I couldn’t help but notice that two mortgage crisis petitions that people have sent me info about recently are pretty much in direct opposition of each other. Of course, both claim to represent the average middle-class citizen.
No Intervention
First up is the petition at AngryRenter.com. Their general message is that they are tired of both the borrowers and lenders who have contributed to these inflated housing prices. As I understand it, they think any intervention will simply keep housing prices artificially high, preventing existing renters (32% of households) the ability to buy their own home. Many are those that could have gotten no-doc, interest-only, zero down loans, but did not. They want no governmental intervention or “”bailouts”. I thought this chart was interesting:
7% of folks are either delinquent on their mortgages or in foreclosure? That’s seems like a lot, I wonder what a “normal” percentage is.
Lots of Intervention
The next one is by the Neighborhood Assistance Corporation of America (NACA). They place the blame squarely on the mortgage lenders, and want lots of governmental intervention to borrowers with adjustable-rate mortgages. They are very angry at the money being spent to keep Bear Stearns afloat. Specifically, the want the government to:
- Stop any future interest rate resets.
- Reduce the current interest rates to the initial rate.
- Impose a moratorium on foreclosures.
- Require restructuring of all troubled mortgages to an affordable long-term mortgage payment.
I am guessing they want the lenders to cover the cost of doing all of this.
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Even though I am a new homeowner, I agree much more with AngryRenter. I would love for home prices to keep going up and up, but it shouldn’t be significantly greater than inflation because otherwise in the long term the pool of buyers will shrink.
As for the NACA proposal – it sounds ridiculous. Any of the four proposals would cost the mortgage industry tremendous amounts of money (I’m guessing billions). While I’m sure these would all help existing homeowners (myself included) it is just preposterous because I got my mortgage knowing exactly what my rate was and what it could go up to and knowing I could afford it even if my rate went all the way up to 10% after the 5 year ARM reset.
I am not familiar with the NACA site, but don’t be fooled by AngryRenter.com. See below
http://online.wsj.com/article/SB121090164137297527.html
Angry they may be, but the people behind AngryRenter.com are certainly not renters. Though it purports to be a spontaneous uprising, AngryRenter.com is actually a product of an inside-the-Beltway conservative advocacy organization led by Dick Armey, the former House majority leader, and publishing magnate Steve Forbes, a fellow Republican. It’s a fake grass-roots effort — what politicos call an AstroTurf campaign — that provides a window into the sleight-of-hand ways of Washington.
Although I do mostly agree with AngryRenter, I do believe there should be some sort of safety net (and thus “intervention”). The Gov shouldn’t get involved in the mess of trying to prop up housing prices.
From what I have heard on CNBC the stats put out by angry renter are accurate, but I am a little leary because Saturday’s Wall Street Journal reported that angryrenter.com was being financed by Steve Forbes and Dick Armey
believe it or not, i found myself agreeing with W.
don’t get me wrong, i don’t like seeing families suffering. if anyone is going through foreclosure due to circumstances beyond his/her control (i.e. medical), that person has my sympathy. but i do believe that the housing market must fix itself before we can regain a sound economy.
with that said; however, there will also be consequences of not bailing these borrowers out – would it end up costing more than what it takes to save them now?
like biturbomunkie, I’m not sure how much it would cost to bail people out vs everything working itself out, but on principle, I would say let those people lose their homes. I’m sure the next go around they’ll read the fine print, won’t they?
I bought my first house last December, and as cool as interest-only payments sounded (yeah, right…), I went with something that’s affordable for me to pay alone, along with all the other costs that go along with a house. Now, if my rent-paying roommate moves out, I might have to shut off the internet and cable and never eat out again, but I know I can make the payments work. Should I go into foreclosure just so that I can have the government bail me out? f that.
I’m with Sarah. No one rescued other debtors from other bad debt (credit card with crazy interest, paycheck loan, etc.). Lets face it, when they say the ‘government’ is going to help them – it really means you and me.
Borrowers should definitely be able to refinance. The lenders dont want to lose money so its in their best interest to make it work. But the governement shouldnt intervene to freeze rates or prop up property values. But if borrowers truly cant afford the home, then they shouldnt get to keep it.
NACA demands are absolutely ridiculous.
ABSOLUTELY agree w/ Angry Renter.
Enough is enough!!! As we creep closer & closer every day to this neo con type socialism, the people need to put their foot down.
Free market
Capitalism
They’re all starting to fade away. We need to stop it and this will help.
Don’t reward the folks that did wrong. Don’t allow the neighbor that has the house twice as big, new, etc. as yours to keep that sucker at a discount just because they didn’t do what you did when you bought………..BUY WITHIN YOUR MEANS!!!!!!!!!!
I’m so angry about this, text can’t BEGIN to express how I feel!
