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Bad Credit, Missed Payments, Imminent Foreclosure? No Problem!
How sympathetic should you be to people who took advantage of bargain variable-rate mortgages and are having trouble making their payments now that their rates have risen? That depends, in part, on how much of a hard-ass you are when it comes to expecting people to read the fine print and understand what they're getting into before they sign a contract. (Leave aside, for the moment, the possibility of outright fraud by lenders, for which there should be some sort of legal remedy.) But even if you feel bad for families facing foreclosure now that the prospect they didn't want to think about has come to pass, does it seem like a good idea to encourage such carelessness? That's what the state of Massachusetts is about to do, by refinancing the mortgages of families who might otherwise lose their homes. Under the $250 million plan, variable mortgages would be converted into 30-year loans at a fixed rate of 7.75 percent. When the value of a home has declined since it was purchased, the state will force lenders to take the loss, covering an amount equal to the current market price. Unless I'm missing something, such strong-arming probably won't leave lenders worse off than they would otherwise be, since if they foreclosed they would have to take a loss too. But the state will be putting taxpayers on the hook for defaults by homeowners who are disproportionately bad credit risks and have already shown they have trouble making payments. Worse, it will be encouraging other would-be home buyers not to worry much about the fine print, since if worse comes to worse the state will bail them out.
[Thanks to Michael Graham for the tip.]
|7.12.07 @ 8:31AM|#
I want to make sure I understand the stock liberal position on lending. When money is tight and creditors more selective about who they lend to it is redlining. When credit is loose and financing vehicles are created for people to finance a house who previously would not have been able to (who then demonstrate exactly why they were bad credit risks in the first place) it is predatory. Does that about cover it?
JohnD|7.12.07 @ 8:42AM|#
You got it exactly right.
Some people are too stupid to get in out of the rain, much less
take care of their personal finances. But don't worry, the Dems
will pass legislation to bail out all of the people that bought a
house they couldn't afford.
|7.12.07 @ 8:44AM|#
As long as we're addressing all the ills of the world, why not punish the real estate agents who artificially raised the market values, 'flip this house' investors and the one-eyed tabby cats that prowl the back alleys.
|7.12.07 @ 8:46AM|#
And of course first time home buyers will be screwed because the
state will be artificially holding the bubble in place while making
it harder for new time home buyers to get loans from banks that now
believe that buyers will screw them over anyway with little
reward.
Remember kids, financial responsibility is someone else's problem,
not yours.
|7.12.07 @ 8:47AM|#
swillfredo,
What the hell does that have to do with liberal or otherwise?
It's people on the dole, politicians pandering to them and those
with any sense of responsibility left footing the bill. Hey, money
is free, no problem.
Those that giveth are going to take control over you.
Somehow feels like deja vu, someone remember the S&L
fiasco?
Fluffy|7.12.07 @ 8:53AM|#
Actually, the MA program is a sham.
First of all, they openly concede they have no real ability to
force lenders to accept a lower payoff. They're merely going to be
trying to do a loan workout. Foreclosing lenders accept low payoffs
all the time - there are instances where it is better than going to
auction.
Second of all, the program doesn't actually help borrowers facing
foreclosure. Foreclosure in Massachusetts only begins when a
borrower is 120 days late on their mortgage. People who are 60 days
late are plain old subprime borrowers and not foreclosure victims.
The typical foreclosure bailout borrower doesn't even really
perceive themselves as in significant difficulty until they're at
least 90 days late. When they're just 60 days late, they generally
have plenty of financing options still available in the existing
subprime market. If you make it to foreclosure in Massachusetts,
it's because when you were at the 60 day late mark you put your
head in the sand and hoped the problem would go away. A borrower
with their head in the sand probably will not take advantage of a
government program, either.
Third, although it doesn't indicate this in this blurb, you're not
eligible for this program if your last loan was a cashout
refinance. The vast majority of borrowers who dealt with truly
"predatory" lenders were sold debt consolidation products that
qualify as cashout refinances. None of those people qualify for
this bailout. Pretty much the only people who do qualify are people
whose last loan was a purchase loan - and those people are likely
in trouble not because of "predation", but because they chose to
get a loan they couldn't afford because of MA's rapidly rising real
estate values. The "victims" of predatory lending are supposed to
be minority and elderly customers who were cold-called to refi into
option ARM's, not suburban professionals who bought at the top of
the real estate market and used exotic financing to do it - but the
MA program helps the latter and not the former.
All in all, a junk program and a waste of money.
Fluffy|7.12.07 @ 8:55AM|#
Sorry, my second reason the program is bad makes more sense if I point out that you're only eligible for it if you're 60 days late or less.
|7.12.07 @ 9:01AM|#
martin,
You are absolutely right, neither liberals nor conservatives have
demonstrated the slightest interest in letting the financial
markets operate untrammeled. Liberals, however, are the first to
cry redlining when people with poor credit are declined for home
loans and the first to suggest government interference as a
response. Once these same people begin to default in large numbers
the knee-jerk liberal response is to bail them out.
