Photography by Bill Dahl – All Rights Reserved – 2009
Cash For Craters
By Bill Dahl
All Rights Reserved 2009
The Crater – or – “Hey! —We’re Down Here!”
What are the odds of your home being struck by a meteor? Has the current extraterrestrial economic crisis in the U.S. pummeled the value of your home, your neighbor, a friend, colleague or family member? When you look at what you currently owe on your home mortgage versus the current appraised value, are you in-the-hole? As you sit in your living room, do you feel as if you are treading water in the bottom of a crater, staring up at the walls of seemingly insurmountable mortgage debt that now surrounds you?
The economic meteor that has crushed the valuations of the U.S. housing market has created an incomprehensible financial crater for millions of American households. One observer writes that this phenomenon is the result of a defiance of the natural laws of the universe.[i] The mortgage holders I am referring to have the following characteristics in common:
- They have conventional mortgages, backed by VA, FHA, Freddie Mac and Fannie Mae. These are conforming borrowers.
- They do not have jumbo mortgages.
- They do not have “sub-prime” mortgages or those with increasing rates attached to the fine print in their adjustable ARRM’s.
- These homeowners are not the ones who succumbed to the no down or interest only enticements that infected the mortgage market and the U.S. economic infrastructure.
- These homeowners do not have liar loan or no income documentation mortgages.
- The mortgages held by these folks are for their primary personal residence. They don’t have “second homes.”
- These are homeowners who used their hard earned savings as down payments.
- They relied on the legitimacy of a bonafide appraisal. They relied upon the protections afforded them under a myriad of consumer, mortgage and regulatory statutes.
These are the millions of responsible U.S. homeowners who have become the innocent victims of the horrific impact the economic meteor shower has inflicted on individuals, families, neighborhoods, communities and regions throughout this country. They are the innocent bystanders who have experienced tangible, enduring, economic collateral damage by virtue of the irresponsible actions of other individuals, institutions, and government regulatory agencies. One study reveals that: “Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac.”[ii] These loans comprise two-thirds of mortgages, and have historically been considered mortgages granted to the most creditworthy borrowers. Translation: These are the U.S. citizens for whom the system has failed.
What is the perspective of those who are living in the bottom of these craters? Consider the following:
- “Today, I can’t sell my home for what I paid for it. I’m stuck. I can’t get out.”
- “I didn’t do this. I’m a victim of the irresponsible actions of others.”
- “By staying here, paying my mortgage and property taxes, I am subsidizing the poor judgment of others, who have walked away from their mortgage obligations.”
- “Somebody keeps digging my crater deeper…I don’t even own a shovel!”
- “My American dream has been shattered — by somebody else. I feel violated, angry and helpless.”
- “I didn’t step into the path of this meteor. What hit the guy next door slammed me!”
- “During the rest of my lifetime, there is absolutely no way I can earn enough to get out of this hole.”
Voice from one crater dweller to another, looking up at the craters edge above her: Hey! Is that Ben Bernanke up there?
Crater Dwellers – The Numbers Are Climbing
For the third quarter of 2009, foreclosure filings in the U.S. hit an all time high up 23% over the same quarter in 2008. According to the S&P/Case-Shiller Home Price Index, average home prices in the U.S. are currently at 2003 levels, based upon data from August 2009 — down approximately 30%. Studies by The Kellogg School of Management have found that when the mortgage balance due is 10% or more than the value of the home, people begin to abandon their homes. As this crater deepens, the percentages of those who walk away from their economic cavern increases. One author notes: “Not only do abandoned homes lead to higher crime rates and lower tax revenues, they are like a cancer that spreads to neighboring homes.”[iii] Deutche Bank has forecast that the number of crater dwellers in the U.S. (those with negative equity in their primary personal residence) will rise from approximately 14 million mortgage obligors as of the first quarter of 2009 to 25 million by the first quarter of 2011. Translation: 48% of all U.S. mortgages will house crater dwellers – 41% of these folks have conforming loans. Others have suggested that at the beginning of 2009, “more than half of American homeowners owed more on their homes than they owned.”[iv]
On November 6th 2009, the U.S. unemployment rate hit 10.2% in October 2009 — the highest figure since 1983. The consumer confidence index for October 2009 revealed that the U.S. consumer outlook has become more pessimistic about business conditions, the labor market, and prospects for future earnings. Some economists believe the growth in third quarter GDP is due primarily to stimulus incentives and will likely fade throughout 2010. The U.S. Congress appears inextricably paralyzed in their collective responsibility to muster the political will to craft a meaningful solution. Translation: U.S. households dwelling within mortgage craters don’t spend money. Strategic efforts to extricate the U.S. economy from the negative inertia/drag this reality continues to exert on the prospects for a sustainable recovery of the U.S. economy must begin in earnest. Who will take the lead in this endeavor?
