Mortage Bailout
 

What does everyone think of the bailout plan? Is it a plan that will reward financially irresponsible people and give them a free pass, or is just a plan to allow them to lock in at current rates?

I think the mortgage bailout is really going to hurt the country in the long run. We need to realize that sometimes painful things need to happen to keep the economy from really falling a part. Cyclical recessions are part of that, as is a stock market correction.

I think my problem with the mortgage bailout is that many of the mortgage companies are reaping what they have sown right now. The problem is that the mortgage industry is pretty heavily leveraged right now and that could have a cascading effect through the economy, but is that necessarily a bad thing? If the mortgage companies get bailed out, what is to keep them from resuming the same practices that got them into this boat?

I really don't get this. Bush's plan torques me off, but Hillary's plan is over the top.

Ok - so....you can BARELY afford a house with an ARM. Then, you're surprised the rates go UP and now you can't afford it?! And....taxpayer $$$ is there to save the day?! Cool, I'm more than happy to pay for the mortgage you couldn't afford, bonehead.

If I had known I could have saved $$$ by getting an adjustable rate and then NOT have to pay the piper when the rate goes up, heck, I would have gone for that. I guess I never saw the fine print saying that an adjustable and a fixed rate were the exact same thing.

Who knows - maybe in the long run a massive bail out will pay for itself vs. the consequences of not doing so. In the meantime, this doesn't seem uh....equitable.

Color me as against this. If people overextend themselves essentially inflating the market value of homes to unsustainable levels, we should expect a correction. With the way the local market exploded, I can't really see anyone claiming ignorance of that fact. Houses doubled in value twice in a three year period. If you bought in at the top of that market, I don't think you should be bailed out.

In my tiny little brain I just can't fathom how this is a good thing. I won't claim to be the most educated on the subject, but we just can't continue to bail people on out - in this case in pretty large sums - because they make stupid decision.

I'm with WH, this could have potentially disastrous long-term repercussions.

+1

What really gets me is they act like the people were really duped. Like anyone with a 6th grade education can't understand there is something fishy about this...

"We can get you locked into this house for $1300 a month or with an adjustable mortgage for $600 a month." Hmmm I wonder if there is a catch to the second plan? Sad thing is that people like my brother in law actually fall for shit like this. (He isn't someone who is getting bailed out, but he has been bailed out by my parents several times for a-hole decisions like this)

Dola...

It's like picking between the attractive family woman with the heart of gold and the smokin hot blonde who likes to party. "Well someday the partier will want to settle down and have kids, right?"

Seems to me the typical "something for nothing" situation. Coupled with the increasing sense of entitlement that more and more middle class folks seem to have in this country. The same folks who support universal health care as long as they don't have to pay for it and who want the government to make college "free".

Less foreclosures on the market for resale will help me in my career.

I know for a fact!! That some, not all lenders, not only had underwriters in their pocket but also appraisers, filled out info. for buyers or found it easier to sell them a NINA loan instead of having to go through the "hassle" of providing docs, or have a job. We're some people greedy? yes. Were some people duped? yes. We're some people taken advantage of? yes. It is disingenuous to think that the credit companies we're above board when they and Congress have admitted that the ball was dropped in regards to oversight. Do I think that speculators should lose? yes, but how do you find them without trying to help the person who falls into the duped/screwed category? Whether or not the duping or screwing occurred is undebatable. I work in one of the hot speculator markets and could spot the investors vs. the people getting screwed during the process but unfortunately am not/was not allowed to refuse a sale if someone can achieve financing. I saw it happen every week.

It's a complete load of crap. When you are taking major risks, you sometimes get burned. So these people took major risks knowing that their rates could eventually go up, now it has and the taxpayers are footing the bill?

Lost in all this, however, is that the mortgage companies really get saved too. If the houses go into forclosure, they are going to get hosed since the property values have slid so badly. They took the same BS risk, and there's evidence they even cooked books to help people out and scuttle some of these loans. So basically tons of people played the game and lost, and now Bush is going to use more money we don't have to bail them out?? No wonder the approval rating of Bush and Congress is in the 30s.

Not defending anyone here, but trying to find out more info. What taxpayer money is being spent here? My understanding is that ARM rates were being frozen by the lenders for up to 5 years for some people that could continue paying if their rates did not change - is the gov't paying the loan companies for the "lost" revenue? Otherwise, I don't see tax payer dollars at work.

I am telling you 20-30% of the people I dealt with didnt even understand their mortgages, the fact that there were actually 2 mortgages (one with a rate of over 10%), 4 different payment options, an appraisal 80K more than it shouldve been, and everyone involved telling them not to worry that this is great for them, not to mention commercials from companies you trust touting these programs. You act like everyone deals with mortgages every day of their lives....most of the people I think need to be helped were first time home buyers, not the investors.

Agree with this. It seems to me like the government is just trying to appeal to the goodwill of the mortgage industry to try and help cope with the mess they helped create by freezing rates... not by taking giant government handouts to bail people out of their overextended loans. If this works, I'm all for some corporate goodwill for once. I'm not holding my breath.

The whole "duped" card just doesn't fly with me.

90% of people in this country will never make a purchase that costs more than their house. You do research when you make a purchase like that. You learn what an ARM is and you decide if you can afford it.

I'm sorry. Duping is just bullcrap.

Do I think lenders, etc. were shady, risky, etc, etc? Hell yeah. But in the end, the individuals know how much money they make, what the mortgage would cost, how it would balloon, etc. That's in the contract - it's not like the lenders put a blindfold on them.

These are poeple that were trying to get more house than they can afford and the lenders mearly facilitated a bad decision. Sure, there may be a very very very few exceptions. if they were really illegally duped, sue. If they fell on hard times - well.. that happens in a capitalistic society unfortunately.

Again (and I know I posted this while you were writing so you didn't see it) - This is BY FAR the biggest investment these people make. It is THEIR responsibility to understand these things. If they don't, they suffer the consequences. It's not like it is even all that complicated.

