Over in another semi-trainwrecked thread, I posted:
"Aside from which, though may it never be said I am callous, I have a hard time seeing how people can be foreclosed out of a house unless they were messing around with things they should not have. Like setting up second mortgages on their homes for cash or something, and then finding that the falling housing prices meant their homes weren’t worth the charges anymore. Not very good for them, but not something I get misty-eyed sympathy for.
But since this is GD, perhaps someone can “larn me.”
…
I was thinking that, well, I can’t actually see how an “innocent” could be back-stabbed by the housing crunch. After all, you’d have to have pulled out a mortgage (maybe even a second or third) and then woke up one day to realize your house wasn’t worth the payments anymore, right? And even then, you could go rent with the same income you were making before. Yeah, you probably lost your equity, but it would have to have ben your own fault.
Now, your family, if they let you get away with this, your children, they could be innocent. But I’m not clear as to how bank foolishness in doing the lending somehow attacked poor innocent souls generally. It seems like both ends of the equation got greedy, tried to run the game out by dumping on the other guy or not considering the consequences, and then got caught.
In the case of the housing crunch, “innocent” is a euphemism for “someone who thought the bubble would never burst and the payments on their no down-payment mortgage would always stay reasonable.”
I agree with you, that’s not exactly what I would call an “innocent” person in this mess.
And for all the gloom and doom, my wife and I bought a house last year with reasonable payments and a reasonable sale price for the neighborhood. We probably wouldn’t be able to sell our house for a few years now, but we weren’t going to do that anyway.
You could argue that investors who were misinformed about the risks of those structured securities, and ended up losing their shirts, are indeed innocent. Even if they diligently tried to find out the riskiness of their investments, the banks couldn’t have told them. However, on the borrower’s end - those who foolishly took out multiple mortgages on overvalued homes - there is hardly “innocence” to be had.
Actually, a few years ago, before the sub-prime mortgage crisis hit, the local weekly indepent newspaper ran several articles about people in poorer areas who tried to borrow money to do some home improvements. As I remember it, the sub-prime lenders they went to refused to loan them the amount they wanted and, instead, worked out how much they thought the borrower could afford to borrow (a higher amount than they were going to borrow) and refused to loan them any less than that. I’ve found a couple of links. Link 1 Link 2 Link 3 Link 4
Not everyone who’s gotten bitten by the subprime mortgage crunch is a yuppie moving into an overpriced home he knows he can’t afford. In my opinion, there are innocent victims in this mess.
If you signed the papers, you’re on the hook, and not “innocent” unless someone fraudulently changed the terms after you signed them.
I’ve seen the argument that it is hurting innocent people by causing banks to clamp down on loans, and that people who should be able to get them can’t. I can wrap my head around that, but I have no evidence on it either way.
If you bought a home with no money down then you’re basically renting it until a positive amount of principal is paid. If the value of the home decreases below it’s sale price then it’s possible to declare bankruptcy and walk away from a negative net worth in the house. The only entity that gets screwed is the lending institution and, well… too bad for them.
Foreclosures also impact the prices of the rest of the neighborhood. There are many people with perfectly responsible mortgages which are being paid in a timely manner who have seen their house prices fall as a result of irresponsible neighbours.
I bought a house last summer. Then, unexpectedly, I had to move to a new town. Thanks to the market crash, I’ll be *lucky *if I only lose $100k on it. I’ve had one offer in the six months I’ve had it on the market, for almost a third the price I paid, *and *they wanted me to pay for their closing costs. I can’t rent the place out, as there are a ton of rentals in that area.
Innocent? I guess I brought it on myself for wanting to have a place of my own.
My sympathies. At the same time, in buying a bouse you accept the risks which come with that. A house may not appreciate in value or even retain its value.
There are probably some folks involved with Bear Stearns who did nothing but hitch their wagon to an old and respected Wall Street firm, and are hit pretty hard by the foreclosure crisis. They may not have been foreclosed on, just yet, but there is quite a bit of lost wealth and potentially lost jobs, and this is just the first casualty.
Second, you have people like my parents, who chose to move a few years ago, and due to legal issues with their property, couldn’t sell until more recently. The downturn in the market hurts them because property once worth $400k is now worth $350, and the new property they bought was at the pre-crisis value. Granted, my parent’s are still financially secure, but they were clearly harmed by the changes in the market.
While there are risks in any sort of investment, if your argument is that you lost your “innocence” by buying a home, then you’ve done nothing but defined your way to winning the argument.