Roger Shrubber|7.12.07 @ 9:09AM|#
Is it necessary for the government to enforce ALL agreements
amongst its citizens? The model now seems to be that agreements are
either sanctioned, or sanctioned and regulated (fairness in lending
laws), or prohibited (prostitution.) Would it be
appropriate/feasible to fashion contract laws to read that all
agreements between adults are permitted, but the government will
only sanction those that follow certain guidelines?
What if we fashioned a general lending law that said: 1) Lenders
and borrowers can enter any agreement they see fit. 2) Lenders can
appeal to the government for recovery of the principal plus x% per
year plus $1000 for any loan they issue that's defaulted on.
If the lenders are stupid enough to loan money to people using
these dubious variable-rate instruments, fine, but the gov isn't
going to collect all of it for them when the loans go belly up
(lender beware.)
|7.12.07 @ 9:13AM|#
Damn damn damn damn damn I should've bought inflated property in Mass with an ARM. Would've appreciated the bailout.
|7.12.07 @ 9:19AM|#
Law to be titled, "Yuppie in Trendy Condo That's Obviously Just Cheesy and Worth Nothing Now Bailout Measure"
robc|7.12.07 @ 9:20AM|#
Roger,
That isnt far off of a Lysander Spooner proposal, IIRC (its been a
while). He basically wanted all loans to be defaultable at any
time, lender beware! But, a person who defaulted on a loan probably
wouldnt be able to get another one in the future.
s.m. koppelman|7.12.07 @ 9:39AM|#
Wow, Jacob. Though I can't disagree in theory -- I'm something
of a reader of fine print myself -- you and must have been sitting
at the closing table for hours the last time you took out a
mortgage, what with all the paperwork borrowers often see for the
first time that day.
One problem is that so many borrowers trust the mortgage broker or
loan rep -- a commission-only salesperson! -- for opinions on the
wisdom of taking out one of these loan products. And as a
recovering real estate agent and onetime holder of a mostly unused
mortgage broker's license (I didn't have the stomach to do much
with it), I can say with confidence that even beyond the obvious
self-interest, many mortgage brokers didn't understand the
mechanics of the exotic loans they were selling.
And in states where title companies are the norm and hiring one's
own real estate attorney is not, bringing both one's own lawyer and
a CPA into the transaction isn't easy when you've barely got the
money for the closing costs and down payment. Whether this should
be taken as a sign that you shouldn't be buying real estate on
credit is an obvious question.
Alice Bowie|7.12.07 @ 9:43AM|#
I'd rather my TAX money be spent on the holocust being waged on
Muslims irregardless their involvment with terror. My Tax money is
better spent on TANKS, BOMBS, PLANES, and TOILET SEATs costing $700
than spending it on some poor family.
LONG LIVE DICK CHENEY and the WAR MACHINE and HIGH SPENDING on
Military.
STOP all that welfare, food stamps, financial aid for the POOR. The
poor should b used for FRONT LINE WAR FARE !!!
Roger Shrubber|7.12.07 @ 9:43AM|#
robc,
I have enormous respect for Spooner, but I don't know if I'd go
that far. Thanks for bringing it up, I'll check it out.
|7.12.07 @ 9:48AM|#
Once again, libertarians gnash their teeth over the idea that the government is out there helping people who had the gall not to be as perfect as they are, complete with the old rationalization that helping people with problems actually encourages them to seek out more problems.
|7.12.07 @ 9:52AM|#
You don't need the fine print to get the concept of you don't
get something for nothing. Zero down payment and low monthly
payments = high probability your payments and rates will jump up
exponentially at some point.
This "predatory lending" crap comes from the same place as the
"generation debt" crap. Student loans are a bitch. But when the
20-30 something bitching about how their loan payments are holding
them back has an iPod dangling from their ears and a leased Audi in
their overpriced, hip zipcode apartment garage I don't have a lot
of sympathy.
I'm a financial retard myself, but even I understand the principle
of don't borrow money you can't pay back.
|7.12.07 @ 9:54AM|#
Is it necessary for the government to enforce ALL agreements
amongst its citizens? The model now seems to be that agreements are
either sanctioned, or sanctioned and regulated (fairness in lending
laws), or prohibited (prostitution.) Would it be
appropriate/feasible to fashion contract laws to read that all
agreements between adults are permitted, but the government will
only sanction those that follow certain guidelines?
Actually, the true libertarian position would be that government
has no place enforcing private contracts. If a lender gives a
borrower money and the borrower does not pay it back, why is that
my problem and why should taxes be taken from me at gunpoint to
help the lender recover their funds?
robc|7.12.07 @ 9:54AM|#
Roger,
Oh, I dont agree with him on that. I thought it interesting when I
read it though. I have a tough time justifying bankruptcy laws and
Spooner was just pushing a form or EZ Bankruptcy basically.
|7.12.07 @ 9:56AM|#
Now, swillfredo, that's not what redlining means.
No, swill, the fact that lenders "created vehicles" for poorer
people to get loans is not the complaint, either.
Why don't you look up the issue, and try again?
x,y|7.12.07 @ 9:57AM|#
Once again, libertarians gnash their teeth over the idea
that the government is out there helping people who had the gall
not to be as perfect as they are, complete with the old
rationalization that helping people with problems actually
encourages them to seek out more problems.
Old but correct rationalization?
