A question.

[fancycwabs]

Does the housing crisis strike anyone else as largely fictitious?

I mean, obviously people are losing their homes, and one major lending corporation seems to have suffered a collapse, but aren't the numbers driving the interest-rate increases arbitrary, designed to screw homeowners over based on the inability to refinance as their interest rates grew beyond their ability to pay?

Did Bear Stearns fail because it couldn't walk the fine line of screwing their customers just enough to get them to keep paying mortgages, but still enough to keep the investors from pulling their money out of Bear Stearns and investing it in a company who could screw its customers even better than Bear Stearns could?

After all the COFI hasn't really changed THAT much over the past few years--it certainly hasn't hit percentages I saw (7.5%) when I bought my own house seven years ago.

Are we, as a nation, going to wind up paying a lot of money to bail out real-estate speculators, instead of letting them suffer the consequences of their folly?

Comments

[m0thy.livejournal.com]

In Michigan, where the housing crisis is more a function of nation-leading unemployment, it's hard to keep perpective. You bring up a good point, though, about all those get rich "systems" where people flip houses for profit, and all those people that refinanced after one year for home equity credit cards. I think some people should face the risks they took. No matter how hard it seems.

[fancycwabs.livejournal.com]

Housing crisis as a function of unemployment I can understand. That's reality, and something that a wise government could help to alleviate.

Housing crisis as a function of "I want 5.5% interest instead of 5.3% interest" is testing the limits of credibility.

[snowy-owlet.livejournal.com]

I don't know about fictitious, but definitely overblown. I keep hearing "ONE HUNDRED THOUSAND PEOPLE HAVE LOST THEIR HOMES!!!"

Dude, the population of the US is 300 million. I'm sure all those people are sad, but that is hardly a nationwide tragedy. Yes, banks should not have been approving Stupid Danger Loans for everyone coming in off the street ... but neither should those people have been suckered enough to agree to them. I don't think they should get bailed out. I think they should have to deal with the consequences of the choices they made, however hard.

It's my opinion that the latter bit is the real root of the matter: very few people want anymore to have to deal with consequences. I have very little sympathy for that attitude, and I REALLY don't think that the grown-ups among us should have to pay (via taxes, bank fees, or whatever) for the screw-ups of the Big Giant Babies walking around.

[mcduff.livejournal.com]

Well, OK, 100K isn't much of a percentage of 300M, but what's that number coming from? Is that this month, this year, this county, this state? How many of those 300M people were homeowners in the first place?

The results of a brief google give me the number 45,327 nationwide for January 2007, which they mark down as a 90% increase on last year. While not claiming statistical rigour on this, fudge-maths means that looks like around a quarter of a million more people will lose their homes in 2008 than in 2007. That's not total, that's excess.

As far as darn people and their risky behaviour goes, well, that's not really how the process goes. Yes, if you're super smart you should know how to analyse risk properly, but bear in mind the "crisis" was caused because super smart people running great big banks couldn't analyse risk properly. Ordinary people looking to get good deals on their houses can be forgiven, I think, for believing their financial advisors.

The basic situation is that a lot of people were sold mortgages whose repayments were reasonable proportions of their income, but which were miscalculated by the financial institutions who were all high on crack, meth and the belief that property bubbles never collapse. Come the inevitable squeeze, all of a sudden the banks have got a huge hangover and these really good deals suddenly turned those reasonable repayments into giant chunks that consumed 50% or more of people's incomes, shattering their budgets and in many cases breaking their budgets. And since it happened all at once, you've got lots of people looking to downsize and sell off their property, which depresses house prices in the area meaning their property might not even be worth their mortgage any more. Bang, and all of a sudden some neighbourhoods are full of people who have a $200K loan with repayments that jumped 100% in six months, secured on what is now a $130K house.

We're bailing out speculators at banks because they're "too big to fail," but we're not bailing out homeowners because they're "too small to fail". Welcome to capitalism. Remember, they want you to think it's the poor guy losing his house's fault because then you're not going to demand any bankers' heads on a spike.

