If you ‘re looking for a simple explanation of how the country got into this financial mess, you can read “Picturing the Subprime Mortgage Meltdown and Rescue as a Bedtime Story.”
The one possibility that would bring death to nearly every liberal theory: the ancients were intelligent.
Amazing bird sounds (3 min) – make sure to listen to the end
Soccer update: Mark won a game! 2-1. Tonight though was back to regular form (10-0).
I want to be a teacher like this.
This guy has put together a few things about the universe that just blows the mind.
The mortgage article is interesting, but I don’t think it really tells the whole story and unfairly paints those who got stuck in one of these mortgages as deadbeats.
The mess was pretty much caused by a number of factors:
— Banks did make it easier to access credit, but that really had quite a bit to do with favorable interest rates and more notably a push by the government to lend (the government was pushing all sorts of its loan programs, most of which require ZERO down payment and for which an overwhelmingly large number of Americans qualify).
— On that note, owning a home, condo, townhouse, or some other sort of property is part of the American dream. The Federal government, though its programs and through its dealings with the financial sector, made it really easy.
— Of course, many of these loans turned out to be subprime, or at least less than prime (660 and above is often considered the magic number). Very, very few actually qualify for the prime or super prime loans.
So,
— Banks offered these ARMs, promising a interest-only, fixed payment for the first two years or so. Banks would tell buyers that these were a good deal, because they could turn around and resell within two years — at a profit — never paying much more than a rental payment.
— Seeing how home values seemed to be going up, up, and up, it was hard to resist and nobody really looked at the “what if?” scenario — “What if I didn’t resell within two years?”
Along came the developers:
— Who kept building, building, and building some more.
— In other words: Glut.
Two years pass, the mortgage payment goes up and Joe realizes he no longer can afford the payment (he had no problem for two years — something the article fails to point out). Joe’s home goes into foreclosure — another home is available on the market, adding to the glut.
Home values plummet, more homes are foreclosed upon. People are paying for a $229,000 mortgage on a condo now worth only $72,000.
Developers continue to build, so the glut grows.
Someone really needs to tell the whole story. What the government should do is setup a program in which the people in upside down and depressed mortgages are given relief — in the form of a lower mortgage, a lower payment, and possibly (though not necessarily) a better interest rate. That, more than anything, would boost the economy — especially if some already foreclosed homes could be saved.
Even for the homes that can’t be saved, already foreclosed and sold, the government should forgive the bad debt and remove the negatives from the consumer credit reports (which probably isn’t helping the matter).
Me …
I could have been a victim, but I was not fooled by the ARM thing, because I wasn’t interested in buying for a potential resale profit the following year. I wanted to buy for long-term residential purposes, still hoping that I would at least walk away ahead should I ever want to sell.
Once I saw the real payment, I knew I was out of my league. Sadly, most banks don’t reveal the real payment. Wells Fargo did, which probably explains why they are one of the most financially sound banks right now — they revealed all the facts and actually discouraged speculative real estate buys.
I actually was looking at a 229,000 condo, the only now worth only 72,000. Phew. Not only would I have been stuck with an excessive payment, but I would have been stuck paying 3 times the current monthly payment on the units.
Thanks for sharing the blog about the universe, that was really amazing. I was thinking that you might like Louie Giglio’s Indescribable video, if you’ve never seen it and would like to without buying it, I have a copy and would definitely let you borrow it. Let me know.
Brian – thanks for your thoughts. I cannot agree that the government should forgive the mortgages of those who made a mistake. That’s essentially giving away money, and if they get it why not those who weren’t foolish enough to make that mistake (whether or not that foolishness is owing to ignorance or not). The government does not exist to fix mistakes that people make. Redistribution of wealth (taking my taxes to buy someone a house) will cause more problems than it solves.
Heather – thanks for the offer. At this point, I am maxxed out timewise. Maybe at Christmas time…
Even if the government doesn’t give money away, I think it would be fair to require the CRAs (Equifax, Transunion, and Experian) to order the deletion of bad mortgages. I’ve already read where people are unable to even rent, because they are shown as having been foreclosed upon. IMHO, I think that’s fair.
Just because a family couldn’t afford a $3,000 mortgage payment, doesn’t mean they can’t afford a $700 or $800 rent payment.
From what I heard today, the government is looking at buying loans at pennies on the dollar. What most people don’t realize is that most of these banks would have sold the debt anyway, to what are known as Junk Debt Buyers (JDBs). These JDBs pay pennies on the dollar for everything from credit cards and personal loans to auto loans and mortgages (even if you are foreclosed upon, you are liable for the difference between what the home sold for at auction and what the mortgage value was).
The government would buy the debts, for pennies on the dollar, even before default. Once they owned the debt, the government would be free to collect (I heard at least one senator today state this is what he wanted to do BTW). Let’s say the government pays 10 cents on the dollar (JDBs often pay 1 or 2 cents). That is all they would have to collect to break even on the deal. The government is hoping to recoup 40-50 or even 60 cents on the dollar. If they recoup the whole mortgage value, even better.
Basically, what the government is doing is something they already have done for years in the education loan business. Default on a student loan and the government is the collector — through it’s collection agency (which just happens to be in the next town over).
Let me say this, as Christians, we should want the government buying these loans, not the JDBs (just do a search on JDBs or visit Budhibbs.com and you’ll see what I mean).
As for the government not existing to fix the mistakes that people make, well, that’s partly true. However, there are laws (Federal Bankruptcy and rehab) that allow people to have a second chance.
All I’m saying is, I think there are better ways to resolve than just letting things die, because IMHO that would prove an economical disaster that this country would never be able to recover from. The problem is that this crisis is not just about mortgages and homeowners making bad choices.
If I were in Washington, especially if I were President, first thing I would do is order a national moratorium on residential development. That, if anything, is one of the biggest problems. In Manteca, they tore down a world famous waterpark to build $1,000,000 lakeside homes. The bank foreclosed on the WHOLE development, sans the handful of homes that were sold.