“The only case for an independent central bank in a democracy is that it can take a longer view and do what is in the interest of the people in ways that elected politicians cannot.”[v]
Ben…are you listening?
The Case for Cash For Craters
Wisdom from Federal Reserve Chairman Ben Bernanke:
“The biggest risk is that we don’t have the political will, that we don’t have the commitment to solve this problem, and that we just let it continue. In which case, we can’t count on recovery.”[vi]
The contribution of cash for clunkers is now history. It’s over. Approximately 690,000 vehicles were sold for $3 billion sparing 42,000 jobs in the auto industry. Remember – These consumers received money for trading in junk – clunkers worth virtually nada, zilch, zero, zip!
Newsflash America: You cannot live in your car! My Black Lab Reggie and I spent one night in mine…it’s a memory we’d both like to forget. Trust me.
Gluskin-Sheff’s Chief Economist and Strategist David Rosenberg writes: “Even though we’re probably past the worst in the business cycle and probably even in the bear market, we’re talking about something much bigger here. The largest balance sheet in the world is the U.S. household balance sheet, and it’s contracting at a record rate. — The ratio of debt to income increased from about 35% in the early 1950s to about 65% by the mid-1960s, where it more or less stayed until the late 1980s. That’s when debt started its epic rise, hitting 100% of income in 2001 and going all the way up to 133% in 2007.”[vii]
George Ackerlof and Robert J. Shiller adroitly point out:
“To understand how economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature.” [viii] They make the case for the role of confidence, hope, fear and trust in the macroeconomic mosaic. In an earlier work, Shiller points to the unequivocal importance of the human imagination, social psychology, a sense of fairness, and the deleterious effects of resentment.[ix] The field is now referred to as behavioral economics. It is the emotional, mental and attitudinal composition of people within a culture that has now garnered the focal point for research in this arena. Why? Because the assumptions that has guided economics over the last several decades that markets and economies are rational, efficient, self-correcting, people/investors/traders/homeowners are reasonable – and that the risks are quantifiable, predictable, and that tomorrow can be inferred from yesterday — is under siege. We have learned that “uncertainty, as opposed to risk, is an indefinite condition, one that does not conform to numerical straitjackets.”[x] Translation: Economics is a social science, just like sociology or psychology or political science. It involves much of human behavior and the human condition that we cannot continue to pretend to understand. There are people; moms and dads, children, teenagers, young adults, students, bread winners, seniors, entrepreneurs, business owners, families, neighborhoods, communities, regions across this nation — treading water in the depths of these mortgage craters. The precariousness of the ongoing uncertainty currently experienced by this segment of the U.S. economy need not become an indefinite condition. The strategic plan for U.S. economic recovery must address this fiasco, or run the risk of allowing millions of impaired U.S. consumers to become casualties of exhaustion and subsequent drowning — the avoidable fate of those who are left to tread water without the resolve of passersby to come to their rescue.