I don't have any idea what the proposed plans are out there. The topic said bail out so I assumed we were talking about an actual bail out.

Yeah, I think it actually involves tax breaks for people in bad loans. If so, that is complete crap. You take risk in an investment like a house. Sometimes it fails. If you are too stupid to realize what you can afford, you shouldn't buy a house in the first place.

I worked for a now dead mortgage company from Nov 2005 - Nov 2006 here in Atlanta. I was hired on to work on the new software application they were rolling out for loan processing, so I didn't do anything directly with customer loan, but once I saw how sleezy the entire industry really was I started looking to get out immediately. Any job in which people are paid on commission will lead to this sort of thing. Yes, consumers are ultimately responsible for their decisions, but I think a lot of people look at brokers more like financial advisers rather than sales people, and trusted some really bad advice.

QFTMFT

I am sick of so many in this country not having personal responsibility.
hell no one is responsible for anything.

I WAS SCREWED, I'M NOT A LAWYER OR A BANKER

Here is some quick math sweetie you just bought a 300,000 with a monthly payment of $700 on a 30 year note. 30*12=360.....360*700=$252,000... If you are not smart enough to figure out that something is wrong with this picture YOU DESERVE TO BE BANKRUPT AND HOMELESS.

Heell I think I am going to sue someone for the "unnecessary" interest I have paid. if the lender had disclosed that the fed was going to bail my ARM out 5 years ago I would have went that way and saved money. I WANT MY MONEY BACK I AM NOT A FORTUNE TELLER WAAAAAA WAAAAAA

According to the commercials I hear on the radio, the realtor is there to help the buyer/seller through the entire process.

Let's face it, the entire industry got greedy - the banks, creditors, brokers, agents, etc.

Yep, that is the whole reason I went with a 30 year fixed rate when I got my mortgage back in 2004. Having a set payment for the next 360 months was a no brainer.

I can definitely see the attraction of an ARM when interest rates are high, but when they have been historically low like they have been for the past several years, were people really expecting them to stay steady or not rise at all over the life of the mortgage?

I think a lot of people were expecting prices to continue rising, so if need be, they sell and make a quick buck. I also think people just thought "oh, I'll re-finance when I come to the end of my introductory period."

At least, that's what my friends that have bad loans thought.

and buyers..

Again, no doubt that there are some sleazy bastards in the industry and they deserve to rot in hell. But, like I said, you have to take personal responsibility with a purchase of something worth several times what your family makes in a year.


I also went with a fixed rate 30 year loan in 2004. I don't think the people using an ARM thought about what interests rate would do, they thought they'd sell and make a big profit before the ARM kicked in.

I went with fixed 30 year as well, in late 2005. I was having trouble verifying my employment because we were closing on February 27, but my job didn't start until May 1. I didn't have my official letter yet and my income was significantly less than it is now. I had the shadiest mortgage brokers telling me they could get me a no-doc loan with 3/1 or something like that, pay interest only and refinance in 3 years when my home would probably double in value (this was Atlanta, and home prices weren't even rising that much). Or worst case, I could refinance after a year or so and had a W2 to use.

Guess what, I said no. I actually used common sense and didn't want to take that risk. I shopped and shopped until I got a nice fixed rate with a major bank that used my preliminary letter. It's not that hard! If you have shitty credit and need a sub-prime loan, you probably shouldn't be buying a house anyway.

On a side note, there are lots of lawsuits against Beazer home builders and they are essentially blacklisted here in Atlanta because of their practices. Some of these suits allege the financing people at Beazer would forward false W2's to banks, or falsify information to secure loans that people couldn't afford, and convince these suckers that ARMs would save them. If you don't think you can afford a 700k new house, you can't and shouldn't be bailed out by the government.

I'm not in favor of the bailout plan as it has so many restrictions it seems like it's designed mostly to help speculators and not families who might lose their home.

However, this was caused by greed at every level, not just the home buyer. Hell, Alan Greenspan spoke about how everyone should get ARMs. Aside from the general hype there was also criminal behavior in many markets as appraisers and mortgage companies worked together to illegally inflate the value of homes.

I have a 30year fixed and wouldn't even discuss anything else, but I don't think I'm any better than a lot of people who made a choice based on the advice of their broker and/or realtor.

I just bought a new home earlier this fall (My second home purchase in my life), and I still had the bank pushing Adjustable rate loans to me.. No thanks! I went with the tried and true 30 year fixed as well. Its amazing I also had to turn down several houses that were "steals" according to the broker because their price would put me a good $60-$100 a month over what I felt comfortable paying. I also find it interesting that I could get approved for a mortgage that would end up in a monthly payment of more than I make a month after taxes and child support...

All of that said, Wade I think you give some people too much credit. After talking to my boss who is purchasing a home.. he asked me what he needed to provide his insurance company for the home insurance.. I gave him a list of what i was asked. He did not know the answer to 75%+ of the questions. His response was ,"I know what color the house is..." .. I honestly think alot of people go into home purchasing without doing the research that you assume everyone does.

The sad thing is they are still pushing bad but different ideas on buyers. My wife and I are closing on a house next week, and when we were working on the financing, the loan guy was trying to persuade us that we should take an interest only option for a while and get a bigger house. I told him it was crazy to be making payments that don't even touch the principle... :rolleyes:

Edit: We did the traditional 30-year fixed rate on our house as well. We did do an arm on our first house back around 2003, but we knew we were moving in 3 years or so, and sold right at the top of the market in the early summer of 2006.

Alan: That's what people have been told to do. Remember the "ownership society"? From all levels of government and business the message is buy a home. The tax code is even designed to reward mortgage payers, so an interest only loan, if you can sell later at a profit, can be a wise financial move.

People looked to their realtors and brokers as if they were doctors sworn to do no harm. A lot of people got screwed because they didn't realize the people they were dealing with were closer to used car salesmen.

+3 or +4 by now.

The whole thing makes me pretty angry at everyone really. I called about home loans when the rates were so low a couple times, and qualified for loans that would have had me spending about 45% of my take home on a mortgage up front in an ARM that was sure to skyrocket. No way in hell should any bank have been willing to do that, but they all were.


