One Reader’s Response to “Let ‘Em Fail” Post

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« Let People (and companies) Fail! | Main | L.A. Wants a Year-Long Ban on Fast Food »

One Reader’s Response to “Let ‘Em Fail” Post

By JLP | July 28, 2008

Most of the comments on my last post were in agreement with my point of view. But, there was one comment that I want to highlight. It follows:

I suppose I am one of the irresponsible home buyers. I purchased my home 3 years ago (at the high) I now realize I payed too much, because the value has come down. I also have a 3 year ARM with IndyMac which is due to reset soon. So, being able to refinance with the governments help is essential. For the past year I have been trying to refinance my home into a conventional 30 year. It has been impossible because the 20% I put down has disappeared. Actually my home value is down close to 25%. No bank wants to touch me. I am one of the homeowners with an upside down mortgage. I obviously regret not getting a conventional loan in the first place. But I can’t second guess myself now. What I need to do is refinance and the government is making it affordable for me to do just that.

For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.

I truly believe people are not in this housing predicament because they are reckless with their financing.

I for one pay all my bills and will continue to do so. I intend to continue to stay in my home with the help of the government. That is what our government is for. I have paid into the system for the past 20 years, my hard earned tax dollars are finally helping me. I will not regret it one bit.

Where do I start?

“I intend to continue to stay in my home with the help of the government. That is what our government is for,”

What she is REALLY saying: “I intend to continue to stay in my home with the help of my fellow taxpayers. That is what my fellow taxpayers are for.”

THAT IS NOT WHAT YOUR FELLOW TAXPAYERS ARE FOR! We are not here to support people who make bad decisions.

“I truly believe people are not in this housing predicament because they are reckless with their financing.”

I believe this is EXACTLY why people are in this housing predicament. People got into this mess thinking that housing prices would continue to go up and that they could refinance whenever it became necessary. They were counting on two things:

1. Housing prices would continue to rise.

2. Lenders would continue to lend at favorable rates.

They took a gamble and they lost.

Look, I feel bad for this person. She bought her house at the wrong time and with the wrong type of loan. But, she got herself into this mess and it should be up to her to right the situation—even if it means losing her house.

Lastly, she says…

“For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.”

So, lots of people didn’t think ahead and now responsible people are being accused of not looking ahead. Interesting… Yes, prices may drop but they will eventually even out as new buyers will emerge (law of supply and demand). It’s not going to be the end of the world.

Topics: Housing Market, Miscellaneous |

Comments to “One Reader’s Response to “Let ‘Em Fail” Post”

Ed Says:
July 28th, 2008 at 6:07 pm

Amen Brother!

Adam Says:
July 28th, 2008 at 6:16 pm

I agree with you 100% JLP. I do find it weird though that she had the responsibility to put 20% down but then got a 3/1 ARM. Now that seems irresponsible right there!

Esmond Says:
July 28th, 2008 at 6:24 pm

What is it with people who think the government is there to prop them up? You pay taxes for public works (such as road maintenance), politicians (who probably make bad decisions), and disbursement to various state and federal programs. You do NOT pay taxes so that the government is there to help you out when you make a bad decision on a mortgage, because otherwise your taxes would be much higher. Deal with it. Try RESEARCHING before you buy the biggest purchase of your life.

So you lose your house. Go rent an apartment. You take the loss and learn how to do personal finance. And yes, so what if housing prices drop further. Eventually buyers will come back in and things will get better, sans the ownership of your house.

This reader is a classic case of the new generation, who think they are entitled to whatever they damn well please. I’m still quite young in relative terms, but even I am fed up with these whiners.

Steve Braun Says:
July 28th, 2008 at 6:30 pm

“That is what our government is for.”

Wrong. The government is not here to back up everyone’s financial failures. Quite the opposite. The government is supposed to be here to protect us from having our property forcibly taken and given to others. Oh, that would mean no income tax and redistribution system — just like the founding fathers originally intended. How silly of me to think there’s any wisdom in that.

“…my hard-earned tax dollars are finally helping me.”

Dead wrong. Your hard-earned tax dollars from the past 20 years are long gone. You will be benefitting from others’ tax dollars currently paid into the Treasury plus the additional debt taken on to cover all the obligations.

Why is the government in debt? Because of stupid programs like this housing bailout. But don’t worry — your grandkids will pick up the tab for you. What a thoughtful gift to leave for future generations.