The current economic crisis has prompted many to scurry to seek guidance from the economic history of this nation, particularly The Great Depression. Of course, the distinct differences between the structural complexities of the economic infrastructure during the Depression era versus today provide a convenient backdrop to rationalize away the pertinent lessons that might serve to inform our thinking today. Some have suggested that we are somehow more advanced and learned today – therefore immune to the miscalculations that contributed to the human misery suffered by millions during the Depression. Others carelessly take the position that this too shall pass. Finally, there appear to be loud voices shouting in the chambers of the U.S. Congress that we have already done too much. Yet, there is one parallel from the Depression that is particularly poignant as it pertains to the U.S. economic crisis today:
“The Great Depression was not some act of God or the result of some deep-rooted contradictions of capitalism but the direct result of a series of misjudgments by economic policy makers, some made back in the 1920’s, others after the crisis set in – by any measure the most dramatic sequence of collective blunders ever made by financial officials…authority at the Fed shifted to a group of inexperienced and ill-informed timeservers, who believed the economy would return to an even keel (emphasis is mine).”[xi]
Translation: The duly empowered failed to act as aggressively and deliberately as the reality demanded.
As Roger Lowenstein has said; Finance is poetically just; it punishes the reckless with special fervor.”[xii] Well, that’s a half-truth – particularly when the reckless wreak indisputable financial and emotional havoc on a broad segment of a strategically essential component the U.S. economic landscape. To paraphrase an oft-quoted utterance of economist John Maynard Keynes, markets can remain irrational longer than you can remain solvent. Unfortunately, this insight reflects the conundrum that millions of U.S. homeowners currently find themselves in. It’s difficult to hear the voices of those mired in the depths of a crater. Yet, we cannot continue to wander by this reality, reluctant to move toward those who remain trapped in the darkness beneath the collapse of our economic infrastructure, ignoring the necessity to move toward their cries for help. We must embrace the responsibility and become those “who are willing to open their eyes and assess the facts in the cold light of day.”[xiii]
A recent New York Times editorial has suggested, “We know that more stimulus spending and government programs are a fraught topic. But they are exactly what the country needs. It may be the only way to prevent a renewed downturn.”[xiv] The purpose of this article is to illustrate the moral imperative and economic necessity to include this impaired class of U.S. homeowners in the lifeline that has yet to be extended.
Former President Theodore Roosevelt captures the essence of the opportunity that currently awaits our embrace when he wrote:
“Until we put honor and duty first, and are willing to risk something to achieve righteousness both for ourselves and for others, we shall accomplish nothing: and we shall earn and deserve the contempt of the strong nations of mankind.”[xv]
Voice from the bottom of the crater:
“Hey! — Ben! Tim! Larry! — Sheila! — Somebody throw us a rope would ya?”
[i] McDonald, Lawrence G. with Robinson , Patrick A Colossal Failure of Common Sense – The Inside Story of the Collapse of Lehman Brothers, Crown Business – an imprint of Crown Publishing Group, a division of Random House Inc. NY, NY Copyright © 2009 by Lawrence G. McDonald and Patrick Robinson, p. 77
[iii] Wasik, John F. The CUL-DE-SAC Syndrome – Turning Around The Unsustainable American Dream, Bloomberg Press, New York, New York Copyright © 2009 by John F. Wasik, p.136
[iv] Wasik, John F. The Audacity of Help – Obama’s Economic Plan and the Remaking of America, Bloomberg Press, New York, New York Copyright © 2009 by John F. Wasik, p.122
[v] Wessel, David In Fed We Trust – Ben Bernanke’s War on the Great Panic – How The Federal Reserve Became The Fourth Branch of Government, Crown Business – An Imprint of the Crown Publishing Group, a division of Random House, Inc. NY, NY Copyright © 2009 by David Wessel, p. 271
[vi] CBS News – 60 Minutes, March 15, 2009 An Interview With Ben Bernanke: http://www.cbsnews.com/stories/2009/03/12/60minutes/mainc4862191.shtml
[viii] Akerlof, George A. and Shiller, Robert J. – Animal Spirits – How Human Psychology Drives the Economy, and Why It Matters For Global Capitalism, Princeton University Press Princeton, NJ USA and Oxford, UK Copyright © 2009 by Princeton University Press, p. 55.
[ix] Shiller, Robert J. Irrational Exuberance, Broadway Books, An imprint of Crown Publishing Group, a division of Random House, Inc. New York, New York, pp. 208, 213-215.