And yeah, this is the biggest decision a person/family will ever make. Caveat Emptor. If you don't understand your mortgage or don't know what you're getting into, take the time to learn from an unbiased party. I basically have no sympathy towards anyone in the entire situation.

I think another potential effect of this is the lessening of the downside of risk. A fundamental feature of our economy is the pricing of risk. Many companies make money from pricing risk and helping companies manage it (think insurers, banks, the equities markets, the commodities markets, etc.). If the government keeps stepping in and blunting the bad results of taking a high risk, it will really screw up risk pricing in our economy and we will continue to have these volatile cycles of binge buying and selling.

I think you need to think a little about the situation that people were in to understand why 'duped' is appropriate.

When buying my house in 2004, 'my' realtor and lender continually fed me lines like: "don't worry - rates aren't going to go up" and "the more house you buy the better - housing prices are just going to keep going up and up.', 'Real estate is the safest investment you can make. - Just look how the housing prices have skyrocketed over the last few years.' 'Don't wait! You better buy today before the prices double again in another 6 months.'

Now I'm not a moron and suspected they were being sharks (and I didn't go with an ARM b/c I knew better), but I could easily see how others could trust what the realtor & lender were saying. In some respects, you place faith in a realtor/lender during a home-buying process just like you place faith in a lawyer or doctor when dealing with law or health matters - you trust that they know more than you about the industry, that they are looking out for your best interests (instead of the exact opposite) and that they will give you sound advice. Especially for most people, who are buying a house for the first time.




....now what all that said, I'm still against any government subsidy for a bailout (although it appears that this current plan isn't the case), only b/c I personally don't need it and I only favor government spending that benefits me directly.

You misunderstand me. I'm well aware that many people don't do the research. I'm saying they should and that it is their responsibility to. If they choose not to, they shouldn't get bailed out.

It's amazing to me how we've thrown personal responsibility out of the window in this country.

I'm sure I'll be saying this over and over and over again in this thread.

I understand everything you laid out. I understand "duped". I say - it's your own damned fault. Again, you are making the biggest purchase you will make in your life. By FAR. To not research this on your own and just trust what some guy you don't know tells you - you get what you deserve for not understanding this stuff on your own.

I know. I blame everyone else for that.

:D

I am very much in favor of a bailout in general, although I don't know all the details. One of the functions of government is to protect people from the economy. Its easy to say that people were foolish/greedy. Its not so easy to realize that were circumstances slightly different we would be walking in those shoes.

There are a lot of good points being made so far, the one that I could not agree with more is how we've thrown personal responsibility out the window. Today it is a lot easier for us to finger point to a person or a specific reason why things went wrong instead of owning up to our own mistakes.

I went into the whole home buying situation just like I was buying a car. My realtor was a car salesman basically. I told him that I'd do all the research on the homes and for him to keep sending me the emails of homes that fell into my range. When I saw one I liked, I would call him to set up a viewing. That way I am not wasting his time nor my time by dragging me around to homes I don't want to see.

I look at realtors and mortgage brokers as necessary evils. You need them both to buy a house (not really but they make it a lot easier) but you have to remember that they are in it for the money too. The more you spend on the house, the more the realtor's commission goes up. Same with the broker in a certain sense.

IMO the worst thing you can do is go with the broker that is associated with your realtor. It is convenient, yes, but for the most part they know that and will try to leverage that ease with a higher rate. I played two companies against each other and both were telling me all about the ARMs. I wanted nothing to do with them, just a straight 80/10/10 loan, fixed rate.

After a few go rounds I got my fixed rate down to 5.45% for 30 with the home equity at 7% for 10 yrs. Yes the ARM would've saved me a few bucks in the early years, but now i am locked into that rate, which I'm pretty sure we as homeowners won't see for a very long time.

It takes time and energy to research all this stuff and weed out the bullshit. Most people don't want to do that and that's why they are stuck in this situation. Some knew what they were getting into and used it as a way to get a nice starter home then upgrade or if they knew they would only be living in an area for a few years they took advantage of it.

But the people who did do their job in researching should not be paying for the stupidity of others. I have a few friends faced with this problem and I told them years ago when they bought $300K homes on teachers' salaries that they better watch because the rates are going to skyrocket. They didn't listen and rubbed the fact that they have this huge house, many times more than what they need, while mine was modest size but still half the size of theirs. Now I all I hear is how they should've listened to me.

Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.

Hell, I was RIPE for one of these loans. I bought a house in 2004 when my income was much lower than I knew it would be within a year or two and my fiance was still in school and making no income. I knew within a year or two our total income would at least double. Yet, I smartly went with a fixed loan in a beat up old house that I could actually afford at that moment if all of these likely things didn't happen.

I just don't buy this. If this was happening because of massive job loss, that's protecting people form the economy. But this is happening because people speculated on a booming housing market. Or, were just stupid. Bailing these people out would not be protecting them from "the economy". The economy is not in some huge depression right now. People made stupid decisions and they need to take responsibility for those decisions.

Exactly.

A bailout does not just protect THOSE people, it protects people who work in the industry, people honestly trying to sell a home, etc.

Bah. They aren't trying to "honestly" sell a home. They are trying to make money, as much money as they can. My realtor, who was a guy I knew well, my landlord while I was in Atlanta, even tried to upsell us. He's semi-retired and doesn't want to make too much commission because he collects social security, and kept telling us how we could probably afford to go bigger because I'd be making more in a few years, the market would go up, rates would go down, the house would be worth more and we could refinance, etc.

Honesty in any job is rare, and even harder to come by when the stakes are lucrative. The brokers knew what they were doing was risky, as did the banks. They didn't care because it put money in their pocket. You don't think the banks knew most of these people would foreclose? They didn't care because they figured they'd get the home back and would then be able to sell it even more, and some sucker would just be paying them interest while their (the bank's) house appreciated. Of course their pushing for a bailout for these "poor" uninformed people that took the loans. Houses are worth less and the banks are getting stuck with the bill.

