True, house prices will not come down as much. But will people be paying more for a house, or will they just be paying the same? Of course the cost doesn’t go up at all for people who are not buying a house or who already own one.
Again, I’m not talking about the government stepping in and paying people’s mortgages. Not a bailout. What I’m talking about is the government ‘encouraging’, as Yllaria put it, lenders to work out mutually beneficial arrangements with their borrowers. That is, the lenders still make a profit, but the borrowers’ mortgage payments are still manageable and they get to keep their homes. If such arrangements cannot be made, the FHA can take buy out the loans. Yes, this is taxpayers’ money; but it’s not a give-away. The loans would be repaid by the homeowners, who will also be paying interest on the loans. I don’t see a net loss to the taxpayers. I do see that people who don’t have to worry (so much) about losing their homes might have some expendable income to help stimulate the economy through consumption, and that there will be more money to lend to people who want to buy cars and household items.
The way I’m thinking (and I fully admit my reasoning may be faulty) there will still be people who will lose their homes. Allowing them to keep them would require a ‘bailout’. But what I’ve been discussing will, I think, help limit the damage. Most people will keep their homes, and the lenders or the government will still make a profit.
There should not be a bailout. The moral hazard it creates in encouraging future imprudent investing is not worth it. People need to learn that they are responsible for their own actions, and that real-estate is not the surefire investment they think it is.
This is not a hypothetical. There has been massive overbuilding in flood zones because of the federal government’s habit of bailing out people who’s homes are flooded. Cheap federal disaster insurance has acted as a subsidy for expensive homes built on hillsides that tend to collapse. Reducing the cost of bad decisions encourages more bad decisions.
In addition, sometimes a short, sharp correction is much better than a long, drawn out ‘managed’ correction that results in huge new entitlements, more government debt, and higher taxes.
If lots of real-estate comes on the market due to foreclosures of bad loans, that will reward the people who were more cautious with their money and who can now buy at reasonable prices,and punish the speculators and the ignorant who bought homes at sky-high prices with loans they couldn’t afford. A net transfer of wealth from the stupid and reckless to the smart and cautious. That’s probably a good thing for the country.
In any event, the path to real stability is to make people accountable for their actions and to not set up an environment under which people think they can take big chances because the government will always be there with a safety net if they gamble and lose.
Encouraging rampant, irresponsible indebtedness is not going to help the economy in the long run.
I understand you’re not proposing and out and out bailout, but that’s how it will be perceived by borrowers anyway; people who borrowed money they could not afford to pay back will be given a break from their own bad decisions. People who saved and bought cheaper houses or waited to build up down payments will be punished. One way or another government intervention here will reward stupidity and punish prudence, and that’s just about the worst thing you could possibly do.
I don’t doubt that the twits stuck with subprime mortgages were lured in by promises of easy credit, but you know what? That’s just tough shit that adults have to learn, and those who learn it early (like I did with credit cards) can learn from their mistakes and realize that credit is a tool to be used with caution. Those who don’t learn it get what’s coming to them; we have legal protections like bankruptcy laws to save them from absolute poverty.
I absolutely, positively guarantee that if the government moves to bail out,m or save, subprime mortgages, years from now it will be a move regarded with regret and sorrow, because the problem will grow exponentially, just like the kid whose parents keep bailing out his credit card bills.
Not no, but fuck no. You make 40K a year and got some bullshit loan to get into a 300K house for 495.00 a month, counting on prices to keep going up, they didn’t, and now you need help? Fuck you.
Isn’t is a question of how much naivety/stupidity gets rewarded? Yes, mortgages are probably the most complicated financial transaction an individual will make, but many do this succesfully more than once in their lifetime, and prosper through a mixture of luck (ie buying in a healthily rising market) and prudent personal finance (not getting the largest loan available to them, having a little rainy day money to fall back on).
We can all be a little stupid or naive at times, and unlucky. If there is a bail out, then surely the importance lies with the criteria over who gets the help? My view is if someone could barely afford the repayments when they started rising then the only solution is to end the relationship, but if a householder can be saved from ruin with just a small amount of help then it’s important that the help should be there. What that help consists of is a huge task for debt management professionals to dwell on, but greater flexibility in loan terms (years) and flexible interest and repayment terms (conditions) would be a good start.
Whether the home owner was mis-advised is another kettle of fish, if the numbers don’t add up then it should be ‘Better luck next time’.
NB Speaking from a UK perspective so please understand my level of ignorance on this matter is sizeable.
Here’s the real story. There isn’t going to be a bailout, per se. (At least not from Bush’s reasonable proposal.) The FHA will guarantee loans to people with subprimes now at market rates. The story doesn’t say this, but an article I saw yesterday said that only people who weren’t behind before the ballooning will be covered. I believe FHA guarantees don’t cover speculation, so flippers don’t get a break. It doesn’t guarantee that these people get loans, it just makes it easier. So, if lenders do due diligence, it shouldn’t cost the government a cent. It seems a very small price to pay for financial stability.
It is completely natural and logical for George W. Bush to expect somebody to bail out the people who made dreadful financial decisions. That’s how it worked for him, in his entire private-sector career. Time after time, George started or bought into companies that failed in a spectacular fashion. Without fail, wealthy cronies of the Bush dynasty swooped in to rescue him.
