Housing "Crisis"

bassjones · Post by **bassjones** » Thu Jan 24, 2008 1:02 pm

Just curious as to everyone's take on the sub-prime housing crisis. Me, I think there are 3 responsible entities that each hold a share of the blame with one in particular holding the most blame.

A. The Government - They strong-armed financial institutions into writing sub-prime loans so that lower-income minorities home ownership percentages would begin to rise. As a result, banks started writing loans they never would have written before.

B. Lending institutions - Started making money from the sub-prime market and wrote far more than they should have. They failed to educate borrowers and as a result are experiencing higher than normal default rates and foreclosures.

C. Borrowers - Borrowed far more than they could afford to pay back when the rates started going up and now they're stuck with too much house, not enough equity, and no forseeable way out. Just because the bank pre-approved you to buy a $250,000 house doesn't mean it's a good idea to go the whole 250. In fact, most financial advisors will tell you to borrow around 1/2 of that. Also, you had to get a sub-prime loan because either your debt to income ratio was too high, you had problems paying back previous loans or you didn't have enough of a credit history at all.

So now we the taxpayers are going to be bailing out the banks and mortgage companies, along with a whole lot of home owners because the Government interfered with the market place, the lending institutions loaned too much money to less than qualified borrowers, and people who don't have a clue how to manage their financial resources borrowed way more money than they could afford.

I say we let the banks suffer their consequences, let the idiot borrowers suffer their consequences and tell the government to stop their social engineering in the marketplace. Instead, nobody's going to learn any lessons and the governments going to interfere in the marketplace again, setting us up for another crises down the road.

Maybe this should be in the "politics" section, but it's not strictly political...

Garr · Post by **Garr** » Thu Jan 24, 2008 2:48 pm

In the end (IMHO) the borrower has to take responsibility for his or her actions. They are the ones who make the ultimate decision. While you raise valid issues on both other sides, people need to step up for their f**k-ups and say, "oh yeah, I did that." and stop shoveling their woes off on the system.

Long to short: lots of people made bad decisions.

deek · Post by **deek** » Thu Jan 24, 2008 3:09 pm

Yup, I would agree that people need to be accountable for their actions. But, I also think there were bad decisions made by the banking industry. I know they keep track of risks and they should have been able to tell when they wrote too much business...well, at least the "good" banks. I'd be interested to see how many of the lending institutions were not very solid to start with.

Garr · Post by **Garr** » Thu Jan 24, 2008 3:30 pm

I'm not saying that the g'vm't and the banks aren't at any fault. I'm just saying that the ultimate decision lies with the borrower.

deek · Post by **deek** » Thu Jan 24, 2008 3:51 pm

I'm with ya, Garr. I just wouldn't mind seeing the banks suffer as well.

bassjones · Post by **bassjones** » Thu Jan 24, 2008 3:55 pm

agree 100%. I don't want the taxpayers bailing anybody out of this one. If you screwed up, then you deal with the consequences, banks and borrowers alike.

Al Quandt · Post by **Al Quandt** » Thu Jan 24, 2008 4:13 pm

my parents real estate business is awful. they are really getting scared.

bassjones · Post by **bassjones** » Thu Jan 24, 2008 4:25 pm

They just dropped rates again. Great time to buy or refinance. Lousy time to sell though and our house isn't ready to sell anyway. Otherwise we'd be looking to move up right about now.

WBOB · Post by **WBOB** » Thu Jan 24, 2008 4:33 pm

bassjones wrote:They just dropped rates again. Great time to buy or refinance. Lousy time to sell though and our house isn't ready to sell anyway. Otherwise we'd be looking to move up right about now.

Yup,...both buying & selling right now,...one's not to difficult,
other is going to be a bear.

Post by **cwallace** » Thu Jan 24, 2008 7:50 pm

The lender and the borrower are both to blame...

The lender because they came up with a lot of 'creative' methods by which they could lend money...like 'no doc' loans and then 'World Lending' came out with ridiculous subprime lending rates...i.e. the magical 1.2% ARM (and even the occasional FIXED at that rate...more stupid.)

Now that being said...

The borrower...when you buy a house...the system of a 30 year mortgage was designed to be exactly that...a 30 year mortgage. It was not designed for you to purchase a house @95-100% LTV and let your uppity whore of a wife decide she didn't like it after 1.5 years and then expect it to sell instantly for more than you bought it for...the market FLUCTUATES...it CHANGES...when you buy a house for (to keep the numbers simple) 100,000 and it is worth that much it will take you a few years just to cover your expenses for purchasing the house...let alone MAKE money from it...you have closing costs, fees, tax offsets, and many other variables to roll in there...that 100,000 purchase generally costs you 5-10k on top of it and those costs will be incurred and 'discovered' in the first year or two of the purchase.