That's how it goes in capitalism sometimes. The industry got overpopulated because of the inflation of the market, so rightfully it will shrink.. people honestly selling a home for the most part will be fine, if not you rent..

etc, etc..

Miked: I don't entirely agree. I think it was like all bubbles where people honestly thought they'd be able to get out before things fell apart. The costs associated with a foreclosure really don't play in the bank's favor. Maybe the realtors wouldn't care, but the financial folks generally lose money on foreclosures even if the market is strong.

I've also been reading about the CDOs that hold all these mortgages as investment vehicles. That's where things got really shady. The way the ratings on these were manipulated is possibly criminal. Unfortunately we're starting to see how many government funds and supposedly low risk mutual funds bought these shitty investments. That's where the real problems for the economy lie.

:D

SI

Yes and no. Let's look at the specifics that we've been given so far:

• Participation in this "program" by lenders is voluntary. Translation: Treasury Secretary Paulson pulled some strings to get lenders to agree to this in principle. Lenders will likely make a cost/benefit calculation on foreclosing on all of these vs. extending the "program" to their borrowers: i.e. "are we better off just foreclosing on all of these, taking the financial hit but then not having the debt obligations, or are we better, financially, letting these people stay on the books?" Reaction from lenders so far seems to be siding with the former.
• It's only available for people whose loans originated between 2005 and 2007 and will reset their interest rates between 2008 and 2010. Analysis: So it helps people who got a 3, 4, or 5-year ARM during a time period when they really should have known better (i.e. the press has been doomsaying since at least 2005). Why not help those with 5-year ARMS originated in 2003/2004 that are coming due now? Why not help those whose ARMS have already floated and are struggling with higher payments than expected?
• The home must be owner-occupied. Analysis: This is the key anti-speculator provision (rebutting comments made earlier in this thread).
• You can't have more than 3% equity in your home. Analysis: So basically anyone who made a really good faith effort to pay down their mortgages don't qualify, while those with interest-only loans (for example) qualify. Who are we rewarding here again?
• You aren't behind in your mortgage payments. Analysis: a curious stipulation, considering that you'd assume most people targeted by this "program" would be those already not being able to handle their payments. Say you were paying $800/month, and then you had to pay $1,200/month, but couldn't. Wouldn't it make sense to just put this person back to $800/month and avoid the hassle (and asset hit to the lender) of foreclosure?
• People with high credit scores (i.e. good ones), don't qualify. Analysis: Another confusing stipulation. Wouldn't these be exactly the people you'd want to throw a lifeline to? Their credit score means they're largely "good" for the mortgage, but probably have a temporary problem (maybe one or both borrowers lost their jobs?).

Like I said, it's a bit of a mess, so it's not surprising that there's a growing sentiment that a) it won't help out a lot of people and b) many lenders won't implement the program. It's looking more and more like an attempt to save face by the Administration and the industry.


I disagree. For the vast majority of people, their home will be their largest purchase in their lives. I'd expect them to treat this purchase with a bit of circumspection.

For reference, my wife & I bought our house in 2004 and took out a 5-year ARM. So we're a lot like the people who got in trouble here. The difference is that we looked at the monthly payments pre and post-adjustment and bought a house we could afford in either scenario and could afford at 75% of our (at the time) current income (for instance, if one of us was temporarily unemployed).


I only agree that there needs to be some sort of "bail-out" because the impact of the estimated 5 million foreclosures in 2008 is likely to be pretty serious to the economy, starting with its effects on market capital liquidity but also crucially on consumer spending, which is the engine that drives this economy.

My solution would be to force lenders into offering 5-year extensions at current rates to anyone with a current ARM who wants it, with the stipulation that if the borrower takes this deal, they're blocked from taking out another ARM for a period of X years (10, 15, or so).

The lenders won't like it because it slows the number of people originating loans, which was the point of ARMS in the first place (lower the entry so more people originate loans), but they need to take a good part of the blame here, and be a real part of the solution. The borrowers won't like it because it artifically restricts their future choice, but so does foreclosure, so they get to pick their poison.

Unfortunately, a solution which applies the "stick" instead of the "carrot" to both parties is not politically expedient, which is why we won't see it happen.

(It only took 45 posts to actually get something with meat in it as opposed to finger pointing, bragging, and "me, too"ing...)

SI

Well, it's either that or work and... hey, is it 10:00 already?! :D

The financial company might care, but at least in the short run, the broker doesn't care. He makes his money at closing, pushing a higher priced product for a more expensive house.

That's a bit of an unfair assessment, but I agree that it was a great post by flere. Clearly he understands the details of this issue better than most of us.

At least everyone learned their lesson and this will never happen again.

Hell yeah. I'm never buying Dutch tulip bulbs again!!!

Well, obviously my wife & I were the expection that proved the rule. ;)

Our ARM has worked out well for us. We've saved quite a bit of money vs. a fixed, 30-year, and ended up plowing the vast majority of that money back into the loan, paying down the principal, specifically. But, again, we did our research and knew our financial situation, and our likely financial situation over the succeeding 5 years, backwards and forwards.

It's not as if we weren't tempted, though. When we qualified for loans, lenders were happy to offer us products (including ARMS) that would have resulted in monthly payments totalling 80% of our net income. :eek:

Anyway, we'll be refinancing in 2008, and my intention is to go to a 30-year fixed, since I really do think rates are about as low as they're going to get in my lifetime (or at least for the next 30 years).

There are certainly smart circumstances to get into an ARM, but they are few and far between.

I had a meeting so Im just getting back to this.

What youre saying isnt true. Let me tell you how this happened, and this is exactly correct:

A person/family sees everything on TV from ads to stories to the news that says interest rates are at historical lows and NOW is the time to buy if they are ever going to.