Fluffy|7.12.07 @ 9:57AM|#
Actually, Dan, whether one agrees with the idea of bailing out people facing foreclosure or not, the fact remains that this plan does not bail out people who are facing foreclosure, despite the fact that it is being trumpeted to the press that way.
|7.12.07 @ 9:58AM|#
Once again, libertarians gnash their teeth over the idea
that the government is out there helping people who had the gall
not to be as perfect as they are, complete with the old
rationalization that helping people with problems actually
encourages them to seek out more problems.
Dan, given that I live in a modest condominium that I can afford,
how much sympathy should I have for someone who bought a huge house
and can't afford it?
|7.12.07 @ 10:00AM|#
Wow, if you think the home-loan-default problem is Massachusetts
consists of people who bought huge houses, you really are talking
through your hat.
Yup, those sub-prime, no-credit home loans all went into 3000
square foot McMansions. That's exactly the issue.
|7.12.07 @ 10:03AM|#
Once again, libertarians gnash their teeth over the idea
that the government is out there helping people who had the gall
not to be as perfect as they are, complete with the old
rationalization that helping people with problems actually
encourages them to seek out more problems.
Conditioned response Dan. Why should anybody learn to watch out for
themselves when they know that the gov will bail them out of any
mess they make.
Plus, we're not talking about complex financial concepts here. Sure
the loans themselves are complicated, but what is so hard to grasp
about you don't get something for nothing and you have to pay what
you owe. That's hardly demanding perfection, just common sense.
Roger Shrubber|7.12.07 @ 10:03AM|#
robc,
Actually, as I've started to consider the idea, it might not be
that far-fetched if the lender gets the property from secured
loans. Well, gotta go change my handle to lsfanboy :)
Fluffy|7.12.07 @ 10:04AM|#
One more problem I have with the program:
It's specifically being directed at borrowers who have no equity in
their property.
These borrowers, frankly, have nothing to lose other than the
inconvenience of moving and a little personal humiliation.
The real people who are losing out in the current wave of
foreclosures are people with 10% to 30% equity in their properties.
These people actually lose something of value when they are
foreclosed upon, but generally can't obtain foreclosure bailout
financing, which almost never goes above 70% loan to value if you
aren't in California or Florida. Those people aren't the object of
this bailout plan, specifically because their equity position
usually indicates they've had the property for a while and their
last loan wasn't a purchase. So again, the people who are really
losing something here aren't helped, and the people with no equity
in their property [and thus nothing really at stake, other than the
psychology of the words "my home"] are helped. It doesn't make any
sense.
Fluffy|7.12.07 @ 10:06AM|#
Joe, the foreclosure problem in Massachusetts isn't limited to such borrowers [not by a long shot] but I've gone into some detail here regarding why those are the only people with a real chance to benefit from the program in question.
Roger Shrubber|7.12.07 @ 10:08AM|#
I regard myself (perhaps erroeously) as a libertarian. I believe
that government has 3 limited, legitimate functions: operating the
military, administering public property 9of which there should be
little), and settling private property conflicts. Perhaps you're
confusing libertarians with anarchists, Dan.
Apparently you disagree with Spencer: "The ultimate result of
shielding men from the effects of folly is to fill the world with
fools."
|7.12.07 @ 10:13AM|#
Fluffy,
I'm not sure you're correct, but your criticisms stand out for
their thoughtfulness and substance.
You've lapped the field. Tip o' the cap.
robc|7.12.07 @ 10:13AM|#
Roger,
I think LS opposed secured loans too. But, he wasnt dealing with
100k mortgages either. I dont think anyone would have given me an
unsecured mortgage on my condo that I could walk away from (the
loan, not the condo) at any time. :)
The essay was referring to loans more along the lines of small
business loans. The "loan a man the money to buy a hammer and anvil
so he can become a blacksmith" type loan. The primary point of the
essay was his opposition to usury laws. He was in favor of
sub-prime loans. :)
|7.12.07 @ 10:16AM|#
Yup, those sub-prime, no-credit home loans all went into
3000 square foot McMansions. That's exactly the issue.
I phrased that poorly, replace "huge house" with nice house or "any
house that person can't afford" and I think the point still
holds.
joe,
I'm sympathetic to say, bailing out a family thats been decimated
by medical bills, or some other situation beyond their control. Why
should people who are deliberately living above their means deserve
a bailout?
|7.12.07 @ 10:18AM|#
I once had to deal with a guy - his English wasn't very good,
but was getting better - who bought an apartment house, and was
told by the attorney at the closing that he owned half the paved
area between his house and a nearby store. Of course he didn't have
his own attorney present, or hire one to look at the deed. The
paved area turned out to be a right-of-way.
But hey, there were so many nice, helpful people from the bank, and
the whole process was so much more complicated than buying land
back in Puerto Rico, so he assumed everything was on the up and
up.
Social darwinism went out with the Charleston, fellas. Even if you
can't stir yourself to feel sympathy for people who've been taken
advantage of by sneaks, you should at least recognize that it's
wise to protect the overall economy from the violent shocks that
accrue when too many of these schemes collapse.
|7.12.07 @ 10:19AM|#
David,
Most of these people have not been "deliberately living above their
means."
