Posted on 05/12/2008 5:27:27 AM PDT by shortstop
Congressmen are like myna birds.
If you teach them a phrase, they will repeat it over and over, without the slightest idea what they're saying or what it means.
Like “upside down.”
Last week a congressman was boasting about a big mortgage bailout plan the Democrats flushed through the House of Representatives. It would put the taxpayers on the hook for the mortgages of people who weren't making their payments.
Under the legislation, home lenders would sell their bum mortgages to the federal government at 90 percent of the value of the mortgaged property. That requires the lender to take a loss on the loan and it requires the taxpayer to stand security for a bunch of borrowers whose common characteristic is that they don't pay their bills.
But back to brain-dead congressmen.
In explaining why it was good policy to force the taxpayer to pick up the tab for people who are living in more house than they can afford, and who somehow believe they're entitled to some new mortgage welfare benefit, the congressman said that these people's mortgages were “upside down.”
He said it as if it was the clincher in his argument.
If your mortgage is “upside down,” somehow an insufferable wrong has been committed and the federal government must charge in and save the day.
The idea, of course, is insane. It is just one more way in which the federal government uses socialism to reward and incentivize incompetence.
But let's get back to the word.
If only the congressman had brain cells enough to think through what “upside down” means in this usage. If only the people on the evening news had brain cells enough to actually challenge some of the preposterous claims politicians throw around.
Like this nonsensical ruse.
Commentators and politicians have decided that an “upside down” mortgage is one in which people owe more than the “value” of their home. Apparently, according to Democrats in the House, that is an intolerable situation that only a heartless tyrant like George W. Bush could see as anything other than cause for an immediate, across-the-board federal bailout for people who don't make their mortgage payment.
Common sense, however, seems to indicate that almost all debt is, by this definition, “upside down.”
When you buy a house that costs, say, $100,000, you borrow $100,000 and give it to the seller. The value of the house at that point is clear, it has just been demonstrated by a sale. The amount of indebtedness, however, is more than $100,000. The amount of indebtedness is the $100,000 you borrowed plus whatever amount of compound interest would be owed on that over 30 years.
House mortgages are inherently “upside down.”
So is virtually all consumer debt. If you gathered up all the stuff you've bought with your credit card and sold it, you'd have far less than you owe on your credit card. One of the great arguments for saving your money and paying cash is that interest on borrowed money always has you paying substantially more than you borrowed and substantially more than what you purchased is worth.
If you doubt my word, look at your Sears card statement, or your car loan.
So mortgages are “upside down” because almost everything bought with borrowed money is “upside down.”
But the argument that the government must bail out these borrowers has an even bigger flaw than that.
Because a house is not a financial instrument, it is a dwelling. You do not buy a house to make money – not if you live in the real world. You buy a house because you need a place to live.
Your mortgage payment isn't so that you can make a lot of money, it is so you can sleep inside. When you buy a house you are providing for yourself one of life's essentials – shelter. The monthly payment you make buys for you the essential privilege of having a place to live.
The “value” of your home in dollars is only relevant when you sell it and when you pay your property taxes. The “value” of your home as a domicile is relevant every single day.
The thought that the prime value of a home is as an investment is rooted not in truth or common sense, but in the get-rich-quick greed of the speculative real-estate market. For Democrat politicians to believe that the taxpayer must be the guarantor of those speculative investments is insane.
Because those of us who pay our mortgages shouldn't have to pick up the slack for those who don't.
At the bottom of this whole mortgage crisis is the simple fact that people bit off more than they could chew. The promised more than they are willing to give. They failed to keep agreements to which they signed their names.
They knew how much they made, they knew how much they were borrowing, they knew what payments they could afford, and yet they took the money anyway. The vast majority of these delinquent mortgages are for people who selfishly wanted more house than logic told them they could afford. And now, because of their financial intemperance, the government is going to reward them by reducing their debt – at a loss to everyone whose 401k includes finance stocks – and by making the taxpayer the surety for their loans.
Those who honorably paid their mortgages are being penalized, those who dishonorably failed to pay theirs are being rewarded.
Because some congressman says the mortgages are “upside down.”
They are wrong to bail out deadbeats, but they are more wrong to bail out speculators.
A deadbeat was looking for housing, although it was out of his price range.
A speculator was knowingly taking a financial gamble and lost.
A deadbeat was looking for housing, although it was out of his price range.
A speculator was knowingly taking a financial gamble and lost.
Agreed, now if you would include it was wrong to bailout any of them, we could really agree.
I have to take issue with this claim. Investing in a home is a time-honoured method of assuring a comfortable retirement; the options include selling down, living mortgage-free or taking out a reverse mortgage.