[x] Lowenstein, Roger – When Genius Failed The Rise and Fall of Long Term Capital Management Randon House Trade Paperback Edition Copyright © 2000 by Roger Lowenstein, p. 235.
[xi] Ahamed, Liaquat Lords of Finance – The Bankers Who Broke The World, The Penguin Press – The Penguin Group (USA) Inc. New York, New York Copyright © 2009 by Liaquat Ahamed, pp. 501 & 503.
[xii] Lowenstein, Roger – When Genius Failed The Rise and Fall of Long Term Capital Management Randon House Trade Paperback Edition Copyright © 2000 by Roger Lowenstein, p. 179.
[xiii] Panzner, Michael J. When Giants Fall – An Economic Roadmap For The End Of The American Era, John Wiley & Sons, Hoboken, New Jersey Copyright © 2009 by Michael J. Panzner, p. 182
[xiv] New York Times – Sunday November 8, 2009 – Sunday Opinion
[xv] Power, Samantha A Problem From Hell – America In An Age of Genocide, Perrenial – An Imprint of HarperCollinsPublishers, New York, NY Copyright © 2002 by Samantha Power, p. 11.
21 thoughts on “Cash For Craters”
Very well said Mr. Dahl!
does the same logic apply to those who bought bulbs during the tulip mania? or those who bought e-stocks during the dot com bubble? should everyone who overpaid for anything be made whole by government or the Fed?
Throwing money at the problem won’t help, my friend.
Mr. Dahl –
Thanks you for this thoughtful analysis. We work with municipal code enforcement and police officers in developing responses to various violations at the increasing number of vacant and abandoned houses in Texas communities. Cities are mostly overwhelmed, and we are still the initial days of this issue. Texas reflects the rest of the nation in this regard, although many other locations are having a tougher time than we are at present.
Municipal code officers also report finding more and more folks at home when they show-up to discuss a code violation, reflecting the standard doubling in the number of officially unemployed persons in many of our communities. This has, unfortunately, resulted in more confrontations. “We’re from the city and need to discuss the appearance of your property” isn’t always warmly appreciated by homeowners in the best of economic times.
And, of course, as the decrease in sales tax and property tax revenues to cities has translated into fewer local resources to fund local activities, code officers themselves have experienced layoffs and increased stress in many communities. Everybody is on edge.
So we’re left with a sad algebra: [Increased complaints from folks wanting to keep their own property values up] + [decreased resources available to their neighbors to use to maintain property] + [decreased resources available to the city itself for enforcement] = [deteriorating neighborhood appearances] + [faster deterioration in property values].
Thanks again for your valuable analysis.
My compliments to your style of writing; my criticism for the underlying argument.
Where’s the beef? For sake of argument: accepting the notion that those mortgagees who’re underwater (“cratered”) with plain-vanilla loans (i.e., assumed to be honest and responsible) ought be aided by the Fed or gov’t … what form ought that take?
1) Gov’t forcing/”encouraging” banks to write-down principal? Will the gov’t (and taxpayers) have to pay towards the write-down, either thru reimbursing the bank direct, paying the bondholders of whatever securities that mortgage was sliced & diced into, or just noting it as a loss on Fannie & Freddie’s (gov’t backed) books? And, are you prepared for the zombie banks to fall into their graves while dragging many other institutions with them?
2) Direct cash infusions to underwater mortgagees (they’re not “homeowners” until the mortgage is retired) from the gov’t or Fed Reserve? Why them and not those (like, ahem, yours truly) that saw prices were ridiculous and kept renting until the inevitable collapse would occur? My “need” is affordable housing, which we’re still a ways off from. And what about those who ARE homeowners? Ought they be left out of the cash bonanza merely because they were responsible and managed to pay off their mortgage and didn’t opt for “pulling out cash” via refinancing? Cash for all of us, then? Or perhaps two years with no income taxes? I’d really like to know what freebies can be passed out equitably…
3) insert your idea here … making sure it doesn’t reward bad or irresponsible behavior, utilize taxpayer or Fed Reserve money, keep housing valuations at frothy levels, or punish others. Lemme hear it!!