BD Says:
July 28th, 2008 at 6:54 pm

Let’s charge the banks the same kind of ridiculous fees they charge homeowners. You want a bailout? Sure, but we’ll have to charge you a 1% origination fee, 4% in closing costs, and $1,500 in miscellaneous fees per homeowner you pushed to take on more debt than you now believe is prudent.

Yeah, the mortgage holders should have done the math. But the banks should not be able to charge exorbitant fees for the privilege of putting people in debt up to their eyeballs.

Austin Lance Butler Says:
July 28th, 2008 at 7:01 pm

As a fully employed college graduate it is a travesty I can’t afford my own home.

This is directly due to reckless lending and borrowing practices which exploit the “American Dream” to encourage irresponsible home buyers to trade up.

For all of you baby boomers and baby boomlets who live in 6,000 sq ft houses and get tax rebates on your vacation homes, I hope you enjoyed your Suburbans and H2s.

Your children and I will be paying for it.

Spoodles Says:
July 28th, 2008 at 7:14 pm

“Do you realize how many more homes will be on the market. Prices will absolutely drop even more.”

Hooray!!! Now I can afford a house!

Corey Says:
July 28th, 2008 at 7:25 pm

I totally agree that the government is not here to bail everyone out. I bought a townhome at the beginning of 2006 and I remember the lender giving me the options of ARM or interest only. I had just come back from Iraq and was out of the loop here back home but knew that this was not a good deal. I went with the 80/20 loan. It worked for me. I do not understand how someone can go by something for hundreds of thousands of dollars and claim ignorance for the financing option they chose. In this day and age the internet can inform you of any topic you like and can be accessed for free at your local library. (for those claiming to not being able to afford a computer or internet)

Those people in debt did not properly educate themselves in financing options or just decided they would live above their means. Both the homeowners and mortgage companies should be punished, not all of America.

Preston Says:
July 28th, 2008 at 7:30 pm

I wrote a letter to my representatives today after seeing their votes come through on my e-mail (Megavote through Congress.org…nice service..sorry for the plug!).

Basically I said this:

I’m ashamed you voted yes to this bailout for the reasons mentioned. I don’t like my loan rate (6.625 30 year fixed) but I knew that’s what I would get doing a single 100% loan. I could re-fi right now at 5.70 for little to no cost. It’s ridiculous that those who made bad decisions in the first place get the benefit.

The fact of the matter is this: Anyone who gambled on being able to just re-fi later took a big risk and they failed. So let them fail, as JLP said. I looked at the big number (which was, at the time, 43% of my gross monthly income) and purchased the house. I had a plan - I knew what would happen for most every eventuality (job change, injury, etc) and adjusted our lifestyle to meet the house we wanted and could afford. Don’t accuse me of not looking ahead - those who wanted to bet on their houses being money makers rather than a place to live were the ones not looking ahead.

As far as values if all these houses go on the market - so what? Stay in your freaking house. Guess what, that is what a house is for. If housing values plummet I’ll end up with even more money because my taxes will go down dramatically. All of this virtual money gets on my nerves…too easy to erase/create it in situations like this!

@Esmond: Don’t stereotype. I’m 22 and I know folks over 50 who got into this mess…

Anonymous Says:
July 28th, 2008 at 7:39 pm

First of all, I think the government does share some of the blame as well as the mortgage brokers. The government allowed bankers to give exotic loans that replaced the conventional loans without regulations. Secondly, the mortgage brokers told the people that their neighbors (a sort of bandwagon effect) were getting these loans, also. Finally, I remember hearing that there’s nothing more uncommon than common sense. Give them a break and let’s get this housing situation behind us.

Michael Says:
July 28th, 2008 at 7:44 pm

I’ve been sitting here for the last few years renting because I could see that the housing bubble was doomed to burst. Instead of putting myself in a mortgage– that I’m sure I could’ve gotten– that I couldn’t afford, I did the responsible thing and continued to rent, waiting for reasonable prices to return.

Now, people like this are expecting my tax money to keep them in their homes that they should be selling to people like me who bothered to learn some personal finance before spending my life savings on an asset that anyone could see was destined to lose value.

What a sad commentary on our times.

Ron@TheWisdomJournal Says:
July 28th, 2008 at 7:50 pm

People who think the banks are at fault, or that the banks charge too much obviously have never worked at a bank. There is tremendous competition between banks and that competition insures that rates (including origination fees) are in line.