Their lenders went to great trouble to convince them that these
loans were within their means.
|7.12.07 @ 10:20AM|#
Conditioned response Dan. Why should anybody learn to watch
out for themselves when they know that the gov will bail them out
of any mess they make.
Okay, you tell me then. Why isn't everybody on the
dole?
Roger Shrubber|7.12.07 @ 10:21AM|#
I'm all for the sneaks, that's why I said that the government shouldn't sanction every agreement between lender and borrower.
|7.12.07 @ 10:26AM|#
Plus, we're not talking about complex financial concepts
here. Sure the loans themselves are complicated, but what is so
hard to grasp about you don't get something for nothing and you
have to pay what you owe. That's hardly demanding perfection, just
common sense.
So in other words, anybody who defaults on a loan decided to take
out the loan knowing good and well that they were going to default
on it?
In addtion to the lack of libertarian mothers, we're getting a nice
lesson in why there are few libertarians among the poor,
either.
robc|7.12.07 @ 10:33AM|#
joe,
some of us (or at least me) think that violent shocks are good for
the economy. At least in the long run.
Their lenders went to great trouble to convince them that these
loans were within their means.
When I bought my condo 9 years ago, I got a mortgage preapproval.
When the bank told me how much they would loan me, I laughed at
them. It was more than twice my self-proscribed limit.
There is a well known national radio show in which the host tells
people to never get more than a 15-yr fixed mortgage thats 25% of
their take home pay. While I dont agree with everything he
suggests, a good piece of (overly)sound advice exists that is easy
to hear.
Hmmm...should I listen to the bank, common sense, or some radio
guy? Well, 2 out of 3 will keep you from buying too much house.
Russ 2000|7.12.07 @ 10:36AM|#
Regarding Spooner, don't foget that back in his day it was unheard of to buy residential non-rental property (aka dead or mort) with borrowed money without at least 50% down, unless you were part of a mutual company.
|7.12.07 @ 10:38AM|#
robc,
Enjoy the Early New Deal, did you? That's what the most recent
violent shock of note brought to our economy.
As interesting as it is to read you brag about how much more
worldly you are in financial affairs that people in danger of
losing their homes, I'd still prefer not to live in a "devil take
the hindmost" society.
robc|7.12.07 @ 10:41AM|#
joe,
Huh, I thought the most recent shock of note was the tech market
crash.
Bad politicians brought us the early new deal. The shock wasnt
responsible for that.
|7.12.07 @ 10:45AM|#
Okay, you tell me then. Why isn't everybody on the
dole?
Good question. Might have something to do with character and work
ethic. You don't have to be a financial whiz to find handouts
demeaning, earning your own way personally rewarding or to grasp
the concept of no free lunch.
|7.12.07 @ 10:50AM|#
robc,
Bad politicians brought us the early new deal. The shock wasnt
responsible for that.
In libertopia, the public does not demand the government does not
deliver responses to severe threats when Big Giant Heads who took a
semester of economics say it's a bad idea.
In America, they do.
You don't have to be a financial whiz to find handouts
demeaning, earning your own way personally rewarding or to grasp
the concept of no free lunch.
Nor do you have to be a moron or a leech to be set up for a fall by
an irresponsible mortgage broker.
Roger Shrubber|7.12.07 @ 10:54AM|#
I'm all for the sneaks, that's why I said that the government shouldn't sanction every agreement between lender and borrower.
|7.12.07 @ 10:58AM|#
Fluffy hit upon one of the least discussed aspects of the
subprime/foreclosure problem: bill consolidation. Here in Ohio,
there have been lots of people who were sold refinances in order to
pay bills, and many people didn't consider the huge risk involved
in doing so.
The huge risk is that they converted unsecured debt into secured
debt. So now, falling behind, instead of being bugged on the phone,
these folks are losing their house.
FWIW, Ohio has a similar bailout program in place, using state
bonds.
highnumber|7.12.07 @ 10:58AM|#
In libertopia, the public does not demand the government
does not deliver responses to severe threats when Big Giant Heads
who took a semester of economics say it's a bad idea.
Apart from the fact that this sentence makes little sense even when
I add "that" where it seems to belong, I should have stopped
reading at the weak-assed use of the word "libertopia."
joe,
You've been around long enough to know that no serious libertarian
is a utopian.
And this thing that Massachusetts is doing is C-A-T dumb. I have
the feeling that this may be helping to bail out the lenders as
much as the borrowers.
|7.12.07 @ 11:00AM|#
Good question. Might have something to do with character and
work ethic. You don't have to be a financial whiz to find handouts
demeaning, earning your own way personally rewarding or to grasp
the concept of no free lunch.
Sure. But that contradicts completely with your previously
mentioned idea that people won't do anything for themselves if the
government is there to help them or bail them out.
|7.12.07 @ 11:04AM|#
So in other words, anybody who defaults on a loan decided to
take out the loan knowing good and well that they were going to
default on it?
Ah, the patented Dan T word twist. Not even close to what I said.
Anyone who takes out a loan that requires ridiculous financial
back-flips to secure should realize they are not in a position to
take out a loan.