If I have compassion for anyone, it is for a person legitimately looking for housing who was uneducated about rates, fixed versus variable, etc.
In their case, I wouldn’t mind a RESTRUCTURING of their loan over a longer period if the lending institution is honorable.
In the case of lenders who were taking advantage of the lack of knowledge of borrowers, I’d prosecute the lenders for fraud, and I’d release the borrowers from the fraudulent loans.
Read this before you jump on the lenders too much - they were threatened with gov’t action by a member of Clinton’s admin if they didn’t give these loans to those who didn’t qualify.
http://www.openmarket.org/2007/10/17/deval-patricks-role-in-the-mortgage-crisis/
Welcome to the world of socialism. Now ask yourself why you bother to pay your bills on time and sacrifice luxury to save when it's become so lucrative to steal, with the backing of the government, from those that earn their own keep.
That is not a bail out of 'Deadbeats', it is a bailout of the lenders. Right now those loans are selling for about 50% of their value. Paying 90% is an outrageous overpayment to the lenders. I don't see how the 'Deadbeats' benefit from that, unless there are other provisions.
It’s obviously a bail out of the lenders, except to the willfully blind of course. Any individual borrower would weather the storm. A little bruised, but wiser in the end. The lenders. however, would be bankrupted in no time at all if the Feds don’t bail them out.
They should first look to the real estate brokers and appraisers and builders and mortgage brokers who scre* them in the first place.
I think it's already illegal for the brokers and appraisers to misrepresent their products.
The builders are a different case. I believe in their case, any deficiency is supposed to be covered by warranty. In Ohio that warranty is for one year by law. They could make them more responsible by extending that to about 3 years....a reasonable length of time for structural problems, imho.
This makes me SICK!!
I think the use of the words deadbeats to paint everyone in a tenuous mortgage situation is ignorant, smacks of elitism and condescension. I myself found myself upside down on a loan on a house I needed to get out of, thankfully the bank saw fit to accept a short sale rather than foreclose. A majority of the folks in ARMS are running into trouble not because they can’t afford their mortgage payments now or a fixed payment later but the fact the lenders are sliding the bar around constantly in underwriting.
Here is an example: You buy a house with a 100k house with a 3/1 ARM because you were told and thought your property would not balloon in values and you would cash out, but that the price would remain constant or appreciate at historical levels. Your mortgage broker assured you of this and 100 years of experience like the stock market, real estate never has gone down consistently for any length of time. So your ARM is resetting, your mid credit score is a 750, not a deadbeat by any standards. Well you go to your bank holding the ARM for a refi and guess what your 100k home is now worth 80k and you don’t have or will not part with 20k cash to make up the shortfall. Guess what? your stuck and the bank knows you are. So you could afford a fixed payment but some bureaucrat at the bank thinks that risk of getting 0 is much less than them risking only collateralizing 80% of the loan. Well guess what the banks lost big time in this game of chicken, people walked and are walking. 1890’s thinking by lenders in a 2008 economy. The institutional investors thought this way in the secondary market and it trickled down to the local credit union. They forced responsible Americans into making no choice at all but to walk.
Bottom line is derivatives, commodities and most of the shenigans on Wall Street is not capitalism in an Adam Smith sense but a way for lazy speculators and vampires to generate profits out of the ether. Used to be banks generated an income from loans , now they go for a quick buck selling it in the open market. So you wanna a come down on some whining pissy pants good for nothings in this scenarios let’s not leave out the terrorist investing unpatriotic scumbags on Wall Street and at your local mega bank. They and their minions in the media are making us out to be the problems for their bad decisions. They offered these products, they sold the, the underwrote them and we actually bought them. Now they whine and bitch that they are now stuck and want DC to bail them out. I think personally Wall Street should’nt be doing 90% of this Las Vegas style crappola they are doing anyways.
This guy is goofy.
Upside down is when you owe more than it’s(car,house etc..) worth, based on the Principal, not the future interest.
I don’t agree with a bailout either.
However, I don’t like your use of the term “deadbeats” for everyone in trouble.
Some of them are, sure. Others lost jobs or had other things happen...don’t assume that everyone in foreclosure used a stated income loan and bought a house out of their range. Some did, some did not.
In many cases, it’s the same as the reason people have always lost their homes - job loss, illness, etc.
Video of People Protesting Bear Stearns Bailout
But what do I know, anyway? I'm just a geezer in Oregon. LOL, LOL !
Check my Freeper Page
I do too. I am in the mortgage biz (for the time being, I'm looking to make an exit to something similar but not so volatile and commission-based) and I have told people many times that just because you "qualify" for a certain loan amount, it doesn't mean you can really afford it.