I’m not a heartless bastard. I’ve friends in the situation you describe … as well as friends who went more “exotic” in their mortgage predilections. I feel for everyone in their situation … but I cannot agree that they ought be rescued by the gov’t. They entered that contract of their own free will. If they’re so far underwater as to make continuing to pay the mortgage unwise, they can strategically default (a perfectly amoral business choice, just like the banks make) and save up while paying far less in rent elsewhere. In a few years, they’ll be able to buy again. It’s painful, but it’s not the end of the world. Meanwhile (whadya know, yin-yang) someone else (who was responsible enough to save) can buy that foreclosed property at a more reasonable valuation.
Those friends of mine who opted for “exotic” loans obviously need to default and learn their lesson. Buyer beware.
You summarize a lesson from the Great Depression as “The duly empowered failed to act as aggressively and deliberately as the reality demanded”.
I note the difficulty of, without having a prior plan, acting in a deliberate manner with aggressiveness. Witness our gov’t response the past two years.
I believe your summary a rather perverse (though commonly accepted) view of events. So Roosevelt ordering the confiscation of private citizens’ gold, then subsequently revaluing it from $20 to $35 wasn’t aggressive? It was certainly unethical, a form of thievery, and ought have been judged unconstitutional. Or his ordering the destruction of crops and livestock so as to support agricultural prices … while other citizens were starving? The short-sighted Smoot-Hawley bill under Hoover, which tried to drive up demand for domestic products by extremely high tariffs on imports, wasn’t aggressive? The creation of social security, which is still a ball and chain around our fiscal neck (btw, the program will not run positive revenues much longer — as soon as 2014, instead of surplus SocSec funds purchasing Treasuries to support our deficits, the program will be paying out more than it takes it)?
I believe the politicians of the 1930’s were far too aggressive. Their refusal, mirrored today, to admit they were on the backside of a credit bubble led to all sorts of perverse actions designed to keep things “like they were / are supposed to be”.
The solution, then and now, is to let those people and institutions that’re overexposed fail/ declare bankruptcy/ default. Yes, we can ensure people are fed and won’t starve. But gov’t ought not be insuring their lifestyles. The sooner we all learn that, the better.
These are the millions of responsible U.S. homeowners who have become the innocent victims of the horrific impact the economic meteor shower has inflicted on individuals, families, neighborhoods, communities and regions throughout this country.
Baloney. Those millions of home-owers overpaid for their house and participated in the bubble. Now you want responsible Americans to bail them out because they made poor decisions?
In terms of your comment on my blog:
“does the same logic apply to those who bought bulbs during the tulip mania? or those who bought e-stocks during the dot com bubble? should everyone who overpaid for anything be made whole by government or the Fed?”
My response is “of course not.” I am suggesting, verified by available data, that an “impaired class” of creditworthy, responsible, homeowners and contributing citizens of the U.S. is unwittingly being created. These are not the people you must avoid impairing economically if “consumer spending” — (like conscientiously awaiting the onset of a wet dream – whilst wide awake) is to truly “lead the way” out of this recession. I do not believe the Treasury, FED nor the FDIC has done enough arm twisting with mortgage financiers to re-imagine the flexibility that is essential to keep families in their homes and stabilize the consumer’s precarious instability. Shiller’s “The Sub-Prime Solution” has elements of what this strategy might look like. I didn’t get to the specifics in my article (next week).
There is truly a growing class of “collaterally damaged” in this nation — deeply damaged – strategically important producers of GDP whose redress is vital to the sustainability of recovery.
I hope this gives you a sensible reply to your post.
To FU: Nonsense – you really need to investigate the data that clearly does NOT support your comments. You should probably read what I wrote again and then reply from your brain versus your adrenal gland.
firstname.lastname@example.org – Thank you very much for your thoughtful, practical and professional perspective — everyday life is where the evidence of what I am writing about is growing — your observations serve to confirm the veracity of my thesis. You have a vitally important perspective that truly needs to be shared more broadly so people develop an appreciation to the number of destructive dimensions this phenomenon is displaying. Finally, you are terribly astute in recognizing how this phenomenon “infects” the innocent/adjacent homeowners and how the nature of this beast is accretive — in an insidious, negative way. As you point out, this is truly a “community issue” that needs to be raised to the level of actually doing something about it by our duly empowered city officials.