For the record Bear Sterns wasn’t bailed out, there was no bail out for the stock holders who saw the price of their stock go from $171 to $2 at one point, nor was there a bail out of the bond holders who saw the value of their bonds go almost to zero at one point. And there was no bail out of the employees, many of whom lost or will lose their jobs. J. P. Morgan Chase didn’t get any free money from the Federal Reserve. They will have to pay the loan back interest plus principal. As for the mortage crisis what should the Federal government do? Just stand around and let the country slide into a depression? How does that help? If you want to see an example of a government and a President who did nothing while the U. S. slide into a depression just take a look at Hoover. Do we really need to go down that road again? The people don’t live inside a theory. In the real world if there’s an economic problem then the government must fix it.
I’m particularly interested in the fraction of people with mortgages who are not actually home OWNERS- i.e. those with interest only or duplicative mortgages.
Plus, none of these analysis take into account the effect of rising housing easements (taxes) which have not dropped despite drop in housing value. Many of the foreclosed might be able to pay their mortgages if not for excessive and punitive property taxes.
Look at the stats from AngryRenter- only 7% of mortgages are at or near default, yet they make this big hullaballoo about all the poor people about to be cast out on the street. The truth is, most people ARE making ends meet and meeting their obligations.
THere is no massive need for government intervention. The problem is not as dire as they want you to believe. Like Jonathan asks, what is the NORMAL default rate? Until we answer that question we cannot begin to assess the true magnitude of the “problem” if there is one at all.
Imagine if homes prices were 1/2 the prices they are today. Instead of slaving 30 years to pay for a roof over our head. We could do it with 15 years. We can enjoy our lives using those extra time and money to travel and visit or do what ever we want with it. Now wouldn’t that be great?
Even if the housing market faces doom, we don’t want the government getting involved. It creates a moral hazard and unintended consequences.
We could see housing stagnate for years or interest rates rise (as banks raise rates to be compensated for the threat of government intervention at a future point in time) if the government gets involved.
I kind of feel the government shouldnt intervene. I think the people who signed the contracts should be held accountable for what they signed. Maybe they were lied to, but you should always read what you sign. ARMs are incredibly risky and I don’t think I would ever get one. It is a tough lesson to learn and I don’t think taxpayers should have to pay to fix other peoples mistakes.
The government needs to let the marketplace work itself out.
If there is a bail out for the mortgage lenders and the people who entered into these high risk loan deals then no lesson is learned and a similiar fiasco is far more likely to repeat itself sooner than later.
I have yet to hear one reasonable theory as to why responsible tax paying citizens should pay the price to bail out irresponsible lenders and consumers.
It sends the wrong message. It teaches the wrong lesson. It would be a monumental mistake.
Justjoeguy, I think you have got things a little wrong. When there is a problem with the economy, the government can not just “fix it”. The government has never been able to fix the business cycle. All the government does when there is a problem is 1. run a deficit and 2. print more money.
1. running a deficit is what they are doing now with these tax refund checks (this does nothing because it crowds out investment)
2. they are also printing more money to reduce interest rates to try and add more liquidity to the market (this will just cause inflation)
Bailing out anyone just causes moral hazard. Letting the market work undisturbed is our best bet.
I am in the the “mostly agree with Angry renter” camp, but I chose neither. AR is right that practically any government intervention would cause a problem, and most likely draw out the housing downturn. In fact government intervention is one of the main reasons we have this problem in the first place!
The government is almost more at fault than the borrowers and lenders. They past an act that forced mortgage companies to give out loans to more sub-prime borrowers. These are loans that the banks would never normally give out, but if they didn’t, anytime they wanted to change something big about themselves, the FCC (I believe) would block it when they saw their loans to the “less fortunate” were low.
A lot of the borrowers were just trying to flip a house, and government intervention WOULD bail them out. On the other hand, the lenders that made the goofy contracts, have some of the blame, at least on the transparency front. When it really gets down to it though, we can’t breach a contract, because that invites more of the same in the future. The most intervention we should have is forcing the banks to have more transparency about the loan and about housing conditions.
Hope someone reads this.
I only agree with #4 of the NACA’s proposals. I think it would be in the best interest of everybody (the homeowners, the Banks, and the communities) that the people who got suckered into the the really bad mortgages had a chance to refinance now into something they could possibly afford, with the least amount of upfront cost. If they can’t handle the payment after they’ve been given a reasonable fixed rate, then they should sell.
I’m not an angry renter, I’m an angry owner.
Who cares if Armey/Forbes is behind the site? I’m in complete agreement with the message. The WSJ article had a lot of innuendo, but I didn’t see them disputing any of the facts on record, or demonstrating how Forbes or Armey might expect to gain personally by killing the bailout. The article even goes so far as to list the values of their real estate, without ever mentioning that those values have probably declined substantially, meaning they’re acting against their own interests in opposing the bailout.
