April 9, 2008
POLITICS: Treating The Homebuyer Like Sheep
Geraghty, on Obama's claim that mortgage lenders "were tricking families into buying homes they couldn't afford":
See, when you have a stack of legal forms in front of you, and a realtor and a seller, and you've put no money down, and you're buying the house at a price twice what it was a few years ago, and you're getting an adjustable rate mortgage where the monthly payments skyrocket after a short period of time, and you have either exaggerated or lied about your income and savings, and/or not provided any documentation to verify them, and you're about to sign the contract, Washington is supposed to jump in and stop you.
Here's the thing: I'm sure there have were cases, in the housing-bubble period, of people who were flatly lied to about the terms of their mortgages - they were told the interest rate was fixed when it was actually variable, etc. The law pretty reasonably draws some key distinctions here: You're responsible for reading your contract, but in some factual settings outright fraud can be shown even if there's tiny print somewhere in the back of a long document saying something else...that said, there's already a whole bunch of fairly understandable federally required disclosures involved when you get a mortgage, and mortgages, even some of the more creative ones being offered recently, are not rocket science; ordinary people have been borrowing from banks to buy houses for a very long time, and I see no reason why the government should get in the way of that.
It's nonsense to suggest that adults buying homes - the ultimate major financial decision for most Americans - are incapable of understanding the basics:
*The difference between a fixed and adjustable rate mortgage, and the terms of when the payments can change.
*The fact that if you put little or no money down, you can end up with a huge monthly payment.
*How to figure out what size monthly payment you can afford on your family's budget.
*The fact that housing prices won't keep rising forever.
You buy a house, as I have done twice in the past 8 years, you sit down with a calculator and a pad and work out what you are going to be paying and how that fits in your budget. To think people can't do that, Obama has to have an incredibly dim view of the intelligence of the average American ... well, actually, I'm sure he doesn't actually believe that; he just knows there are people who got themselves in financial trouble and he figures it's popular to find a scapegoat and hand out taxpayer money. It's the oldest kind of politics there is.
I don't know what the government can, could or should do at this point about this mess. This would be somewhat akin to shutting the barndoor once the horse has left. That being said, there was plenty that could have and should have been done to prevent this from happening in the first place. Also, while you do mention people being lied to (which, no doubt happened) if you don't think there were far more predatory things done than that than you are underestimating people and institutions that sell mortgages. They may have a better reputation than used car salesman but it is not deserved. Again, I don't think the gov't should willy-nilly go about bailing everyone out who had loans that the defaulted on but the fact that they allowed this type of lending to go on in the first place was either a case of being asleep at the wheel, believing in a crazy form of economics (oh, right) or simply allowing the fox to run the hen house.
I do think there's a need to allow buyers to be adults, and make their own decisions. Some changes to disclosure laws are probably appropriate. But what happened happened because traditionally disadvantaged people were allowed to take a risk to try to own a home. Some may have been deceived into taking deals that could never have worked out, but I'm sure a lot took advantage of opportunities that would have greatly benefited them lf things had gone well, only to have a health care emergency, job loss, divorce, or other hardship that made their mortgage untenable, and couldn't easily escape the problem because the property values went south. There are risks to all investments, after all.
I would suspect that ten years ago, Obama might well have been urging banks to take a chance on poor (and, often, minority) would-be homeowners. What's happening now is the consequence of taking that chance and having it not pay off. If the government can soften the landing, that's fine, but there are consequences to shutting off future similar opportunities, and in different market conditions they can be seen as a bad thing as well.
Yeah, I suspect there would have been fewer problems without anti-redlining legislation...I can understand wanting the government to find ways to enable an orderly workout in areas where the real estate market is totally cratering, much the way the Fed got involved to enable an orderly sale of Bear Stearns. But the temptation to do more than the bare minimum should be resisted - there are always unforeseen consequences to doing that.
This whole thing promises to soak the hell out of the honest and frugal to subsidize the foolish, extravagant and fraudulent
A good deal of this problem was created by our society removing the concept of fear of failure. I don't know about you folks, but I would consider declaring bankruptcy a permanent stain on my character. Just as with other moral issues we have removed shame with a mindset that the worst thing one can do is be judgmental or moralistic. BS! As Crank said in his post buying a home is the largest financial decision (besides marriage) that most of us will make. If you're not scared enough to ask lots of questions and at least read the mandatory Truth in Lending documents then you're probably not fully an adult. Fear is important in protecting you from doing stupid stuff. You don't put your hand on a hot stove top because of fear of burning your hand. If we screw up and remove the pain from this situation we will more future trouble.
This subject is among the reasons why I am realizing I am more of a libertarian than a liberal. You see, I believe in fair play and equal opportunities. So I think the field of who gets to obtain a house or condo, or some form of equity, should be an equal one. If you have equal shots, then you should be treated equally. The lenders who found a new way to make a living were clearly con men running a ponzi scheme. And the pyramid finally reached its inevitable peak.
Being in the real estate business, I get all sorts of offers on properties. Some are good, very few are great, most are not worth the paper or electrons they are printed on. So many people were conned; however, you can only con someone who wants to be conned. The idea that you can get very much for very little is bullshit. The well known "overnight" success stories, be they Beverly Sills, Bette Midler, Fred Smith or Jeff Bezos shows that they were very smart, very persistent, and got lots of failures along the way. They got a lot of something from a lot of something.
I would like nothing more than to put the lenders in jail, but they didn't break the law. After the depression, you were not allowed to by stocks with almost no margin. This is what happened here. So you see republicans, regulation and oversight is not always a bad thing. Banks need to be regulated, as do other financial institutions. Politicians could have done something, but I agree with Jerry: too many liberals would have said the minority poor were being unfairly excluded from this legal scam. And too many conservatives think all regulation is bad. In other words, moderates, the great and quiet middle would have been right. A little common sense here.
You want to bail these victims out? Fine, give them back their money, no interest and take the property back. Then the government can hold an auction to sell them again. Sadly, most of the major institutions have to get bailouts, because in the national interest, we cannot let so many financial institutions fail. It's not discrimination, it's pragmatism.
Notice, BTW, that the major banks, with their institutional memory of the Depression, kept their wits about them. B of A, Chase, and HSBC, they are not as badly hurt by this. Citibank is, because, when you think about it, they weren't headed by a banker or financier, but by Chuck Prince, a lawyer.
I agree that no taxpayer dollars should be spent to bail out stupid behavior. Is that what Obama is proposing? The language from Obama's stump speech says nothing about handing out taxpayer dollars. In fact, it doesn't say anything specific about a remedy. Maybe he just wants more regulation - which may or may not be a good idea depending on the proposed regulations.
If Obama said something about bailouts elsewhere, that is another story But that article merely references the stump speech.
Thanks for pointing out the inexperience and naivety of Barack.
With the MSM in love with Barack Hussein Obama, it is very hard to get through the halo to what life under a Barry Presidency would actually be like. What if you could tap into The REAL Barack Obama Twitter feed that stripped away all the positioning and pandering? Well now you can. Check daily to receive the decoded spin and Hussein's actual wishes, desires and true hopes for this country.
If the average American bet on NE in the Superbowl, should the government bail him out?
I mean these numbers are confusing, one point for a PAT, two points for a pass after touchdown or a safety, three points for a FG, & six points for a touchdown.
Heck, half of these people in mortage hell probably play fantasy football & baseball & bet in March Madness.
When people are incented to sell riskier products over something safer, they'll lie to the consumer to do so.
Fell free to use Chris Matthews et al. or military recruiters as appropriate analogies.