Again, my thanks for your reply. Keep me posted.
I appreciate your honesty, concerns and forthright expression:
1. Remember – I am NOT talking about people who “bought into the bubble” with anything other than a conventional “conforming” Freddie/Fannie loan (NOT ALT-A or jumbo either). No “exotic” loans in my article, as you referenced in your response to it.
2. Your confidence in and support for the “moral hazard” argument (Your comment that says “let those people and institutions fail!”) regarding the currently responsible U.S. consumer/mortgage obligor is a position that I am quite concerned about. I believe that without government intervention designed to stabilize the home valuation conundrum and reduce mortgage balances that are destined for default, the cost of intervention will be far less than the cost of idly standing by and whistling with a head full of wishful thinking.
3. Yes, a devaluation of the principal balances of the “underwater” loans held by Freddie/Fannie are exactly what I am talking about in terms of one element essential to return to stability. We taxpayers own them anyway. If the assets are inflated, they should be marked to market and the mortgage obligor should benefit as well.
4. The quote from Roosevelt was President Theodore Roosevelt.
5. I am of the position that Mssrs. Bernanke, Geithner, Summers and Paulson did what they had to do — aggressive, deliberate, historical actions by both the U.S. Treasury, Congress and the Federal Reserve to address the most profound systemic risks — that evidenced themselves at “that moment in time.” However, the U.S. consumer (see the first part of my post/article) as I define them is truly collateral economic damage that we must NOT allow to weaken further, as this will only exacerbate the ability of productive members of society to, once again, be emboldened by a sense of confidence, fairness, trust and hope — fundamental elements that are presently precariously at risk — and are essential to mustering a momentum toward ongoing economic recovery.
I will be interested in your response.
Thank you for for responding to your readers. RE: my reply, I’ve started a treatise in MS Word which will be emailed to you upon completion (in a day or two). Suffice it to say: the US consumer has been led — willingly — astray by business and political leadership for many decades, and now must pay the piper. Gov’t efforts to prevent the severe, widespread, and debilitating economic fallout only prolongs the agony and prevents the necessary lessons from being learned. The only way to recover our “sense of confidence, fairness, trust and hope” is to renew AND DISPLAY our commitment to follow free market rules, yet the only rule currently being followed by our leadership is to avoid pain as much as possible.
The Fed & Treasury officials were right to judge the past two years full of systemic risks. Seeing as how perverse the system had become, it would have been better to let it fail.
Yes, I understand the consequences and subsequent pain that would be brought about: economic devastation, likely violent social unrest, political upheaval, worldwide security concerns as US power collapsed. Still worth it.
BTW, I take a historians long-term view of things.
Thank you for your cogent reply. I look forward to your treatise. Please feel free to post it on the blog so others will have an opportunity to read it and respond.
Trust me! “I hear you.” I possess many of the same disappointments you refer to regarding the effort to provide a safety net for those considered “too big to fail” or those posing “systemic risk.” However, my study of the “crisis” (…ongoing) and what do do about the numerous dimensions of it are informed by both history and the complexities/differences of this crisis vs. those in the past. Harvard Economics Professor Kenneth Rogoff has a new book out entitled “This Time Its Different” and has some very interesting insights you may want to devour. You can also access some of his myriad of papers here:
As Rogoff says in one of his papers with Carmen Reinhart (University of Maryland and NBER): one would be wise not to push too far the conceit that we are smarter than our predecessors.
By the way, please appreciate that I am grateful for your position on these matters – and that you are willing to express them. I have no intention of attempting to convert you to my perspective….simply sharing views.
Thank you for your ongoing thoughtful commentary.
You may also want to refer to this article that I authored as a context for what I have elaborated on in “Cash For Craters.”