In addtion to the lack of libertarian mothers, we're getting a
nice lesson in why there are few libertarians among the poor,
either.
Maybe they aren't many libertarians among the poor. I've never done
a census. But I'm pretty sure there are people of all political
stripes and income levels that get that you shouldn't live above
your means and don't think you should reward people who do.
dhex|7.12.07 @ 11:07AM|#
i am interested in seeing exactly what kind of schenanigans (shenanigans? bennigans? hoolihans?) lenders were up to, beyond those situations where people were bad at math and took off more than they could chew. (i live next door to someone who did just that.)
|7.12.07 @ 11:07AM|#
Why isn't everybody on the dole?
Everybody is on the dole. We are just arguing extent.
|7.12.07 @ 11:10AM|#
Please. The average subprime borrower isn't someone with no
income. If that were the case, they wouldn't get a loan from most
lenders, subprime or otherwise. No, the average subprime borrower
is someone who has done something to trash his credit. That can be
due to erratic income, but it's more often due to overextended
credit.
Lenders--especially brokers--can pull some nasty tricks, but at
what point do we hold borrowers accountable? The legalese in the
disclosures can be daunting, but the APR and some of the basic
disclosures are prominent and relatively easy to understand.
People of any credit level or income who are bitching about ARMs
deserve little sympathy. No one with an operating brain thinks that
ARMs are a permanent low rate. People either hope that rates won't
go up or just gamble that their situations will change. Also, a lot
of investors gambled on ARMs to extend their ability to gobble up
real estate. Oops.
Incidentally, this is probably being done at the behest of the
lenders, who do not want a bunch of real estate in their
portfolios, let me assure you.
|7.12.07 @ 11:13AM|#
Safety nets are one thing; bail-outs are another.
If people made bad decisions, they need to live with the
consequences.
If lenders intetionally mislead borrowers, they should be
punished.
Other than ivestigating and prosecuting dishonest lenders, the
government should stay out of this problem.
|7.12.07 @ 11:17AM|#
Sure. But that contradicts completely with your previously
mentioned idea that people won't do anything for themselves if the
government is there to help them or bail them out.
Oh, I forgot. You're the only one allowed to make generalizations
in arguments. My pardon.
|7.12.07 @ 11:19AM|#
The ultimate result of shielding men from the effects of folly, is to fill the world with fools. -- Herbert Spencer
highnumber|7.12.07 @ 11:20AM|#
dhex,
I recently left the mortgage business (for good - yay!). There are
few examples of truly predatory lending out there, but they
definitely exist. Usually it's committed by brokers, who are
screwing the lenders even more than the borrowers. They switch
closing documents out so that it appears that borrowers are closing
fixed loans rather than ARMs or that the terms of the ARM are
different than they actually are. Sometimes they juice the
appraised value to give the borrower more cash out or put less
money down. While these all come back to bite the borrower, they
hurt the lender even more, because they lead to more defaults. The
borrower "loses their home" (which was never really theirs in the
first place), but the lenders, as we've seen, go out of business
when enough of these shenanigans hit them at once.
ProGLib,
That is exactly what I was alluding to earlier, about the benefit
to the lenders. This smells like corporate welfare to me.
highnumber|7.12.07 @ 11:35AM|#
What I wrote sounds a little harsh to the borrowers. I should add in there that in the case of juicing the appraised values and some other fraud that takes place in the mortgage business (like juicing income on stated loans), often the borrower is aware of the fraud and is even an active participant. I was thinking of these people when I wrote that. Borrowers would actually shop around until they found a broker who assured them that they could get them the value they needed. When it came time to sell, or when their sleazy broker closed up shop, the borrower could easily be upside down. Then, it comes back to bite them, but they are not taking as big a loss as the lender if they default.
|7.12.07 @ 11:44AM|#
highnumber,
The missing word was "and." The public does not demand and the
govenrment does not deliver...
And while thinking that the public and their representatives will
not take steps to mitigate people's severe economic harm may not
quite reach the level of "utopian," it is still well beyond
realistic.
I have the feeling that this may be helping to bail out the
lenders as much as the borrowers.
Quite likely. A collapsing mortage industry, severely tightened
markets for capital, and banks calling in their loans have proven
to be extremely dangerous phenomena.
|7.12.07 @ 11:50AM|#
Anyone who takes out a loan that requires ridiculous
financial back-flips to secure should realize they are not in a
position to take out a loan.
Try to put yourself in someone else's shoes.
How is someone who's never bought a home before supposed to know
the different between ridiculous backflips and normal
backflips?
How is someone who isn't terribly sophisticated in financial
matters supposed to know what questions to ask, or what information
they aren't being given?
Let's be realistic here - there are all sorts of "don't worry about
that, just initial here" and "short version - you're saying you can
afford the loan, which you can" that goes on at every mortgage
closing.
|7.12.07 @ 12:09PM|#
When I bought my home a few years ago I was given a bunch of
pamphlets about ARMs and had to sign papers at closing
acknowledging that I knew I was getting an ARM and realized that my
payments would increase in the future. It was all very transparent
and easy to follow.