I bought my condo in mid-2007; based on recent sales, I’m currently estimating a paper loss of about $12,000. But you know what? I’ll manage. I still love my home, and I’m still going to live here. So what if I overpaid? I no more deserve a cash bailout for my home than I do if the stock market tanks (and the last time I checked, my retirement accounts are down since 8% last year).
It was my money, it was my choice, and now it’s my responsibility.
I lean more toward angry renter.
But you can’t just say “it’s all the buyers fault” or “it’s all the lenders fault.” Most of the better banks I work with are not being hurt at all by this, because they never bothered to make bad loans.
Likewise, the vast majority of borrowers may be seeing their homes devalue right now, but most of them can afford the loan they took on.
Let the situation play out. Those who borrowed more than they can afford will be wiser for it. Same with the lenders who make bad loans.
I think the thing the government should do is find a way for those stuck in bad loans to sell without ruining their credit. Maybe some kind of government relatively low-interest “loss” loan, to cover their losses if they have to sell for a loss. It would be contingent on those signing the loan finding housing they can afford, of course.
Jonathan,
Do you have a stumble id? I’ve recently gotten into this wonderful tool!
It’s both. The person who took the adjustable rate without thinking long-term is at fault. The mortgage lender who lent at impossible rates is at fault.
Both sides have correct views; the question is, do we let the delinquent lose their houses (or force them to sale their house and get a smaller one or rent), or do we (the responsible) bail them and their lenders out with our hard-earned money?
Neither situation seems optimal or preferred.
Personally I think that the credit market is already in recovery and doesn’t need much more help to get back to business as usual. A mortgage broker that I help out has said that her business is back to normal with most loans going through just as normal. Yes, she says that there is a bit more documentation, but overall things are working smoothly again.
Not to mention, have you seen the resurgence of zero percent balance transfer requests going out? For a while I thought they were a thing of the past (replaced with 3-4% offers), but checking the mail this morning I have 6 of them today with Chase offering 4 of them through their various flavors. Granted, interest rates are pretty low to take advantage of them, but if there wasn’t money to be invested, would they be sending out the offers?
Saladin is correct though. Free market? What’s that?
the media pushes the idea that if there is no bailout, these ‘owners’ and families will be ‘thrown out on the street’. THE HORROR!!!!
NOT, by ‘thrown out on the street’, what they truly mean is, “renting something affordable’
i am going to start the site veryangryrenter.com or rentingisnotadisease.com
Idiot speculators and stupid people shouldn’t own homes. If you can’t afford it you will lose it. No bailouts you morons. The government is why this mess was started (deducting mort interest and keeping interest rates too low).
Let them rent and the market will take care of itself. Price controls don’t work.
Hey,
Saw your blog site being mentioned on the Channel 4 news (NYC) – that’s cool.
Jt
I’m not thrilled about the AstroTurf campaign by Dick Armey. Not at all. However, I am a responsible homeowner who downsized my first-home ambitions to a studio condo. It does infuriate me that I will have to clean up other ppl’s messes.
But I want to know WHERE THE HECK WAS LAW ENFORCEMENT TO PROSECUTE THE FRAUD ON LIAR LOANS? Having worked on a bankruptcy case in 2001 where the flipper had committed fraud, I know the government can and will prosecute if the will is there. But the conservative agenda wants you to be scared of terrorists rather than your delinquent neighbor. Which causes you more harm? Risk of a nuclear bomb or a run down property next door with squatters?
Think about that.
Ok, off my political rant here, back to economics, I am inclined to agree with the position of AngryRenter because I don’t want any intervention for this except the legal enforcement issue. I’d rather watch the economy collapse for 10 years, continue to slave at my job and mock the greed that caused the bubble.
Angryrenter. I read the WSJ article about it, but I’m still against the bailout. I’m also against the Gas Holiday. The cure for high prices are high prices. I’m all about the School For Hard Knocks.
You said it, Blackhammer! Add the economic stimulus package to that list as well!
I’m with the AngryRenter point of view, and I don’t care who came up with it. As a responsible adult living within my means if I’m forced to pay for the irresponsible decisions of others then my aspirations for future home ownership may be buried. How would THAT be fair?
I think the government has already bailed them out. Look at what inflation is (real inflation, not the government’s numbers, just look around you, that should suffice), look at what interest rates are, look at where the dollar index is, look at how negative the federal reserve is on what is supposed to be its “reserve” of money (yes, they’ve loaned out more than they have).
The banks needed liquidity so that they could sell off their bad debts (which essentially means those owners that need it will get bailed out). That is happening by the federal reserve loaning them money at an interest rate lower than inflation. That *is* free money in my opinion, and that is a bail-out.
Of course, I am undecided if I’m against it or not. Banks going out of business definitely wouldn’t benefit anyone.