Even traditional guidelines, with verified income often approve people for more than they should really be spending...sure, if you make fifty grand you can qualify for $225k...if you like to eat Ramen Noodles.
In case you haven’t gone thru the mortgage process in the last few years, there is a disclosure sheet you must sign along with every mortgage that in very clear language states the mortgage terms - interest rate, amount, any resets, etc.
Anyone who can’t understand that sheet shouldn’t have a house, a credit card or a car loan either, because they flunked 4th grade math.
LOL...yes.
Actually I can only stomach them with lots of grated Parmesan cheese - which ends up costing more alone than the packs of noodles do.
No. It does not assure you of any such thing any more than investing in the stock market or in pork belly future.
The housing market doesn't have any assurances.
Gosh I'm tired of this blather.
I’ve gone through a couple of those the last 5 years and now have a fixed 4.5 for 15 years. (About 13 remaining now.)
I think there’s plenty of opportunity for fraud, and believe it or not, there are many financially viable folks out there who really are lousy at 4th grade math.
If you refinance and the house’s value has fallen by $20,000, then the bank is balking at refinancing at the original value? That seems odd. It seems to me that they’d be glad to continue that loan?
Did I understand your post correctly?
Do you seriously believe that owning a paid-off home, instead of renting, does not make your retirement more secure? Does the guarantee of reduced living expenses not matter?
The author's point is that practically anything bought with borrowed money is worth less than the amount due. I buy a car on credit and drive it off the lot and it's worth thousands less than I paid for it minutes ago, and for nearly the entire span of the loan the car will be worth less than what's owed. Houses are about the only item which people buy with borrowed money on the theory that they'll actually be able to sell it for _more_ than what's owed at almost any time during the loan ... so when the market turns a bit, making mortgaged homes' values behave the same as practically everything else bought on credit, the author's point is that nobody should be surprised by the situation.
congress created the bailout need because they eliminated the mechanism for the market to self correct.
Under pre 2005 bankrupcy law a property could be “lien stripped” for the unsecured portion of a mortgage. Thus lenders had every incentive NOT to inflate the lending value of the property.
Thus the inflated prices which corrected would be a risk born by both parties. Now it is just the borrower.
Most of the inflated prices were about gimicking the system to have a 100% loan with the down payment essentially the overpriced cookie of the loan.
Without that correcting tool in bankrupcy congress has to step in since debtors are bettor off dumping than saving the property.
Not our fault you went for an ARM instead of a fixed-term 30 year mortgage. You gambled and you lost. If your credit score wasn't good enough for anything BUT an ARM, you should have saved and built up your score. Again, not our responsibility to bail you out.
Nope. Especially since most mortgages are sold off on the secondary market, it has to be re-presented as a brand-new transaction, and since the loan as a new transaction is not approvable if the equity is negative, it can’t be done.
I don’t thing the OP was advocating a bail out in this sense. He/she was just explaining a way that someone can get into trouble that doesn’t involve fraud or being a deadbeat.
Yes, but buying more home than you can afford and hoping that Murphy doesn’t EVER show up is simply stupid.
I certainly wouldn’t dispute that. The same is true of anything that costs money.
Many builders do not offer financing. And those that do are required to follow the same rules as any other lender. In the case where there is outside financing, the buyer brings their own financing. In these cases, the builder may not have any credit information at all, nor any financial interest in the transaction other than the value of the contract.
As far as a ‘waranty’ is concerned, that is a seperate issue. However, if a home is built according to the local building standards, there shouldn’t be any ‘structual’ issues. If they arise then the builder (or architect) is open to litigation.
Generally speaking adding another law benefits the lawyers more than the general public. A full time legislature is a recipe for trouble.
Owning a house is not necessarily a good investment decision and it does not assure a comfortable retirement.
Right now in many areas you can rent a house for $2,000 a month. The carrying cost for that same house would be $4500 to 5,000 depending on the interest rate. The owner is on the hook for that difference, not the renter.
I know a number of people who sold their homes and are renting now at bargain prices. They are putting the money they save into other investments and will buy when the market is lower and it doesn’t make sense to rent.
Side note: I had a tenant who was going to move out and buy an ocean front townhouse for $550,000. She had a delay in getting her mortgage and the deal didn’t go through. One year later those units were auctioned for $225,000. Can you imagine how you would feel paying on a 500k mortgage knowing that your next door neighbor bought their unit for less than half of what you paid?
Most investments assure you of very little. Treasuries bill and investments insured by FDIC give you a little more insurance.
All that being said, I think real estate can be hand down one of the best investments around.
A geezer who was right as rain concerning the banking sub-prime debacle, while most mocked & laughed it off as economic foolishness. :)
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