Friday, September 21, 2007

What to do about a mortgage crisis?

When it comes to my ideas about the role of the federal government, nobody is ever going to accuse me of being a libertarian. Sure, when it comes to personal choice, I think we should have as much as possible without hurting others. But on the other hand, I'm for government regulation of corporations, expanded healthcare, and a strong public educational system. So it's surprising perhaps that I would embrace libertarian thinking when it comes to the housing mortgage "crisis" we are now entering. Apparently there are millions of home buyers that are not going to be able to meet the increases of their variable mortgage rates. Others were never really in any position to take out the loans they were offered. Now they face foreclosure when they can't pay their monthly payments.

There is a lot of noise in Washington about doing something to help these people. Bush is suggesting thet those with a good credit history should be allowed to refinance their loans with the Federal Housing Administration. He's also advocating that Congress pass legislation which allows the FHA more flexibility in helping with subprime mortgages. He says he's going to adjust the tax code to help borrowers rework their loans. And he wants more strenuous enforcement of laws regarding predatory lending practices. There are an estimated 2 million debtors who took advantage of adjustable rate mortgages that face increased rates next year. Many of them are going to be facing extreme financial strain. Economists predict that this could have a negative effect on the national economy.

Both home-buyers and creditors have proven to be remarkably irresponsible. Lending institutions issued loans to many individuals with lousy credit ratings (these are also referred to as "subprime borrowers"). A lot of those folks are now simply defaulting on their loans. They were a bad risk from the beginning. Of course the idea that anybody could now buy a home, regardless of their financial resources or history, had a huge effect on the housing industry in general. Home prices soared as everyone tried to get in on the action. Real estate was considered a "no brainer" investment. Evidently many people truly believed that their new homes would only increase in value, forever and ever. And then the bottom dropped out.

Too many new homes were built. Real estate agents began to encourage sellers to charge exorbitant prices. Eventually the housing demand was simply exhausted. Those who had bought homes as 5-year investments soon realized that they were in over their heads. If they tried to get out of their mortgages they would take a loss on the resale. They hadn't expected that because they didn't realize that the housing market was a typical bubble that would inevitably pop. People had committed to monthly mortgage payments that were simply unwise. Perhaps they had been encouraged by unscrupulous loan officers. Or maybe they were just retards in the realm of simple mathematics. Otherwise they were completely unrealistic in their optimism. Did they think lending rates were going to stay at historically low levels forever?

When it comes right down to it, I don't really care why these people ended up in the situations they are in. They are adults and they made what should have been informed purchases. Buying a home is the single biggest financial decision most are ever going to make. Obviously there are many Americans that didn't think it through. Now they want the government to grab them by the hands and guide them out of their nightmares. But you know what? I don't think they deserve any assistance from the taxpayers of America. They gambled and lost. I think they need to stop whining, step up to the plate, and accept the consequences of their actions. Perhaps they can even learn from their mistakes. They wanted the those five-bedroom, free-standing, development tract, suburban houses... and they got them. If they are now unbearable burdens, why should we be expected to help them carry the load?

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2 Comments:

Anonymous jefg said...

I view people who put themselves in this position in two camps. First, those who just don't understand what potential peril they are getting themselves into (and easily talked into things), and secondly, those who do (or should) and sign up anyway. I feel sorry for the first, not at all for the second. However, I feel "Let the buyer beware" should prevail, and agree that those of us who decide not to take the risk should not have to bail out those who do, in whichever camp they've decided to pitch their four-bedroom tents.

7:46 AM  
Blogger Merge Divide said...

I can't muster much sympathy for those who go into the home-buying process without being methodical and very cautious. This is not like buying a hi-def TV. If you don't realize the gravity of making such a big decision, than you shouldn't be buying a house.

7:07 PM  

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