My suggestion: learn some simple economics. If one of those loans was such a bad deal, why did the consumers take the loan in the first place? (Hint: greed, hoping prices would escalate even more and then they could cash out)

Eden Says:
July 28th, 2008 at 8:15 pm

Yeah…so I just lost $10,000 playing Blackjack. I guess I’ll just wait for the government to send me a check for what I lost.

Sure, not quite the same, but not all that much different really. I could have bought a LOT more house if I had done a crazy ARM or other bad loan, but I didn’t. I went with a smaller house that I could AFFORD. Crazy, I know…

Jeremy Says:
July 28th, 2008 at 9:34 pm

I have some sympathy with the reader since we too bought our house pretty much right at the peak. December of 2005. And yes, it sucks to see your value go down ON PAPER, but people always forget that housing is much more than just an outstanding balance on a bank statement. It is something that puts a roof over your head, regardless of what what market says your property is worth.

In our case, sure, our home value has gone down, we are probably lucky to barely break even with the outstanding balance of the mortgage after 3 years, but so what? If we were renting, we’d get to live in a smaller space, with less freedom, no yard, and maybe save $100-$200/month in payments.

Of course I’d rather be sitting on 50k in equity after a few years like everyone enjoyed in the late 90s and early 2000s, but that’s tough. We paid what we deemed was a fair price at the time, and it just so happens it hasn’t increased in value. Oh well, we still have a comfortable place to live, even if we’re paying more now than we would have if we bought the house 2 years later. That’s the way the cookie crumbles.

I got off on a tangent a bit, but basically wanted to say that I agree with JLP, and that while things might suck for some, myself included, it isn’t all doom and gloom. My home decreased in value, but just because I can afford to make my payments, how come I don’t get a free refinance? Almost everyone who owns property is suffering from this, and to me, it isn’t fair to use my money to help someone stay in a house that they obviously should have never purchased to begin with. It doesn’t matter if you want to blame the banks, the borrowers, or lawmakers, but it sucks that prudent people are punished to help the reckless, even when they are hurting too.

Mike Says:
July 28th, 2008 at 9:54 pm

“So, lots of people didn’t think ahead and now responsible people are being accused of not looking ahead. Interesting…”

lol that’s awesome.

Kitty Says:
July 28th, 2008 at 10:30 pm

“I do find it weird though that she had the responsibility to put 20% down but then got a 3/1 ARM. ”
I find it weird as well. Seems like either greed or getting home that is too expensive or just stupidity. Or all of that.

“First of all, I think the government does share some of the blame as well as the mortgage brokers.”
Regardless of whether or not this is true, who exactly in the government that “share some of the blame”. Are those the people who will pay? Nope. It’s us, the taxpayers. Do we share the blame? I don’t remember telling anybody to take this type of loans? Do you?

“Secondly, the mortgage brokers told the people that their neighbors (a sort of bandwagon effect) were getting these loans, also. ”
When I first tried to use this excuse at the age of 6, my parents asked me “and if your friends are going to bang their head against the wall, will you do it too?”

Now, I do sympathize with the author of this letter. She made a stupid decision. I may even be ambivalent about the whole bailout hoping it’ll help my stocks - a girl can dream, right? But when she says “this is what government is here for”, she loses my sympathy.

Squeezer Says:
July 28th, 2008 at 10:40 pm

I couldn’t agree with you more JLP

kim Says:
July 28th, 2008 at 10:55 pm

I am going to have a good long rant here. If you don’t want to read it just go here and be mad like me.
http://money.cnn.com/video/#/video/news/2008/07/25/news.chernoff.foreclosure.cnnmoney

As discouraging as it would be to have paid more for your house than it is worth, you bought it to live in. If it was worth X amount a month two years ago it should still be worth that to you now. What seems to be happening is that people took on loans they had no way of paying back. Oh I can have this and not pay for it? Now lets help them keep the house? The lenders have been shady as of late no doubt. I remember back 15 years ago before all this started. Even then they told me to buy twice the house I knew I could afford. Back then nobody listened to the bank though. You said “Well I have to buy groceries too” not “If you say I can have it.”

There should be no bail-outs. Let prices fall back to an affordable amount. Let the people who didn’t get to buy the house they wanted because it just got to expensive for them benefit from this market. Not the people who bought anyway knowing they had no way of paying it back.