I would honestly say the EARLIEST you should sell a house that you purchase in a traditional setting (this is not including standard 'flipping' and sub-value [foreclosure] homes such as I have purchased and own.) is 5 years...and at that point, unless in a very aggressive market, should get you back to 'even'.

If you can't afford to live in the house for that 5 years with all 'scenarios' put in front of you then you don't need to purchase that house...you need to look elsewhere...

I would say that Jackie and I looked at 100-150 houses at LEAST and walked through a dozen or so before we found what we now live in. Then after all that I found EXACTLY what I was looking for in the first place...the perfect 'foreclosure' situation...$80k for a $125+k house...We also intend to stay here for no less than 5 years, and for all practical purposes the duration barring a job or relocation situation. We knew what we wanted and thought everything through the FIRST time...

So all told...the borrower needs to be less greedy and be prepared for changes in the market and be content or better yet HAPPY with what they have.

Don't even get me started on the 110% LTV with a 2.0% (3 year) ARM when EVERYONE knew the market was going to take a turn down in the middle of the first decade of the new century...you can't recoup a 10% deficit on value when you know the current rate (prime) is 5.15% and will go up no less than 2.0% in that 3 years and then you will adjust accordingly...that is where they GOT the 2.0% sub-prime rate in the FIRST place...the KNOWN (projected) rate adjustment...duh...

But what would I know...I only put myself on top of $80k in equity on 3 properties in 6 months...I am just stupid...

Chris

employee · Post by **employee** » Fri Jan 25, 2008 12:09 am

It's the borrowers fault. It's not the banks job to "educate" you. I wouldn't buy a car without doing my research first, I don't buy a guitar without first comparing prices and reading reviews. Why would anyone buy a home without doing the proper research to educate themselves on the biggest purchase they will make. We have this thing now called the internet and Google is our friend... I just don't get it.

Post by **cwallace** » Fri Jan 25, 2008 12:34 am

The only fault of the lender is the fact that they also got greedy and tried to bring in as many people as they could with whatever tactics they could muster...

It is not their job to educate, but it IS their job to ultimately protect the investment for the greater good. When you frivolously hand out money and then turn around and expect the government to bail you out that is wrong...they knew that they would in one way or another be given a government handout in the end...

I had one mortgage go haywire with my ARM expiring and my in ability to refinance and the mortgage company, country wide, stepped up to the plate and reduced the rate BACK to the originating rate and locked it in for 5 years...THAT is a company taking responsibility for what part of the problem IS theirs...

But yeah...if you are too stupid to understand what you are getting into and loose everything or a large amount and a place to live then you deserve it whole handily...

Chris

MrSpall · Post by **MrSpall** » Fri Jan 25, 2008 8:30 am

employee wrote:It's the borrowers fault. It's not the banks job to "educate" you. I wouldn't buy a car without doing my research first, I don't buy a guitar without first comparing prices and reading reviews. Why would anyone buy a home without doing the proper research to educate themselves on the biggest purchase they will make. We have this thing now called the internet and Google is our friend... I just don't get it.

EXACTLY!

I'm in the process of home-searching now, what with the new family stating out on our own, and I've done hours of research. I know exactly what we can afford, and what interest rates we can expect. It's not that hard of you're willing to put time into it.

This isn't a cheeseburger or pack of gum you're buying here people, put a little time into your decision.

bassjones · Post by **bassjones** » Fri Jan 25, 2008 9:02 am

Wallace, you're forgetting the government practically forced banks to extend those types of loans under the guise of "fair housing" and were threatening to charge them with redlighting unless they started giving loans for bigger, more expensive homes, in better neighborhoods to lower income minorities. I'm not putting all or even most of the blame there, but they hold some of it. That's what happens when government interferes with the free market. They make a mess out of things. Will the lesson be learned? Of course not.

Krieves · Post by **Krieves** » Fri Jan 25, 2008 9:25 am

I worked in mortgage industry for many years in different roles. While ultimately it was the borrowers responsibility to make sound financial decisions, I think the mortgage companies and investors (GNMA, FNMA, Fhlmc, etc) bear a large share of the blame. Greedy, commission driven loan officers pushed to get eveyone approved for loans regardless of whether they could repay the debt. This created a need for more "creative" means of financing.

Strange and risky loans such as Option Arms started popping up and loan officers pushed these on borrowers because they could get borrowers in more expensive homes than they could afford (thus larger commissons).

Borrower's greed also played into this. It used to be that people would be happy to get into a 1400 sq ft 3 bedroom home as a starter home. With the large selection of risky loan products, now people could get a 3000 sq ft 4 bedroom, 4 bath house as their first home. They didn't bother consider that they were paying interest only and that, if interest rates went up, their loan would negative amortize and the principal balance would increase to cover the the fact their payments weren't covering the interest payments.

I'm glad to be out of the mortgage business.

Ok, I'm done ranting now.

FortWayneMusic.com

Housing "Crisis"

Who holds the most blame for the Sub-Prime housing crisis?

Housing "Crisis"