Finger in the dam
Posted on March 27, 2007 - Filed Under Business |
Last week, some government posturing took place.
A senate sub-committee met with lenders, mortgage brokers, industry experts and, of course, former "dis-placed" home owners. Their topic: the sub-prime melt down.
It was, more or less, a blurb in the headlines.
My thought process, "Oh yes, 2008 is an election year. You can’t have a bunch of people getting kicked out of their homes during an election year. This is bad for politics."
I’ll be very surprised if the government doesn’t step in to delay the inevitable.
If the subprime market continues to "melt-down" or "self-destruct" or whatever media-grabbing verb you wish to apply, then look for the Federal Reserve to drop interest rates. The market will be, once again, flooded with credit to stave off the recession that, according to Greenspan, could happen.
Maybe, possibly, sort of, there’s a chance, could happen.
Then look for the government to slap their band-aid on the problem; that will carry us into 2009. Then people can lose their homes.
If you liked that post, then try these...
Follow Up to Forward on January 11th, 2006
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The names in the following true story have been changed to protect the guilty as sin innocent.
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5 Responses to “Finger in the dam”
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Well, there are some people who deserve to lose thier homes. A lot of people crawled way out onto a financial limb with these sub prime loans that they had no business taking.
I saw this political bail out coming. The borrowers will claim victim status and blame those evil “predatory lenders.” It frustrates me to no end that these people will be allowed to get away with it. It’s as if they’re saying, “reward my irresponsible behavior or I’ll take you all down with me.”
“Federal Reserve to drop interest rates. The market will be, once again, flooded with credit”
I don’t know how well that will work. Investors are no longer buying loans that allow “no money down, no closing costs” for sub-prime borrowers. Most institutions have pulled back to requiring 10% down for sub-prime, or even 15% down. The people in trouble are the ones that have no equity, either because of “no money down” and stable or declining home prices, or because of serial HELOC extractions. Even if the Fed lowers short term rates, the loans these people “need” are no longer being offered.
Also realize that a good many ARMs are tied to the LIBOR, and not the Fed funds rate, so a Fed rate drop might not even effect the rates for those with adjustable ARMs. Interesting times we live in.
Engineer, I read an article last week in the NYTimes. The lady in the article said “I knew we couldn’t afford this loan.” but they got it anyways. Three months later, they were in default. Draw your own conclusions.
Pasadena, if the Fed lowers the interest rate does not equate to more 100% financing options will not appear. The Fed makes money cheaper to borrow, by lowering the interest rate. From there, it’s up to the lending institutions to decide the fate of loan programs.
I do believe the lenders will tighten their requirements for borrowers, such as credit history and down payment requirements. I also believe the Fed will lower interest rates if they feel the economy is heading to recession. Both of these statements are independent of each other: whereas one could happen without the other happening.
Engineer - good argument, but I believe it was one of your kind who decided that all Americans should be homeowners, thus creating the current lending-business and home ownership mentality.
“A lot of people crawled way out onto a financial limb with these sub prime loans that they had no business taking.” I might be wrong, but I think you meant to say “…no business OFFERING.”
It’s not like all wannabe homeowners demanded loans at gun point, or lied about income and debt ratios/credit scores to get home loans. Lending is still a business and bad lending-business decisions should be allowed to suffer the same consequences of other bad business decisions. Either write off the bad debt, or fold the business.
“…these people will be allowed to get away with it.”
Get away with what? Crying foul? Big deal. Let them cry. They still get foreclosed on. They end up with crushed dreams, no place to live, and crappy credit scores.
Besides, the entities crying foul the loudest, the one’s asking for the bail out are the lenders and investors. Sounds like “You made me do it! You wanted all Americans to be homeowners. I did what I could do to make it happen. Help me out of this mess!” I also noticed no one was crying foul when money was being made hand over fist when interest rates were lower.
…”there are some people who deserve to lose thier [sic] homes…”
No one deserves that. Ever.
Some people are just not meant be home owners. Whoever decided “all Americans” deserve anything needs to rethink their strategy.
Mikki – I’m not sure to whom you are referring when you suggest that “one of my kind” decided that everyone should own a home. I think the desire for home ownership has been ingrained into the American psyche from the beginning. I don’t think any decision by any one person or group was ever made; it’s just part of the culture.
With regard to your position that some blame belongs on the lender’s side, I agree in so much as they must face the consequences of their own bad business decisions. The write-downs, profit losses, or business closings are all warranted. Just like some borrowers had no business borrowing beyond their means, some lenders had no business lending beyond their means.
As for the getting away with it; again I say that everyone must face the consequences of their own bad decisions. I don’t buy this idea that people accepting loans they couldn’t afford are victims. If you can’t make the payments on your car, the car gets repossessed. It’s the same thing with a house. It’s harsh, but if you can’t pay, then you deserve to lose your house.
Heartless aren’t I? Well, I think you’re right about some people not being meant to be home owners. Your claim that whoever decided all Americans deserve anything needs to rethink their strategy is well made.