I’ve been paying in all these years is something you should say if you get laid-off and collect unemployement. It is not taxpayer help you keep something that you can’t afford.

This is helping out people who have no financial reasoning. It is not helping out people who do the right thing including those who overpaid and will still continue to make good on their loans.

james Says:
July 28th, 2008 at 11:01 pm

Some perspective here: the housing bailout that is being tossed around in the Congress is a mere pittance to the hundreds of billions our government is channeling to distressed financial institutions like Lehman Brothers and Bank of America in order to prop up these failing institutions?. And why are they failing? Because they took on too much credit risk, much like many of the distressed homeowners who stand to benefit from a housing bill.

Of course, the players who orchestrated the rise of the massive debt monster have already cashed in their tens of billions in commissions, bonuses, salaries, etc. Is a guy like Mozzillo of CFC — who sold hundreds of millions of dollars worth of stock at much higher prices — any less culpable for the debt crisis we find ourselves in than the poor hapless homeowner who bought too much house at rates she can no longer afford from a lender who never should have loaned the money in the first place? Guys like Mozzillo sold the dream, and millions got hoodwinked. But the culpability cuts both ways.

Of course, none of this is fair to those of us who put down a nice down payment on a house that wasn’t ridiculously overvalued at a fixed rate which we can easily afford.

But let’s be consistent: if dumb homeowners are left out to rot, then by the same logic, Citigroup should rot, Wachovia should rot, Merril Lynch should rot, and countless regional banks like NCC and Key Bank should rot as well. Why save the dumb banks?

Besides, who cares if they fail, so long as the accounts are FDIC insured, right?

Kin Says:
July 28th, 2008 at 11:56 pm

Being an Australian looking into the situation is very interesting.

1. In Australia our tax dollars go to public works as well as assisting those who are disadvantaged in some way. I would say being in a situation where you risk losing your home is being disadvantaged.

2. I find it rediculous that because the US doesn’t have as stringent lending requirements as we do our country is now suffering the same fate with an increase in foreclosures and a drop in house prices because US banks gave mortgages to people who couldn’t afford them.

3. We took out more loan than we should have. We knew it, and as soon as this started we sold our home and rented. People who tried to sell their home in our street a month after ours sold are still trying to sell - nearly 12 months on. I shudder to think where we would be.

4. A majority of Americans have safe mortgages due to 30 year fixed rates - there is no such thing in Australia and as our rates continue to rise, more and more people will suffer due to the bad decisions of banks and people in other countries. True, they shouldn’t have taken out a loan for more than they could afford, but in less than 5 years home repayments have increased more than 50% (and 30% of that in the last year). There is no way out for us, we could not have fixed rates even if we tried, we are forced to have adjustable rates (we can fix for up to 5 years though).

5. Where are all these people going to live if you turf them out of their homes? In addition to banks failing and house prices of EVERYONE dropping, you will see an increase in homelessness like we are already seeing here. Only on a much larger scale.

Just a few thoughts….

Wilson Says:
July 29th, 2008 at 12:56 am

FDIC has only $52Billion reserve as of 2007.
After the failure of IMB et al, it has up to 90% of its reserve left.
So one should care a lot which bank would fail next.
I’ve put my money at JPM and BAC, and will buy more T-bills, just in case.

BTW, the housing rescue concocted by Paulson is not intended to bail out home owners. The true intention is to bail out Paulson’s Wall St buddies at Fannie,Freddie,JPM,BAC,etc. Smaller financial entities will be gone in droves …

So JLP and other ants don’t have to whine at the trapped grasshoppers. If you ants read carefully the qualifications for homeowner bail out, you’d find majority of the home owners cannot be helped.

As GSE bond holder I am being bailed out, as expected. I’d love to see the stupid congress legalize a perpetual slavery, a sweet vengeance for the government’s malicious use of my tax dollars:)

To make things better, I keep my ARM, which after reset is still at 4.875% APR. If my ARM gets beyond 8%, I’d pay it off immediately. The chance is, the short term rate will be lower while the long term rate will climb in the next few years. Therefore, if you have ARM, especially one based on US treasury, you shall keep it, knowing buddy B52 Ben would cut it to zero!

Ants, no rant, just play and beat the Wall St buddies on its own game!