Does he think that’s the way the world works? Perhaps he does. He has found ways to reward a lot of cronies in his public sector work. All those poorer suckers, now stuck in sub-genius mortgages, never did him any financial favors, but they did elect him to the most powerful money-gushing job in the world. Rewarding your friends is the Bush way, going back several generations.
I’m ticked off at the Dems for saying the program should’ve been BIGGER. Why? Should it include people who were in default even before their payment went up, or who don’t have any equity at all, or who were buying a house for speculation? Now they sound like panderers.
Another pundit I read said that Bush is just trying to get ahead of the Congress and come up with his own proposal, before the Congress settles on one that is even mroe intrusive. Apparently, the Democratic front-runners have already come out and said that Bush’s plan doesn’t do enough to help homeowners. Bush needed to come up with a plan to be able to control the debate, I guess.
Personally, I don’t care. Any bailout is a bad idea, unless the alternative is a wholesale collapse of the industry and a heavy recession. And even then, I’d be wary.
But doesn’t this give people who did the imprudent thing an advantage over people who did the prudent thing? These people will end with a house, or more house than they really could have afforded, only because the government steps in a protects them from their own behavior. That can’t be a good thing for down the road. And it pisses me off personally. I was tempted to buy a house I wanted, with a low initial rate, but I thought it too risky so continued to rent.If I would have known the government was going to come in a save me from myself, I would have bought that house. So, I get penalized for being prudent and the dumb schmucks get to keep a house because the rules get changed in the middle of the game. That’s not right. Let them lose their homes and let those who act more responsibly reap whatever rewards there might be from a dip in the market due to a glut.
Looks like nothing to discourage lenders from giving predatory loans or from selling them. I’d like to see something along the line of, you make an obviously risky loan, you keep it.
This stunt will not be enough to stave off the coming recession. For that matter, neither would the Democrat’s bail out, nor any likely cuts in the interest rate by the Fed. The credit debacle is going to play out no matter what any government agency or official does, the looming chasm is just too large to by filled by any puny efforts that could be mounted by the hand of government.
The so-called economic boom of the last couple of years is a phantom, conjured up a massive run up in debt by consumers and government. Of course the economy appears to be growing; people have been smashing their piggy banks for the last few years, taking out home equity loans to buy big screen TV’s and vacations and new cars, maxing out their credit cards, and depleting their savings at an unprecedented pace. We are nearing the end of this orgy, and soon, the chickens will come home to roost when consumers realize there is no more credit to be had, the well is dry, the cupboard, bare. Then it will get really shitty when the Chinese figure out they bought a pig-in-a-poke, and stop buying US bonds.
We have not hit bottom, not by a long shot; this housing/credit crunch is just the beginning. I predict a full blown recession (defined as two consecutive quarters of decline in the GDP) by the end of 2008. George Bush will go out with the economy in worse shape than when he came in.
Moral hazard. Screw the hedge funds, banks, and other financial institutions that are exposed. Hey, you buy a customized derivative bond based on sub prime mortgages that can’t be priced in a real market for the extra 200 basis points, well don’t come crying when the default hits.
What the government should have done is set a minimum downpayment level. 20% or something.
Bailing out the sub prime mess on either the homeowner or institutional side is not going to help a recession. It’s going to increase the pain of a recession.
This is just election year pandering. Any idiot, and there are plenty of threads on this in the past, could see that the sub prime, 30 year mortgage, buyers waaaay overstretched with virtually zero equity, was going to end in tears. And it is.
So my taxes are going to go up to help bail out this mess even though I’m a responsible homeowner buying what I can afford and holding zero debt. How is that fair, just, equitable or even good economic sense?
A glut of foreclosed properties that will take decades to get off of the market (if they can ever sell) will be an economic disaster.
Sure, people should have made better financial decisions. The government should not have allowed predatory lending. But that is the past and we must look to the solutions.
In Palm Beach County, FL, where I live, should I continue to see properties in my neighborhood fall into ruin because the homeowners just gave up and fled? My house is worth, in real market value, my choice of hard dick or bubblegum, and the buyers are fresh out of bubble gum.
Why? Not my fault, but the glut of overpriced houses on the market make every house unsellable. It doesn’t matter if it’s my fault, God’s fault, Bush’s fault, or my dog’s fault.
A solution has to be reached to push this problem to a path of solution. Right now there is none…
prices will fall until properties are affordable (and in line with a realistic mortgage payment to income ratio) to a bigger segment of the population, then the problem is solved.
I feel for you that it sucks that foreclosed properties pull down your home value. But, where do you draw the line? Should government start buying stocks because the stock market is weak?
As far as I can see, they will get access to loans at the same rate as someone coming into the market today. I haven 't seen anything to indicate that this will include a lower rate. I’ve refinanced when interest rates went down- did I get bailed out?
If these shmucks lose their houses, it will further decrease housing prices, so that people who haven’t taken unreasonable mortgages will lose also. Housing prices will drop anyway - no problem with that - but I do have a problem with them dropping because people want to make others suffer.
I also didn’t see anything saying that they didn’t have to pay back arrears on their higher priced mortgages. Letting them get away would be a real bailout, and that would be wrong.
The buyers of this paper are going to be asking a lot more questions in the future, and the rating agencies will, I hope, not get suckered. Plus, the subprime lenders are going bust left and right. I think that’s discouraging it.