So the person/family decide to go look for a home, now either:

A. they go see a new homes neighborhood where a salesperson shows them around and has them fallin love with a home

B. they go to a mortgage broker to find out how much they can afford

C. they meet up with a realtor who wants them to find out how much they can afford

And therein lies the problem:

The ratios that these lenders work off of are BS. The debt to income ration says that they can afford one thing but in reality what they should be buying is much much less.

so the deal now is on the verge of collapse until the broker (who now turns into a salesperson) tells them that these ratios and that program and the homes that the ratios tell them to look for are crappy and they really dont want to live in those sort of neighborhoods anyways, plus in a few years the home will be worth more and they'll likely be making more.....so lets just "go stated" and we can make it work.

So the person/family says, "jeez, youre a mortgage expert and I should trust you, so I will. I mean everyone is telling me that this is a good idea and while things are tight I believe everything Im seeing on TV, and in the speeches that the pundits are making, and Im tired of renting in an apartment and like everyone says, if I dont take advantage of these rates now Ill never be able to buy a home."

So they do, and all of the disclosures are full of Jargon and legalese and everyone said that what really matters is X, y, and z so I'm going to trust them.


Now this is the most mundane version. Im leaving out the buzzards who fly around the low income housing areas and get people to refi when not only is it a horrible idea but is scandalous and thievery. Im also leaving out the fraud wherein the lender actually tells the borrow what to put in the application or fills it in themselves. dont believe me? KB HOME one of the biggest builders in the country settled a lawsuit regarding those practices themselves.

It's not as easy as the personal responsibility people want to paint it. On the one hand it's usually the same people who want less govt interference and regulation but then yell at the victim when the unregulated industry ran roughshod over millions.

thank you. I dont know why these people, who arent believing me as I pull back the curtain. What Im telling you is true. I dont know much but on these things I am an expert and have been yelling about it since Bush's State of the union address many moons ago. remember that thread? I SAID THAT THIS WAS COMING!

YES YES, Im not talking extremes here. Im talking 300K house and people who trusted the experts involved and were led down this path. SOMETIMES they would even lie about the upcoming payments by misjudging property taxes and HOinsurance figures so unless you were trained to read a HUD statement you wouldnt even know your true payment until the next year.

This is an interesting debate.

I have a related case that just hit my desk. A soldier with a wife and a couple of kids and on his way back to Iraq just had his ARM blow up on him. And now he deeply regrets opening that line of credit on his home equity, because his soldier's salary, even with the combat bump, probably won't cover all the payments. So about when this guy's boots hit the ground, the bank is going to take his house.

Your country thanks you for your service.

I agree, in principle, with those that say that the market has to be given a lot of room to correct itself. Lenders were making up lousy products and selling them to borrowers, and a market "correction" needs to happen to make it clear to both sides that the phony crap has got to go.

However, never forget that the market is correcting itself on the lives of real people with real families, and those folks are going to suffer enormously. If the government can take modest steps in a situation like this to help families, I think it should.

Also, at least one semester of financial literacy should be required in every single high school in the country. High school graduates not knowing how to manage a credit card or balance a check book is a traveshamockery.

Yes it is.

10 minutes with a pen, paper, a pay stub, and your bills you can figure out that these things are a bad idea for most of these people.

I am in exactly the same boat as you and will be refi-ing next year into a 30yr. fixed hopefully below 5.75% next yr.

Welp, youre just wrong on this issue and it's that simple. Everyone a first time homebuyer was supposed to trust in this transaction, the biggest one youll ever make, where you'll most need some expert advice, were attempting to dupe people at every corner. From SISA loans, to closing costs, to interest rates, to fraud, etc.

On some things I listen to debate and can admit being wrong...I can remember some especially with glen or JimGA or you, but on this one your heels are dug in and unfortunately you just didnt have the visual evidence like I did and now dont want to trust that what many on this thread are saying. thats ok....youre still wrong on this specific issue regarding what occurred to people in their homebuying experience.

no offense.

Flasch, I don't disagree that lenders were convincing people to take loans they couldn't afford, and that realtors were complicit in this process (by pushing people to purchase homes with loans they couldn't afford), but I agree with wade here. Purchasing a home is likely the largest purchase of your life. If you can't be bothered to determine what you can and can't afford, and understand the basic concepts of your loan (for instance that your interest rate climbs after the initial period in an ARM), then the fault rests with you. Sure, your broker, lender and/or realtor didn't do you any favors, but they're salesmen, not objective, 3rd party advisors. If you wanted objective, 3rd party advice, you should have spoken to your accountant.

Even if people hadn't been "duped" I would still feel like a bailout was the right thing to do. Foreclosures are a bad thing that should be prevented when feasible.

Except, as I described previously, it really isn't a bailout. It's a voluntary program that some lenders may or may not extend to certain borrowers who may or may not qualify for what in effect amounts to a temporary extension of their current circumstances.


Absolutely. The borrower loses money and loses equity and the lender loses value off the loan and loses a very real amount of expected income from the loan. It's a lose-lose scenario.

However, in the case of these subprime mortgages, both sides, the lender and the borrower, went into the loan knowing (or should have known) that the loan had a very high chance of failing in anything but the very best financial circumstances for the borrower. If there's anything to be learned from this, it should be that there needs to be a way to, in the future, ensure that loans under these circumstances aren't originated.

I'm not sure how that happens, of course. In theory the industry was operating under its own set of standards that was supposed to make sure this sort of thing didn't happen. Obviously that failed. The last resort, of course, is to put in regulations that will save people from their own stupidity or lack of foresight, but I always feel we've failed when we have to resort to that type of legislation.

Exactly flere.

I'm not disagreeing with anything you're saying about how dirty and rotten these people are.

In the end, this is the BUYERS decision. It's THEIR money. THEIR life. They are purchasing something worth many times what their salary is. They need to do a little work, come on now.

You are the one being naive and digging your heels in. Again, people need to take responsibility. It's not that complicated to understand that in 5 years your mortgage will all of a sudden be 75% of your income - or whatever the case may be.

Sorry. The whole deal that these people couldn't do anything cause of the mean old lenders and agents just doesn't fly.

You sound like a republican!