Sam Says:
July 29th, 2008 at 1:28 am

Poor girl..this calls for colleges and universities to start having personal finance subjects included in their courses to avoid people (especially newly grads as they are susceptible to bad financial decisions) making bad decisions like this.

I do agree with other commenters that its not the government’s responsibility to “fix” people’s financial problems. At best, it can only educate people regarding personal finance.

Sam
Fix My Personal Finance
http://fixmypersonalfinance.com/

brainy Says:
July 29th, 2008 at 4:52 am

Here, here!

pj Says:
July 29th, 2008 at 5:57 am

I can’t believe what the USA is turning into in recent years. Nation building, socialism, closing borders; That’s a recipe to become the United Kingdom of the 21st century.

I live in Belgium myself and as a single I am taxed at 55+% if you include social security, and I pay 21% VAT. Fair to say I live in communism.

I can’t tell you how jealous I am at your constitution. It’s far from perfect (it should have been more to the point to prevent abuse imho), but it’s so much better than all the other constitutions out there. Fight for it!

The problem isn’t Bernanke, it’s the FED as such.
The problem isn’t the market, it’s the governments that f**** them up.
The problem is not monopolies, it’s the gov’t that protects them.
The problem isn’t migration, it’s the financial aid you give to immigrants.
The problem isn’t gross salaries, it’s income taxes.
The problem isn’t capital growth, it’s capital gain taxes.
The problem isn’t evil nations, it’s blowback from intervenionist foreign policy.
The problem isn’t price inflation, it’s dollar devaluation.
Etcetera… do something about it!

(PS Belgium is an acceptable country once you HAVE the money - no capital gains tax but there is dividend tax of 15% to 30%.)

Jimmy Says:
July 29th, 2008 at 7:25 am

Boo-hoo. The poster complains because HE GAMBLED AND LOST?

I just bought a house and I put 50% down and got a fixed-rate loan. My property went down 25% in value. Who is going to pay me for my equity loss?

I invested in rock-solid blue chip company share but their market went down, and so did their stock value. I borrowed money on margin from my broker, who charges a variable interest, to buy these shares. I will soon get a margin call. Is anyone going to reimburse me for my stock market losses or let me refinance my broker loan at a lower fixed rate so I can keep my investment?

USA-USA-USA Says:
July 29th, 2008 at 8:13 am

-=- FALSE ECONOMICS -=-

All those people that sold a home and then bought a home during the boom, please raise their hands. Of those people, who lost money on their house during this downturn?

Guess what? You really didn’t ‘lose’ this money. If you hadn’t moved from your previous home, would you think that you lost money, or that your appreciation is reduced? The real loss comes from the buying and selling of the homes, and fixing them up. That house appreciation really wasn’t yours - just some fluff.

Independent George Says:
July 29th, 2008 at 8:56 am

Comments like this really burn me up. I can understand distress at the thought of losing one’s home, but I simply cannot comprehend how anyone can think they are entitled to a taxpayer bailout for their own mistakes. It’s a slap in the face of anyone who put down 20%, borrowed within their means, or patiently waited on the sidelines until prices fell far enough for them to buy.

Second, this comment really bugged me:

In addition to banks failing and house prices of EVERYONE dropping, you will see an increase in homelessness like we are already seeing here. Only on a much larger scale.

For the last time, renting does not equal homelessness. Renting is what I did before I bought a home. If, heaven forbid, I should lose my home, renting is what I’ll do afterward. I suppose losing ownership of a home you didn’t actually pay for does technically qualify as ‘homeless’, but it’s not living on the street begging for change, which is what’s implied whenever I see the word ‘homeless’ bandied about with regard to foreclosures.

Geoff Says:
July 29th, 2008 at 9:19 am

I feel sorry for the commenter, but they had the knowledge to have 20%, so they should hve had the knowledge not to gamble it.

This (and much of the crisis) seems to be partly driven by the fact that a house is for shelter. If one of your primary reasons for buying is that it’s an investment, then accept that investments can and do lose value, so accept it.

I for one wish more houses in my area (Boston) would be on the market so the prices could drop more, since they’re still ridiculous.

"Mo" Money Says:
July 29th, 2008 at 9:24 am

I think that Congress went too far on this one, this will bring out the Libertarian in all of us.

Jenny Says:
July 29th, 2008 at 10:00 am

Boy I sure hope the price of houses drops. That way, when I go to buy my next house I can get more for my dollar!