This artile has some provocative ideas in it, but from the first paragraph it throws out some very challengeable comments. Such as:
“As you sit in your living room, do you feel as if you are treading water in the bottom of a crater, staring up at the walls of seemingly insurmountable mortgage debt that now surrounds you?” I ask, how does the drop in asset value do anything to increase mortgage debt? It doesn’t. Or:
“During the rest of my lifetime, there is absolutely no way I can earn enough to get out of this hole.” Again, it makes absolutely no sense that the current asset value of the house influences the ability to service the debt held against it. Or:
“I didn’t do this. I’m a victim of the irresponsible actions of others.” This only makes some sense if you think of a house as an investment. But as anyone who invests understands well, not all investments perform as anticipated. This does not make anyone a victim. If you don’t view a house as an investment, then again there is no victim – you get to stay in the house for what you agreed to pay for it.
These are serious issues for all Americans, so care should be taken to discuss them in the most accurate way. Conflating asset values with the ability to service a debt is inaccurate and describing the sitation as generally one of being a victim is also inaccurate.
None of this changes the fact that there is market risk involved in every purchase. For all the excuses offered for the so-called ‘innocent’ victims who can no longer afford their mortgage, if they can’t afford their mortgage payments now, they should not have bought the home in the first place.
When home prices went past 2.5 x income, 3x income and (far) more, the responsible decision was to NOT BUY.
If you were counting on ever-rising home prices and refinancing to allow you to keep your payments current, you should not have bought.
If you were not already making enough money to pay any possible payment that could occur under the terms of your mortgage, you should not have bought.
If you could not understand the terms of the loan and did not have the sense to have an attorney explain what the contract meant, you should not have bought.
It is not the responsibility of the government, the taxpayers, or anyone else to guarantee that something you buy will not go down in value…
You suggest that those who truly showed responsibility – the ones who did not participate in the insanity of real estate in the last decade – should bail you out because ‘people in craters don’t spend money’. A famous writer once said democracy is not a suicide pact. Well, neither is capitalism.
People who bought when they should not have, took out loans they did not understand and could not afford need to take their lumps, eat their losses and learn a lesson. Then perhaps in the future their judgment will be better.
My realtor said, “You better buy now before you get priced out of the market forever,” in ‘2004.
Rather than listening to her, I rented a home for the past 5 years and just bought a foreclosure for 1/2 the price it was two years earlier.
Sucks to listen to realtors, so I hear…
Bill — I’m back, after a very busy week without making any progress on my promised lengthy comment. I fear I won’t tie it all together and post it, though I shall try to find the time to do so.
Should I not post further on this matter, suffice it to say that both Eric & Filmrest’s comments express portions of my views very succinctly.
Jeff: Thanks for checking back in. Understood.
11-19-09 — AP – WASHINGTON – A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.
After viewing your article Bill and the comments particularly by Eric, Filmrisk and Jeff Rosenberg I was struck that everyone spoke some of the truth.
Cutting to the chase
1) People bought under pressure of rising prices and flawed advice and lending practices. – Reason- Bad sales advisers and Financial institutions and Govt monitoring practices.
2) That does not absolve purchasers from making unaffordable stupid mortgage commitments OR CAN afford but are just underwater and want to bail as their model of what should happen failed. Reason – Homeowner failure to be prudent
3)Why did many of these people NOT pay of their loans so they could be safe if someone got sick or lost their jobs – or is it because they could have a tax write off and spend recklessly on fun or nice to haves? – Reason – Homeowner failure to be prudent
4) Collapse of Real Estate pricing by speculators putting good home owners in a hole is true, as no one lives as an island. Example -if a neigbours house is rat infested, it affects the neigbourhood
Reason – Failure of Government oversight and homeowners both to differing degrees.
5) Finally re: bailout of the above it is not really possible. Heres Why!
a) The values have to go down to be affordable to succeding generations.
b) Stupidity and culpability comes at a price even to the somewhat innocent. A best can do, is to have a net to prevent starvation which should be funded, and to have these people move to affordable rentals which there will be an abundance of.
c) These people never really owned their homes -just paid rental via mortgages and the rent has become unaffordable due to job loss or other and should give it up.
d) It is immoral to saddle both the prudent fully paid owners/renters with their debt, or succeding generations with additional government debt via future taxes.
Tried to say this all succinctly – hope it makes sense.