Mortage Bailout

[Galaxy]

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?

[Warhammer]

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?

[CraigSca]

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.

[Glengoyne]

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.

[wade moore]

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.

[Young Drachma]

Originally Posted by Glengoyne

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.

+1

[panerd]

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)

[panerd]

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?"

[Young Drachma]

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".

[Flasch186]

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.

[miked]

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.

[bob]

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.

[Flasch186]

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.

[Butter]

Originally Posted by bob

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.

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.

[wade moore]

Originally Posted by Flasch186

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.

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.

[wade moore]

Originally Posted by Flasch186

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.

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.

Originally Posted by Butter_of_69

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.

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.

[Butter]

Originally Posted by wade moore

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.

[bob]

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.

[CU Tiger]

Originally Posted by wade moore

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.

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

[CraigSca]

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.

[cartman]

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?

[bob]

Originally Posted by cartman

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.

[wade moore]

Originally Posted by CraigSca

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.

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.

Originally Posted by cartman

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 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.

[miked]

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.

[JPhillips]

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.

[Alan T]

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.

[Kodos]

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...

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.

[JPhillips]

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.

[Radii]

Originally Posted by Glengoyne

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.

+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.

[knolysis]

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.

[lighthousekeeper]

Originally Posted by wade moore

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.

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.

[wade moore]

Originally Posted by Alan T

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.

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.

[wade moore]

Originally Posted by lighthousekeeper

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

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.

[Kodos]

Originally Posted by wade moore

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

I know. I blame everyone else for that.

[Eaglesfan27]

Originally Posted by Kodos

I know. I blame everyone else for that.

[st.cronin]

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.

[Dr. Sak]

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.

[wade moore]

Originally Posted by st.cronin

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.

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.

[wade moore]

Originally Posted by bsak16

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.

Exactly.

[st.cronin]

Originally Posted by wade moore

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.

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

[miked]

Originally Posted by st.cronin

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.

[wade moore]

Originally Posted by st.cronin

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

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..

[JPhillips]

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.

[sterlingice]

Originally Posted by Kodos

I know. I blame everyone else for that.

SI

[flere-imsaho]

Originally Posted by JPhillips

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.

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.

Originally Posted by st.cronin

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.

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.

[sterlingice]

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

SI

[flere-imsaho]

Originally Posted by sterlingice

(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?!

[bob]

Originally Posted by JPhillips

Maybe the realtors wouldn't care, but the financial folks generally lose money on foreclosures even if the market is strong.

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.

[wade moore]

Originally Posted by sterlingice

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

SI

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.

[Mustang]

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