Third, you have the less savvy buyer, who in years past would have been told “you can’t afford this house”, and more recently would have been given the mortgage, but with terrible terms. Terms that ultimately cause the monthly bill to increase over time, and force people who started on the brink of solvency into default. Not that these folks don’t deserve blame for getting themselves in trouble, but there is something not cool about a mortgage professional pushing bad terms on folks who don’t have the resources to negotiate effectively.
The media didn’t help much, either. As long as the housing news was good, people continued to buy. Cable channels aired programming to encourage people to speculate; “Flip This House” and “Flip That House” are two examples; so long as these shows focused on success stories, people who had no business doing so, did so. Speculating in anything is risky, but there were many, many people who didn’t have a grasp of the basic economics and who didn’t understand that flipping doesn’t always work if housing prices don’t rise, which happened in many areas. A real-estate broker acquaintance of mine told me about a few local people who came close to bankruptcy because they bought houses with the intention of flipping them, but they priced the houses much too high relative to the local market. The houses sat unsold, and the investors were on the hook for mortgages they couldn’t afford.
The home-equity loan market also contributed as they pitched the notion of converting what were essentially paper profits into cash that had to be repaid. Now that the bubble has burst, these paper profits are gone, but the owners are forced to pay the loans back with nothing to show for it.
In addition to the mortgage brokers, real-estate agents loved the bubble, too, because their commissions are generally based on a percentage of the sale price. Municipalities who got accustomed to higher taxes are now faced with revenue shortfalls because of vacant houses and lower values.
My point is that so many people had incentive to keep the bubble going that people who had no business getting mortgages in the first place were encouraged to take them out, and got taken advantage of in the process. As long as everyone else is raking in the dough, what’s a few bodies on the side of the road?
economy’s good, real estate prices are rising - you buy a house to live in
your house loses value, economy tanks
you lose your high-flying job and are now working at McDonald’s to make ends meet
you can’t keep up with your house payments
don’t profit
I don’t know how US bankruptcy laws work, so there may be some protection from this - but otherwise you basically end up with no house and still on the hook for the loss in value of the property.
So even without ‘good guys’ and ‘bad guys’, ordinary people certainly do get hurt when speculative bubbles burst.
http://www.realquest.com/rq/default.aspx# Just type in a zip code. Zoom in a little and you can actually find out the evil people who belong in the streets. Guilty of believing the financial company that talked them into refinancing or buying a house at the limits of their ability.
These mortgages were developed by financial institutions to sell as many as possible, The ability to stay in the house was not much a consideration. Writing as many as possible made them fortunes. The company that wrote them did not keep them.
They were packaged and sold off in quantity to larger banks who also made fortunes off them.
The house buyers were influenced heavily by aggressive and unscrupulous mortgage brokers who were interested in cranking out as many as possible. It is clear now that brokers lied to their customers,and faked the paperwork and assessments. It is asking too much for the average guy to be able to understand his bank and mortgage company are running a ponzi scheme.
The point is that it effects not just the people who have borrowed the money, or leant the money directly. Those loans have been “securitized” and part of them have been re-sold as “low risk” investments all over the economy (including in pension plans and the like).
Of course you could argue that you shold never take anyone’s word that an investment is “low risk”, whether its anonymous spam email, or the finianical establishment. But I’d consider myself fairly “finianially literate” but I wouldn’t have the first clue how to tell if a pension plan or investment was tied up in this kind of stuff. So you can’t really blame some pensioner for taking their fininical advisors word on this.
I’m willing to accept that the buyer should have been aware when he signed the dotted line. I’ve signed several dotted lines, and I’m getting hammered paying for a couple houses that I didn’t or couldn’t sell in a timely manner following military moves.
That said, when Delta Airlines needs a bailout, Uncle Sam is there. When Bare Sterns (was this a warning sign?) needs a huge influx of my tax dollars (after their CEO pocketed $61 million in a stock selloff), Uncle Sam is there. But when a regular family needs help to keep their house, tough luck.
When I worked for Countrywide (it was the worst 3 months of my life) they were aggressively targeting low income individuals and others who would normally be turned down for loans, often lying about the terms of loans and burying the important information in legalese they couldn’t understand to get them to sign up for subprime mortgages. I mentioned several times that loaning money to people who normally couldn’t qualify was a bad idea but I was so low on the totem pole no one cared what I thought.
Didn’t JP Morgan, another private company, buy out Bear Stearns? How is that a government bailout? And didn’t Delta declare bankruptcy? PEOPLE who declare bankruptcy get some relief on debt as well. I don’t understand how these two examples mean that we’re a welfare state for the rich.