There are going to be shady characters out there, but that's the
case in just about every aspect of life. The government can justify
any intrusion on the grounds that they are protecting us from bad
people. How about going after the people who are violating laws
rather than making it impossible to live our lives?
highnumber|7.12.07 @ 12:16PM|#
joe,
The mortgage industry is not on the verge of collapsing. It is
going through a necessary contraction.
And, no, I do not have sympathy for people who sign paperwork they
do not understand without consulting an attorney, or believe
everything a salesman tells them.
Buying a used car? Ask a mechanic you trust to look at it
first.
Closing on a mortgage? Have your attorney review the paperwork
before signing. If you can't afford that minor expense, why the
hell do you think can afford a house?
|7.12.07 @ 12:22PM|#
Agreed, no collapse in sight. The business always has some
companies that go too far in boom times--they usually die a horrid
death or get bought up.
However, due to the insanely high cost of housing in many more
markets than we're accustomed to, along with increasing interest
rates and all of the nastiness that will come with the
aforementioned ARM and subprime borrowers, I do expect some hard
times ahead. And a serious drop in housing prices to continue.
dhex|7.12.07 @ 12:35PM|#
"How is someone who isn't terribly sophisticated in financial
matters supposed to know what questions to ask, or what information
they aren't being given?"
you do research beforehand? at a public library that's free?
etc.
or as others have mentioned you hire a professional unconnected to
the people you're going to give money to.
i mean, what the fuck, joe? you're usually not this retarded. life
is hard, but it's harder if you're stupid.
|7.12.07 @ 12:40PM|#
Actually, the true libertarian position would be that government has no place enforcing private contracts. If a lender gives a borrower money and the borrower does not pay it back, why is that my problem and why should taxes be taken from me at gunpoint to help the lender recover their funds?
I agree 100% Dan T. When a bank gives a loan, that the state should
not act on behalf of the bank to get the property back for the
bank. There is no reason that the state should subsidize the risk
of the banks investment.
However, most people (probably yourself) think that all people
should own homes, and would be pissed off if it was difficult
and/or expensive to get a loan.
Nor do you have to be a moron or a leech to be set up for a fall by an irresponsible mortgage broker.
The trouble is joe, liberals want their cake and to eat it too.
They want the banks to lend money to poor people with no credit (if
they don't, it is "red lining"), and at the same time they don't
want banks to lend money to poor people with no credit (that is
"preditory lending"). That is a paradox, and when government steps
in to enforce a paradox, it always fails.
If you are claiming "preditory" lending policies are bad, and the
government shouldn't respect those contracts, then I might actually
agree with you. So long as you realize that banning "preditory"
lending practices will mean that it will be more difficult for poor
people and people with bad credit to get a loan... and a few years
down the line you aren't going to call it "market failure" when
banks are reluctant to give out loans lest they be accused of
"preditory" lending practices.
|7.12.07 @ 12:43PM|#
robc,
I had a similar experience a few years ago. My wife and I were
shopping for our first house and had a combined income of about
75k. We were approved for a 600k loan. The monthly payment would
have easily exceeded our entire take home pay. Luckily, we put our
Mensa-level intellects to use and concluded maybe that wasn't the
best route to take. But remember, the same people who realize what
a scam extended warranties and credit card insurance are can't be
expected to resist the razzle-dazzle of smooth talking lenders and
thus must be protected.
robc|7.12.07 @ 12:51PM|#
joe,
In libertopia, the public does not demand the government does
not deliver responses to severe threats when Big Giant Heads who
took a semester of economics say it's a bad idea.
You can call me a libertopian all you want, but dont ever accuse me
of having gone to a semester school. I would challenge you to a
duel over that, but I cant run for statewide office if I do. I had
THREE quarters of economics. (Although 1 was engineering econ
taught by the Industrial Engineering dept)
As an aside, my alma mater is now on the semester system, but they
fought it. Every other state school voted to change, they were the
only opponent. I was in favor of them going private to avoid the
change.
As far as your greater point:
"A representative owes the People not only his industry, but his
judgment, and he betrays them if he sacrifices it to their
opinion." -- Edmund Burke
|7.12.07 @ 12:59PM|#
Ah, I see.
Everybody who gets taken advantage of is stupid, and brought it on
themselves.
Why have fraud laws at all, if research you didn't know you should
conduct would have protected you?
Life must be so much easier without empathy.
|7.12.07 @ 1:02PM|#
Rex,
You don't know what the term "redlining" means, so you keep
misstating the argument against it. Please stop using it, until you
look it up and can do so correctly.
Ditto with the term "predatory lending." You are defining them
inproperly, so as to make opposition to them both appear
contradictory, then smugly noting the imagined contradition.
As long as keep making up straw man positions and definitions, I'm
going to ignore you.
|7.12.07 @ 1:08PM|#
So, there isn't a threat to the economy from large numbers of
foreclosures happening at the same time. However, if people who got
into shady mortgages are allowed to refinance them, we need to hide
under our beds.
Cracking down on sleazy lenders who engage in deception is going to
deny thirty seven billion families the American Dream, because no
one will ever off anyone below median income a loan, but if there
are so many foreclosures that the overall mortage industry
contracts, hey, that's just a correction, don't worry be
happy.
It must be nice not to have to know anything about a problem to
know what the ideal solution to it is.