Seriously, I do understand why people feel the way they do. And I understand its not really a "bail-out," more like a temporary regulation which hopefully prevents some foreclosures.

On the other hand, over-financing a home is a mistake, not a crime (at least, I don't think its a crime). One of this country's principles is that we want people to be as happy and secure as possible, and if that requires some fiscal policy fudging on the borders, I guess I just don't understand why that's a big deal.

I don't want to get between you and Wade on this issue, but I don't see where the home buyer was so helpless. When I was a first time home buyer, I went to a mortgage company to get pre-approved. They let me know how much of a mortgage they would give me and I immediately sensed trouble. I asked them how much my monthly payments would be if I took out a mortgage of that amount and then did some quick math to see if I could come up with that much money each month. I couldn't come close to that amount, so I worked backwards to figure out how much I could afford. Just because you *can* get a certain amount of money from a lender doesn't mean that you can afford it.

The ARMs are just an extension of that idea. Getting a low initial rate sounds great, but there was no secret that the rate could go up. When the rates go up, the payments go up. At some point you have to listen to "expert advice" and give it the common sense test. Now clearly some people are probably not smart enough to see the expert advice doesn't match common sense, but most people should have known better. It took me about 2 seconds after seeing an ARM ad on TV to know that it was a bad idea.

Heh, as I said earlier, the "program" smacks of giving lenders the opportunity to punt the problem into the future, if they so wish.

Of course, the irony is that some lenders (especially smaller ones) had already long gone the route of refinancing troubled loans to "workable" rates in order to avoid foreclosing on the properties. Calculating (rightly) that they served to lose more through foreclosing on these properties than helping borrowers into more favorable loans, these lenders are, in effect, now "doing the right thing."

Sadly, that's just a drop in the bucket. The majority of the problem loans now appear to have been sold by organizations that then resold them to larger financial institutions that packaged them as investment products for other investors. This is where a lot of the money has been lost.

That's a two-pronged problem. These vehicles (which are these loans, bundled up) are now not worth their original price, so they're now basically sitting at a loss for investors. Worse (this is the other prong), the market as a whole won't touch these vehicles with a ten-foot pole. The market knows that even if you were to subsume the loans and foreclose on the properties, you'd still have a lot of overvalued properties you can't sell in this property market, or at least can't sell at anywhere near the price that you paid on the loan.

As described in this article: http://money.cnn.com/2007/10/15/news...fund/index.htm , the "solution" the big American banks have found is to create a fund which will simply buy up all these vehicles and then ride out the storm. Critics argue that all this will do is simply create an artificial market for these bad products, but proponents argue that at least these major institutions will have these off of their books and if the products can cycle out their bad loans, they should be able to realize some sort of return in a few years. I think both sides have decent points, but there are certainly a lot of "ifs" around.

Of course, the point I'm making here is that if the big banks like Citi have decided that the "solution" to the problem is to pay a one-time fee (i.e. contribute the money to the fund in question), then what they're essentially saying is that they could care less about the borrowers in question as long as they can get these bad debts off their books. While that's good for near-term market liquidity, it still doesn't solve the medium-term affect these combusting loans are going to have on the consumer economy.

I'd imagine it's this effect, specifically, that has Treasury Secretary Paulson concerned (assuming, for a moment, that he cares about the economy after 2008) and has led him to try and hammer out a deal for this "program". Unfortunately, it looks like the "program" in question is probably too little, too late, for most of the affected borrowers.

Well, I may be a liberal, but I do believe in the strengths of a free market economy and I'm pretty loath to constrain it with undue regulation. However, one of the weaknesses of free market capitalism is that it necessarily encourages the rise of actors who will attempt to take it for all its worth, regardless of the consequences. Greed is good, yes, but not to the extent that it allows the entire system to fail, which is exactly what happened in this case.

You had me at "hello."

Dumb idea, dumber implementation, almost certain horrific result. I

The solutions are awful:
- pressure on the companies (which will result in even less mortgages being offering, because damned if I want to take that risk without having the upside of high rates)

- a bailout (which will encourage to offer even more, as there is an implicit American guarantee that it can't get too bad)

Look, there has been predatory lending in the mortgage market - I won't lie, and I think enforcing that (and the many cases where people were outright lied to about the requirements) is absolutely justifiable. That being said, you cannot change the laws of economics and legislate the market/greed instinct away, and I'm not sure why you would want to.

I believe every word you said about the process, and all it did was make me agree with wade more.

So the predators and the industry that has been built upon preying on those who are naive to the system is ok?

I agree with the post a couple above that Im not sure how to seperate those that deserve help from those that dont but doing nothing (as the regulators and Congress admit to failing in their job up to this point) isn't right.

The credit companies on the whole, from setting up tables at campuses where kids with no jobs get credit cards to lenders going through downtrodden communities to get people to refi into mortgages they cant afford, to brokers upselling their mortgage programs to first time homebuyers, isn't right but no one wants to hold them accountable at all.

I would agree with Wade or anyone else who wanted to hold all sides equally but that isn't what I hear. I hear that Wade and others feel ultimately it should fall on the consumer and I guess that where we disagree. I'll agree with those that have already admitted that they dropped the ball and are at fault for the problems we see.

If a speculator gets hurt than thats fine but when the scruples of this broken corrupt 5 years (remember Ive been pointing that this was coming a long time ago so how the experts didnt see it coming is beyond me) catch real first time homebuyer's chasing the American Dream trusting the experts from the President's State of the Union address all the way down to the Ditech agent pushing the interest only loan, isnt fair either.

Dola:

y'know what? This harkens back to a thread a long long time ago about trusting the big corporations and it seems that there is most certainly a correlation between those that want litigation caps and less regulation on business and this that we're talking about in this thread. It is the same as the long line of corporations that do not do anything but look out for their bottom line, and the shareholders value...

You can say, "Capitalism is the regulation because the ne'rdowells will go out of business" but Hasbro wouldn't have ever stopped importing lead laden toys unless a consumer tested it and went to the news and so on and so forth through time.

