home in the past. Problem is, the wrong people are getting into those programs.
The government is already very involved in regulating the mortgage business, that is why you have to sign 10,000 papers to get a mortgage loan. Everything for your loan is spelled out in those papers. Nothing should be a surprise. People don't take the time to read those papers or understand their loan. Who's fault is that?
Just like in many other areas of life anymore it seems no one is willing to take personal responsibility!!
I guess I see where we may be paying for it either way.
but let's put it in terms I understand better. Credit card use has also gotten out of hand. We know we can "afford" more stuff if we use plastic. Well, the interest rates are so high, the fees for a late payment, fees for going over limit (which was caused by the late pmt fee), etc etc. These accounts are sold between companies, some of them will never be recovered. So the buyers are getting useless crap.
Should the government bail the cc people out too?
I just think no. As americans we have to learn what we can afford. Not what someone convinces us what we can afford. This goes for our housing and for every other aspect of life. But stupid people will be stupid every given chance and you can't fix stupid.
Yes there are hard working, good people that make mistakes, those same people also work their butts off to make it right.
America has a problem, the mortgage situtation is just one symptom. Somehow people have to be taught what is reasonable and how to say no.
A good friend of mine who is Asian, had a hubby that worked with mine. We got a larger than normal bonus this year. We got into a discussion of what we were spending it on. They were going on a 10 day trip to hawaii. We paid off all our debts (and are now debt free) and put the rest in savings. She was shocked that we had debt. She said you make so much money (which is again a perception thing), why would you need debt? I spent a lot of time thinking about this, just how different the american culture is. Now we had maybe 5k on credit cards, we drive one paid off car, one will be paid off in 8 months and we put down 50% on our house. So I never thought of us as having debt issues, but why did we have anything on cards? I personally know someone who makes about 80k a year and they have 90K+ on cc's. Now who would give them cc's?? I have no idea...but they still get them and that is there only way to make "Ends meet" each month.
America has a problem, I don't know the solution, but I don't think the gov coming in and wiping it clean will really teach anyone anything and we will be here again in 5-10 years.
Well, I find it interesting that so many people talk about wanting the government to have less say and control over their lives. However, once they get into trouble, they want the government to bail them out.
I think it is up to each individual to know what they can, and can not afford. Mortgage companies usually approve people for more then they can afford. And, I think most people do really know what they can afford. However, we have this sense of entitlement in this country. We want everything, and we want it now. Most people know when they are using "creative" financing to purchase a home that they normally couldn't afford. I feel that if this is a risk that you are willing to take, then you should suffer the consequences if it doesn't go your way.
Now, I disagree that interest only loans are all bad. We used one in Chicago. We knew we wouldn't be there longer then a few years. And, I don't remember who said it, but you pay a very small amount of principal in the first few years of your mortgage. We were able to pay off our new car, and build up our savings with the additional money we had. However, we could have still afforded the house if for some reason we had to stay, and we needed to refinance to a regular loan. So, these types of loans are not always bad.
I am sure the government will end up stepping in. Do I think they should?? Only if there was deception on the part of the mortgage companies. However, in the cases of the people that just got in over their heads....no I don't think they should. Like Kaye said...where will it end, do we bail people out of cc debit? People will continue to over spend, and live out of their means if they continue to get bailed out when they do it.
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