Scooby|7.12.07 @ 1:13PM|#
I agree 100% Dan T. When a bank gives a loan, that the state should not act on behalf of the bank to get the property back for the bank. There is no reason that the state should subsidize the risk of the banks investment.
After foreclosure(which is just enforcing a security agreement),
the only action the state takes is evicting a trespasser (the
defaulting borrower) from private property owned by the bank. Would
it be better if we left it up to the banks to do self-help
evictions, instead of reasonably neutral sheriff's deputies? I
doubt most people equating the foreclosure process with corporate
welfare would like the results.
robc|7.12.07 @ 1:17PM|#
So, there isn't a threat to the economy from large numbers
of foreclosures happening at the same time.
Since Im currently house shopping, I have found the large number of
foreclosures (and even larger number of people trying to short
sale) to be beneficial to MY economy. I do have the problem of
finding a buyer though? Anyone want to buy a ~1400 sq ft condo in
the Louisville suburbs? For $138k, it can be yours today (subject
to giving me time to close on my new house and move). I have until
8/15 or my contingency contract falls thru.
highnumber|7.12.07 @ 1:29PM|#
joe,
Fraud is wrong. The law should and does protect you against it.
Stupidity is a different issue. And screw you for that empathy
crack. Really, joe, that was just a mean spirited, unfounded
attack. I care a lot, but that doesn't mean that every time
somebody doesn't act in their own self-interest I have to cry. Help
people to help themselves, don't just keep on encouraging their
self-destructive behavior.
So, there isn't a threat to the economy from large numbers of foreclosures happening at the same time. However, if people who got into shady mortgages are allowed to refinance them, we need to hide under our beds.
You're just twisting what was said. Anyway, that's where you broke off into a rant, which was appropriately followed by Scooby's...I can't figure out what Scooby's point was.
|7.12.07 @ 1:37PM|#
You don't know what the term "redlining" means, so you keep misstating the argument against it. Please stop using it, until you look it up and can do so correctly.
I am using the term "redlining" in the same way politicians and
media use the term "redlining". Where I grew up, any time it was
difficult for poor people in Detroit to get a loan, people would
scream "redlining". I am using the term "redlining" as it is
popularly used. If it doesn't conform strictly to the legal
definition of redlining, it is because the government isn't going
to stick to the legal definition of redlining when it goes after
people.
Ditto with the term "predatory lending." You are defining them inproperly, so as to make opposition to them both appear contradictory, then smugly noting the imagined contradition.
Once again, I am using the term how it is popularly used. When poor
people can't afford their mortage, they are the politicians are
going to call it "preditory lending". That is because people who
can't afford their mortage elect the politicians, not the banks -
So the politician isn't going to tell a bunch of poor people to
look up the legal definition of "preditory lending".
You know damn well that people will use definitions of "redline"
and "preditory lending" that banks will never be able to live up to
the law as interpreted by politicians and demagogs.
As long as keep making up straw man positions and definitions, I'm going to ignore you.
Actually, you just realize that your position is a paradox, and it
is very hard to defend a paradox... but you aren't willing to
abandon your paradoxical political ideals. So instead you will
ignore me.
Which means I win.
|7.12.07 @ 1:46PM|#
highnumber,
If you don't wish to be accused of lacking empathy, don't write,
"And, no, I do not have sympathy for people who sign paperwork they
do not understand without consulting an attorney, or believe
everything a salesman tells them."
You want a definition of "meanspirited?" How about looking at
people who were targetted because of their naivete by predators,
who were sold a bill of goods, who are losing their home, and
yelling "Suckers! Shoulda read the fine print!" That's
meanspirited.
Carefully constructing your con to stay just this side of the
consumer laws doesn't make you a legitimate businessman.
Rex,
Thank you for describing how you came to your misunderstandings. A
better man would be interested in clearing them up.
Roger Shrubber|7.12.07 @ 1:56PM|#
I'm all for the sneaks, that's why I said that the government shouldn't sanction every agreement between lender and borrower.
|7.12.07 @ 1:57PM|#
If you don't wish to be accused of lacking empathy, don't
write, "And, no, I do not have sympathy for people who sign
paperwork they do not understand without consulting an attorney, or
believe everything a salesman tells them."
joe, my wife and I donate between $2K and $3K each year to a local
charity that focusses on young unwed mothers. My wife also puts in
100 hours a year in volunteer work through her church.
And I do not have sympathy for people who sign paperwork
they do not understand or believe everything a salesman tells
them.
I chewed my daughter's ass royally for signing a contract to buy a
used car without reading it first.
I fully expect adults to pay attentition to the details when making
major life decisions and then take responsibility for their actions
at a later date.
If that means that I am emotionally damaged and lacking in empathy,
so be it.
|7.12.07 @ 2:01PM|#
joe,
The difficulty in understanding all the paperwork lies at the feet
of the crazy patchwork of consumer protection laws.
Most lenders are not trying to defraud their borrowers,
sophisticated or otherwise. Brokers and various salespeople will
shade the truth somewhat, and I think there are some inherently
risky moves that the lenders have made (like drive-by appraisals
and no-doc loans), but that's not the same as screaming fraud and
crying for the little guy.