[incyr.livejournal.com]

It appears the answer to your final question is, sadly, "yes". It irks me to no end, mostly because I know my mom has bought more than a few houses in the past decade (due to multiple moves, not owning multiple houses at once) and she's ALWAYS bought within her means, even if it wasn't her dream home. Yet now everyone who bought more than they could handle are getting bailed out, while people like her, who were responsible, aren't getting anything but screwed as their taxes will now be raised to help pay for everyone else. </soapbox>

[mosesandcompany.livejournal.com]

Gahh, you know, I had a whole long response to this, but I lost it when my boss came by my desk and I had to close the window. My answer is "no", it absolutely does not strike me as fictitious.

I would also add that it saddens me when the consumers who are hurt by this crisis are dismissed as "speculators". A substantial percentage of the borrowers who have been crushed by unfavorable mortgages are simply first-time homebuyers, who may not have fully understood the inherent risks of their mortgage when they took it out. Should a consumer have to deal with the consequences of their financial actions? Of course. Should a struggling first-time homeowner be buried under mountains of debt for the rest of her life because a predatory lender crushed her with a mortgage she couldn't fully understand, let alone afford? Tougher question.

[fancycwabs.livejournal.com]

While I agree that there are first-time homebuyers who have been victimized by this, one would think that they understood the risks of taking out an ARM or (God forbid) an interest-only loan on a house that they couldn't afford. Furthermore, I'm not blaming them. The credit market that's punishing them for their poor credit could easily charge them an affordable interest rate, but would rather send them into default, foreclosure, and occasionally bankruptcy.

Why futz with the numbers in order to do more damage to the overall economy, especially when the Fed has adjusted the numbers to the lowest levels in memory, at the risk of runaway inflation?

[mosesandcompany.livejournal.com]

The thing is, I can understand - to a certain degree - the argument from the lenders that charge these high interest rates. If consumers with poor credit scores want a loan, the lender has to do something to mitigate his risk. A high interest rate is part of how they go about doing that - they do what they can to try and ensure some sort of return from their loan.

That said, it seems quite evident that substantially more restraint needed to be used in determining who got a loan and who didn't.

[mcduff.livejournal.com]

If the people at large Wall St banks got caught with their trousers round their ankles on this, I think it's a bit much to assume that your average blue collar joe moving from a trailer to his first real house is going to be any better at this shit than they are. Sometimes the risks aren't apparent, especially if a slick talking guy from the bank is saying "here's the mortgage that's best for you, look, it's really cheap and gets you a bigger house!"

Anyway, you're operating under the assumption that poor people getting screwed is some kind of flaw. That's what the system is designed to do, enable the rich to skim off the poor. If a poor family loses their home because they can't keep up the repayments, this means a bank or a person with a lot of stable assets can buy that property for cheaps, rent it out and then make a profit by selling it on the upswing. This is not a "crisis" for the rich people who make the decisions, it's only a problem because working class white males in Cleveland may not vote Republican this year, and that would upset lots of people in pinstripes.

Don't for a second think that bankers are as upset about this as the poor buggers losing their homes.

[garoux.livejournal.com]

From what I hear, Bear was one of the more risky/shady institutions around, when it came to decision-making. It was a matter of everything coming back to them. At the client that I'm at right now, they called this around August, and shorted the HELL out of Bear. Guess who's partying?

[phonemonkey.livejournal.com]

Jeff says this article is well worth a read, because the whole thing is very regionalised.

[fancycwabs.livejournal.com]

The temptation to move back home (to Mobile) is great, sometimes.

[snowy-owlet.livejournal.com]

What's the theatre community like in Mobile?

[fancycwabs.livejournal.com]

Not too bad--four local companies within the "easy drive" range. Nothing quite as vast as we have in Memphis, but it's really more of a hobby than an obsession.