You can use any extreme to argue either side of this pill but it isn't the norm....in this case what you see is an industry using the extreme as their SOP and now the regulators were left chasing the ball. In the meantime, there are people that were "duped" and "defrauded" into these things and those that we're supposed to reject these loan applications, who we're supposed to regulate the industry didn't. They deserve their share of the responsibility and this voluntary bailout is a small start to try to help some those people who were roped.

I think both sides are equally accountable. Mortgage companies were clearly pulling scams to get people into houses who shouldn't have been, but I never thought they were particularly clever scams. It was so obvious that they were putting people into high risk situations that I feel little sympathy for those that "didn't see it coming". I firmly believe that people knew they were getting in over their heads. You shouldn't need expert advice to tell you that adjustable rates at an all-time low were only going to go up, or that interest-only loans are not good ideas.

But Joe at Ditech, showed me the Freddie Mac debt to Income ratio and it says Im fine. Plus Joe said, and I agree that I'm sure I'll get a raise in the next 5 years. Plus he showed me that the appraisal on home right next door, just 2 months ago was $15K more than what Im paying. My realtor says that this is a great deal and I can always pay more on the principle. All of them are saying that rates wont likely go up and if they do I've got 5 years to refinance. It only has a pre-payment penalty for 3 so Im good there. The mortgage package is 100pages thick and while I asked my realtor if I needed to have a lawyer read it he said "no, because we're closing at an attorney's office guaranteeing that things are legal." Like I said, mom, everyone, the experts have all shown me factual evidence that this is in my price range....even the monthly payment is fine (unknowingly the property taxes are underestimated by 3K/yr. but I wont find this out until January).

We can go around in circles all day. It boils down to enforcement on the individual but leave the corporate malfeasance alone. LESS GOVERNMENT intervention they scream but then the corporate morality you then bank on is nonexistent.

Exactly.

No one's saying this:


We're saying both sides are (generally) equally culpable.

If this is the case then the people should be helped and the industry punished (or gently forced to comply with this voluntary bailout [which IMO should be broader])

It boils down to caveat emptor, Flasch. It's the biggest purchase of your life, by several orders of magnitude. All it takes to save these people from themselves is spending a couple of hours developing a budget and maybe seeking out an independent, objective source of advice.

What's crazy is that most people display the appropriate skepticism of other salespeople in their lives, say for the purchase of cars, vacation packages, vinyl siding, etc... but they can't do the same here?

Again, the point you're missing is that no one's saying the industry should get off free either. From the non-listening dingbat realtors to the brokers who don't give a damn to the possibly-criminal loan originators, etc.... But what do you want to do? Fine them? Regulate them? Regulate the whole industry? Tell us Flasch.

How should people be helped?

I'd like a bailout of my student loans.

Everyone who bought maximum football should also be bailed out.

This is the silliest thing I've ever heard.

Debt-to-income ratio? neighbor's house price? great deal? Bank will lend the money?

The problem is that people even consider any of those things. How about:

- Based on my current earnings, and nothing more, can I comfortably afford the payments + insurance + taxes + utilities + repairs + my car payment + have some money for savings + retirement + entertainment?
- If the rates go up even as high 2x-3x, can I still afford it based on the calculation above (although understandably such an extreme might cut away the entertainment and potentially some savings)?
- If the housing market falls, am I ok sitting on this property for 10-20 years?

If you can't answer yes to those, you shouldn't be buying the house, no matter what anyone tells you.

Pretty much everything above fails the common sense test.


Corporate morality? Really? Does anyone believe this exists?

flere: One way to combat some of this is to regulate how these CDOs got packaged. There was very little transparency and seemingly quite a lot of dishonesty in packaging and selling loans. The SEC or FTC needs to put tighter rules in place so that the value of these investments is more easily determinable. A lot of the frenzy in buying these loans came about because the value was hard to determine. With a clearer understanding of value, there would be less of a market for these very risky loans and eventually the companies issuing them would back off as they had fewer options to sell them off.

I also might be in favor of a small fee on brokers with that money going to fund independent mortgage analysts that are recommended to new home buyers. Part of the problem is that the individual often isn't savvy enough to understand what they are getting. I wouldn't want to outlaw any loan type, but somehow buyers need access to a fully independent analyst. If enough people hear that these loans are crap they might stop jumping into them.

My problem is that a lot of the problem was caused by a lack of honesty and transparency. My suggestions may not be the right answers, but I believe that opening the door into loan practices and giving consumers an outlet for independent analysis will help both the buyer and the banking system.

Of course I also think the bankruptcy bill that passed a few years ago should be repealed, but that's only tangentially connected to the housing problem.

I dont have an answer for the problem but this "bailout" is a small start.

agreed or at least couple it with stronger measures to hold lenders accountable. Again, I go back to the initial step of keeping Credit cards of Public university campuses. No student should be approved for a loan on the potential that they'll graduate, get a good job and be able to pay the money back. Happens all the time....plus you get a free T.

Happened all the time, im afraid, common sense or not. The lenders, brokers, realtors, appraisers, regulators, etc. all share in the guilt. Im sure they dont feel guilty so instead you have to hit 'em in their books.

I somewhat do agree with that, but not necessarily to help families. I do think that some people should learn a lesson about what they can and cannot afford, but there are unscrupulous brokers out there and I do feel a bit of sympathy for those who trusted them and were duped.

I think, though, on of the big reasons for a smaller, modest plan like this one is to prevent a total clusterfuck in the economy. Maybe push up confidence and help out a few people and companies to avoid something disasterous (like trying for more of a soft-landing recession than a big crash and burn recession). It's not a good choice to make, I guess, but a choice to be made nonetheless.

I'd like to be able to afford a house in general. But I was to smart to fall for "creative financing".