Buying a house is a major purchase for most anyone, and going into
it without any attempt at due caution is foolish. People can rent
if they can't handle the obligations of owning a home.
There are bad actors in lending, and they should be punished
accordingly. But they aren't the industry, and suggesting that
people who screw up need to be bailed out is foolish. What do you
think will happen the next time these same people are looking for a
loan? Why worry about taking a risk when someone will get you out
of it, no questions asked?
Consumer fraud is a huge problem, too, and is one of the reasons
the default rate can never be eliminated. Lenders take a loss when
they foreclose, too, which you'd never know if you just believe
what consumer advocates say.
highnumber|7.12.07 @ 2:08PM|#
joe,
Do you cry for the kids in this video?
You probably don't, because they made stupid decisions all on their
own. It's the same damn thing. Yes, read the f*cking fine print.
Consult an attorney. You are making one of the biggest financial
commitments of your life. Do your goddamn homework.
I feel bad for the people who are lied to. I feel bad for the
people who were tricked. I do not feel bad for the people who who
take no responsibility for their own decisions. The people who
signed a Truth in Lending disclosure and an ARM disclosure that
spelled out exactly, in the worst case, could happen to their
payments. Do I like the LO who tells them "no, that won't happen,
but sign it anyway"? No, I think he's a sleazy salesman, but that's
no f*cking excuse for you to sign it and claim you didn't
understand. Why the f*ck did you sign it if you didn't f*cking
understand it? Then you're going to make the rest of us pay for
your stupidity? And that goes for the lenders who were funding
these loans left and right, too. They knew the brokers were
unscrupulous and that the brokers and borrowers and appraisers were
lying, but they didn't care. As my former colleague was quoted in
the WSJ, they were all in a race to the bottom. Everyone should
have known better.
That's my rant.
Good day, gentlemen.
dhex|7.12.07 @ 2:58PM|#
"You want a definition of "meanspirited?" How about looking at
people who were targetted because of their naivete by predators,
who were sold a bill of goods, who are losing their home, and
yelling "Suckers! Shoulda read the fine print!" That's
meanspirited."
no joe, meanspirited is walking up to a mother with a
developmentally disabled child and saying "nice puppy!"
that's meanspirited.
saying people should be responsible for what they sign is something
else entirely.
|7.12.07 @ 3:01PM|#
About 15 years ago (before space aliens abducted my wife and
left my ex-wife in her place), we watched a "60 minutes" (or clone)
about a family "giving up their dream house."
The house was worth about $1.2 million, and they were giving it up
after the husband lost his $750,000/year job. They had been in the
house for most of a decade, but had been playing the mortgage
payment game with their taxes . . .until they got snakebit.
Neither Kyla nor myself had any pity for these people. Where the
heck did all of their money go??? We had 5 kids and were living in
the latest of a series of rental homes -- if we had been bringing
in that kind of money, paying off the "dream house" would have been
just behind buying food on the priority list.
When it comes to getting bit by your adjustable-rate mortgage, the
same rule applies. Only an idiot or a straight-ticket voter (sorry,
that's redundant, isn't it?) would think that the rates will always
adjust in their favor! So what you do is, while the rates are low,
pay the thing off! Or at least pay it down as much as you
can!
Lamar:
The real estate agents can't do ANYTHING to the market. They can't
tell someone what to sell the house for, they can't force someone
else to pay the higher price. All they do is run a matchmaking
service, trying to find the right house for their buyers, trying to
find the right buyers for their sellers. In each case, it's the
principal who makes the money decision.
I bought a chunk of land a couple of months ago from someone who
bought it for investment, then needed to cash out quickly. The
people who own the lot next to mine bought it (sight unseen) years
ago, expecting the value to go way up . . .it never has. They have
paid far more in payments, interest and property taxes than the
land would be worth if it were buildable (which, unfortunately, it
is not). They offered it to me then were upset that I wasn't
willing to pay what they had in the land.
And no, they won't call it "Yuppie in Trendy Condo That's Obviously
Just Cheesy and Worth Nothing Now Bailout Measure" -- it's chic
these days to name a law after a high-profile victim who may or may
not have been helped by it.
They'll call it "Biff's Law" . . .
Jennifer|7.12.07 @ 5:18PM|#
Also: even if you make the super-conservative assumption that the average mortgage in Massachusetts is for $100,000 (likely much, much higher than that), this program only has enough money to help 2,500 defaulters. In reality, I wouldn't be surprised if the actual number comes out to less than a thousand defaulters. Watch the program expand on the grounds that it's not big enough.
|7.12.07 @ 6:40PM|#
We should just add a few hundred basis points to the loans of 'A' borrowers to subsidize the loans of subprime and irrational borrowers. That seems fair.
|7.13.07 @ 1:57AM|#
I think that politicians who pitch these bailout programs for
the reckless (e.g. Chris Dodd) are going to experience some
blowback of their own from the well-organized and disgusted housing
bubble watcher types.
Seriously, how is a bailout a positive for politicians? Most people
did not buy a house in the past three years, and don't want to pay
for people who signed up for a loan they obviously couldn't afford,
hoping prices would go up forever and they would make a bundle.
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