Posts tagged ‘mortgage’
I am back after having family visiting for the past week. I decided to take a break from the weighty issues of politics for the time that they were here. But now they have gone and I am back to typing.
Mortgage bailouts are on the list of things that I just don’t fully understand. When the whole mortgage industry started going down we knew that foreclosures were going to be going up. This trend started with the demise of the Sub-prime loans and increased difficulty to get “Jumbo” loans. This part of the market started to have issues about two years ago. I know because I spent some time looking into these loans right as the banks started to cut back on offerings.
Personally a sub-prime loan, one with an ARM and a 3 to 5 year term was never an option for me. I have heard too many stories of people losing their homes at the end of the ARM due to massive increases in the mortgage payment to reflect the new interest rate. Maybe you thought you would move, perhaps thought interest rates might go down, and maybe you even missed the part in the contract that specifically told you what date your payments would increase and what your interest rate might jump too. I don’t know. But the risk to me is not worth it. A standard conventional loan was the best option for me. And as far as jumbo loans go all I have to say is that if you need a $600K loan on your home then you should have sufficient income to make the payments in the first place, AND assuming you were avoiding PMI that would mean that your home was actually $750K and you would have put down $150K. Now really if you could handle that then you should be able to afford the payments OR you should not buy that house.
So now I understand that some people have faced tough times at work and lost their homes. Now what is better to do though, put your home on the market, even potentially taking a loss on your home to sell it and downsize or to default on your loan and land in foreclosure? The other problem in housing has been super inflation in certain housing areas. California and New York are prime examples. Home values are not reflective of what would be considered average income. If owning your home is the American dream then how do you explain my 1600 sq ft home that I rent in the Bay area would cost $900K. My larger, newer home in a great neighborhood in Alpharetta, GA sold for $225K. No wonder California is one of the top 5 states for foreclosures. When jumbo and sub-prime loans were super easy to get it was not hard for people to get in over their heads on a home loan. I do disagree with the columnist who suggests that just because they have a $700K loan that they are not poor. We are not considered poor, but we certainly do not need a loan that size. What we did though is choose to Rent instead of buying a home just because. Rent here is absurd as well, but when you couple that with what the person who owns the home paid for the home, rent is high to cover their mortgage. It is a no-win situation.
Owning a home is not the American dream. Having a house to live in should probably be the way it is worded. A shelter, a safe place to come home to. But not everyone should own their home. Live within your means. Don’t buy a $700K home because you think it is what you have to do. I will miss the mortgage deduction on our taxes, but not nearly enough to buy a home whose mortgage would be double my already high rent. And according to wordnet this is the definition of the American dream: the widespread aspiration of Americans to live better than their parents did. No where does that mention home ownership.
So now on to the bailout for foreclosures. Obama has shared his plan for a $75 billion mortgage foreclosure bailout. So we are going to help people who overbought. I do acknowledge that Obama did address that there are multiple facets to what created this situation – the lenders, the banks, the homeowners, etc. This is not solely the banks creation. People signed these documents. Taking advantage of the buyer is hard to assess. What were the lenders supposed to do, offer IQ tests to make sure that the home buyer was capable of understanding what they were agreeing to? That hardly seems like it would be acceptable or even possible. But how would you propose pre-qualifying people based on their ability to understand what they were doing?
While we are doing all this refinancing and assistance to the homeowners in question, will this have any impact or effect on their credit? It seems like they are going to be getting a freebie on a situation that was preventable. Should it be treated more like a credit consolidation where there is some impact on credit worthiness?
So back to my original question, if ultimately I am going to end up helping to pay for your bailout through tax increases does that mean that a part of your home will really be mine?
There is no doubt that the economy is in trouble. Is it possible to place the blame on one person for this. No. No way. President Bush is a veritable punching bag for anything that goes wrong. The things that people blame the presidency for currently are astounding. They are topics that have never been the presidents responsibility solely. He did not “allow” the sub-prime market to do anything. Investors, lenders, and home buyers did. There is plenty of blame to go around. Sure it is more convenient to blame Bush, but it is wrong. It serves all kinds of purposes to accuse one man of all of our problems. Bush has been blamed for everything from global warming, weather patterns, to this current mortgage situation. Really. One man. The strength and grace it must takes to bear the weight of everything. Amazing. I doubt many of us could shoulder such responsibility and yet still push forward for the better of all Americans.
I digress, this article – “Who is to blame for the sub-prime crisis?” – gives some insight into the current sub-prime crisis which in turn has spilled over to create our current financial crisis. Clearly there is plenty of blame to go around. But does it really matter at this precise moment, who caused the situation. NO. We just need to come up with a strategic plan to resolve it.
I don’t personally believe that McCain is simply pulling a media stunt. Do I think it was a little dramatic? Possibly. But I also think that Obama’s statement that presidential politics should not be brought in is ridiculous as well. Last time I checked both of these guys were still acting representatives of states. They never stepped down from their positions when they began their campaigns. So, in essence by returning to Washington and making the situation a priority they are just doing their current job. There is plenty of partisan commentary to say this group or that group is keeping the plan from going through. Each group is sure that they other is at fault. Unless you were in the room you are believing here-say and biased views. Even in a printed transcript you would lose the intonation and verbal context in which things were spoken. So I choose to believe that they are all being difficult and trying to make what they believe in best work.
Frankly as much as I dislike the idea of a $700 billion bailout, I do think it is interesting. The fact that money could possibly be made off this deal in the long run is very intriguing. The problem is the growing of government and the precedent it sets for government to step in and take over more and more over time.
Consider this interesting proposition by financial guru, Dave Ramsey - He suggests doing the following:
Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans – if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars – you’re going to fire their butts and send them home.
I did email all my representatives suggesting the plan. Take action and email yours too.
It makes sense and it could be interesting. What is your take? Let’s pray they resolve it fast. (and yes i pray)