To me, it all comes down to good old fashioned common sense. Caveat Emptor. Its simple really, if something sounds too good to be true it probably is. Several have shared there experience let me share mine. I bought my first house at age 20, yes 20. I was told that I should buy in the 100-115k price range I refused. I looked at houses that needed work or were in less than great neighborhoods. I bought a house for 72k. On a 30 year fixed. When I was told how great ARMs were I lookeed the lender right in the face and asked, it seems to me that rates are at or near 40 year lows, what is the real possibility that they wont go up? He replied I should be assured rates were down to stay. BULL SHIT detector went crazy, I walked out and went to another lender. I went through 4 until I found one who had a teacher's heart and spent 3 hours answering questions. I read HOURS for months prior. Oh for one piece of advice, see when I bought my first home neither of my parents had EVER owned a home, I had no one to ask for help, yet somehow I avoided all these terrible wolves. I walked out of my first closing because the attorney my realtor recommended kept interrupting while I was trying to read through the document and telling me "it's all ok, just sign it" I came back to the second closing with a new attorney and it took 4 hours. AS I READ THE ENTIRE DAMN THING.

I am in no way arguing that there aren't snakes out there, but that does not excuse the ignorance of the actions of the consumer. As has been stated ad naseum, THIS IS THE BIGGEST PURCHASE OF YOUR LIFE INVEST SOME TIME IN THE DECISION.

In a lot of ways its like a drug dealer. No one is saying he is RIGHT for selling drugs, but what many here would have us believe is since he tricked those poor unknowing people into buying his wares we should not make them suffer the pains of withdrawal. No they were lied to and duped, they should be allowed to live their happy lives and stay high, after all its not their fault they are addicts. BULL SHIT.

I am not sure why, but this entire thread and it bleeding heart apologists have me sick to my stomach. It is embarassing and disgraceful. I meean it is not as if we are saying Johnny and Sue can't afford their house, we will execute them at ssunseet. No Johnny and Sue need to move into a house they can dman well afford, and if thy have to float negative equity, its called stupid tax. The options aren't pay or die, they are pay or move. Worst case scenario (and this is a VERY small minority) they are forced to file bankruptcy, their house is sold at auction to an inveestor that has stockpiled cash and the economy is infused with REAL money and not specualative money.

For some reason I am nearly shaking with anger as I type this, I am stoppin here before I have a stroke....

Let me tell my story.

I had fair credit at best, but was able to get a modest home. I was told to take an adjustable loan in order to save money now, and with a home on my credit and timely payments, my credit would go up nicely in the next couple of years and when the adjustable period came, I would just refinance into a fixed loan. Sounded like a great opportunity for somebody with a good income, but credit problems, to get a home, start building equity and repairing my credit.

Fast foward 2.5 years, and my credit has not improved due to various reasons, some out of my control. I am hitting the adjustable period now and obviously the new payments suck, making it even more impossible to improve my credit and qualify for a fixed loan in a refinance.

So yeah, after years of paying for numerous other social programs through my tax dollars its nice to see myself actually benefiting from something.

You made a bad financial decision. You won't be the first, you won't be the last. There's no particular shame in it, it was a risk. If it paid off, great. But it didn't. That's the nature of risk.

Let me tell a story.

I'm 29, a ton of student loans, still pretty moderate pay. So I rent. Low risk, low reward. So no government handout for me.

I understand your desire to see you benefit from this, but certainly you have to see my lack of interest in funding it, right?


I dont understand what is impossible about living within your means (and this is not aimed at the immediate above poster) but this seems to be the root of most of this.

I have enough personal and business credit to live in/drive anything I want, but I choose a 10 year old paid for truck and a house that is honestly smaller than EVERY one of my employees *shrug* I guess I just dont have anything to prove...

One of the mistakes that's being made in this thread is to assume everyone bought a home bigger than they needed. That's certainly true in some markets, but in many urban areas a liveable home started at 300,000. We didn't buy in D.C. because we couldn't find anything we would want our daughter in that was under 300k.

I'm not a big fan of the bailout, but until the home loan market is transparent, I'm not willing to heap all the blame on buyers. There were bad buyers and bad sellers and those tat were taken advantage of deserve some sympathy.

Sympathy, sure.

But you're still using the phrase "want", ie. "we couldn't find anything we would want our daughter in that was under 300k."

That sentiment is shared by plenty of people that simply can't afford 300k. There's no entitlement to a $300k house just because you have a kid, I don't care where you live. They need to either put off parenthood, or live within their means.

I'm sitting here in a tiny 1-bedroom apartment, and at the logical end of this bailout argument, I'm no better (and actually worse) off then someone who threw responsibility, financial planning, and restraint to the wind.

But maybe I'm in the minority. I won't even buy a dog until I'm at a point where I can comfortably own a home. And even then, I'd be freaked out enough to have a backup plan in case I lost my job, or had other financial peril that forced me back to an apartment that might not allow pets.

Just because being financially responsible is in the minority doesn't make it a bad thing.

Of course. But some level of financial irresponsibility is practically assumed these days (and forgiven, and sympathized).

I think the underlying issue here is the decline in the American standard of living over the last 50 years. A blue collar worker used to be able to support his family (and non-working spouse) comfortably, in a nice house with a yard. That ain't reality anymore, and some are slower than others in realizing this.

We're not as well off as our parents and grandparents. Accept it.

But wouldn't you be willing to take a chance on a house your broker said you could afford if it meant a better live for your family? Objectively it may have been a poor financial decision, but it certainly is easy to see how some families got there.

Yes. I'm not saying anyone who made that mistake is a horrible person or anything, and it's not that I don't understand the temptations. But it was a risk. And one shouldn't take a risk on their families without appreciating and understanding the potential downside of that risk.

I'm not annoyed by the bailout arguments because I want to punish anyone for making a bad decision. But there's responsible people who couldn't afford a house because the irresponsible people drove up home values with reckless borrowing. I have a real problem with that, and just think that a bailout isn't the right solution.

90% of the price increases in the heavily speculated areas was caused by speculation and new home builders feeding the machine. Unfortunately, if you were the one builder who wanted to not sell to investors and in turn not raise prices than you are the builder today without enough money in your coffers to weather the storm. Not saying it's right but true in the areas of heavy speculation, ie. California, Florida, Vegas, etc.