Alan Says:
July 29th, 2008 at 10:52 am

Actually, I wonder if the big mortgage companies are specifically forclosing on many of their loans so they can get a big taxpayer bailout. The way I see it, companies lose more money by forclosing vs. reworking the terms of the loan at reduced principal or reduced rate. Forclosure locks in instant 20-30% loss in the property value securing the money that you loaned out, as well as another ~5%? to actually handle the mechanics of the forclosure. How much would they lose if they reworked the terms of the loans, extending the low-rate, or lenthening the term, etc. The bank might actually end up securing more profits over a longer term by reworking the loan terms to make it viable to a time beyond the current scare - you’d probably end up with a customer grateful for paying slightly higher than market rates over a long term.

On the other hand, forclosing now helps fan the crisis and build-up steam for knocking loose a big steaming pile of taxpayer bailout money. It’s just lazyness, panic, or worst case, malfeasance that drives this shortsightedness.

PK Says:
July 29th, 2008 at 11:26 am

I’m happy to see the housing market drop. Thankfully my condo with 20% down has stayed stable, and with my new marriage we can now consider purchasing investment properties which at these depreciated rates will be a golden opportunity for us. I can’t wait!

deepali Says:
July 29th, 2008 at 1:59 pm

They’ll still lose their house…

Nia Says:
July 29th, 2008 at 3:59 pm

I’m so annoyed by the government bailouts that are going on — Bear Sterns, Fannie, Freddie, Indymac, stimulus package, my neighbor being foreclosed on…. and I’m sure there will be lots more to add to the list before this is over. We now have a record deficit in this country!! surplus to deficit in 8 easy years. All of us and our offspring will be taxed at an excruciatingly painful level to make up for this mess. The gov’t should just let this free mkt work itself out and let the failures happen. People wont learn from their mistakes and will continue to repeat them if they dont feel any pain for their decisions.

Peter Says:
July 29th, 2008 at 5:58 pm

I am endlessly annoyed by people who borrow irresponsibly, and then when they have problems, want a government bailout.

It is not the government’s responsiblity to take care of you.

I too bought at the height of the bubble and our “home value” went down, but we also had the foresight to get a fixed rate, and to make sure we were buying a house we could afford.

Kin Says:
July 29th, 2008 at 6:01 pm

@27 - if the foreclosures are happening like here, these people have NOTHING - and cannot afford the $1000 bond that is required in addition to a months rent in advance. What rental accomodation do you propose they go to. Homelessness does not mean begging for a penny. Families in my town live in cars because they cannot afford the $2k required to get into a rental. THAT is homelessness. These are families with both parents working and kids at school and they still cannot get a ROOF over their heads.

Meaghan Says:
July 29th, 2008 at 10:29 pm

I don’t agree with everything this woman writes, but I think you are missing part of the coin. Even if you think everyone who is losing their house deserves to lose their house, even if you think this bailout is all about subsidising people’s bad decisions, let me ask you something–

Do you think it’s better if more houses on your block, or in your neighborhood, go into foreclosure?

Do you think your neighborhood would be more pleasant to be in with more houses boarded up?

Do you think that the associated rise in crime would be good for you and the other responsible homeowners who manage to stay in your houses?

Do you think it’s better that the revenue from property taxes, which funds schools, among other things, be reduced? Or that your property taxes go up to compensate for the many people who will have stopped paying theirs because they no longer have a home?

Do you think that the likely rise in homelessness that would result from many people being foreclosed on would be good for you and your families? Do you think it’s good when more people ask you for money on your way to work?

Maybe this sounds over-the-top, but I read all these comments about people angry about the bailout- saying it rewards people who made poor decisions, while doing nothing for those of us who made good decisions. You know what? I’m one of those who stayed a renter during the run-up, because I didn’t have enough money to buy a house. But I’m grateful for most aspects of the mortgage bill that was just passed, because it means my neighborhood will be safer, and because public goods like libraries and schools will continue to get funded.

There are a lot of things these days that I wish my tax dollars didn’t support, but this bill isn’t one of them.

JLP Says:
July 29th, 2008 at 10:51 pm

Meaghan,

Thanks for the long and thoughtful comment.

Like I’ve said before, if housing prices come down enough, there will be buyers. In other words, I don’t expect houses to sit vacant for very long.

I have my doubts about the effectiveness of this housing bill. I have a feeling that it’s going to do nothing but prolong the inevitable and that these people will end up losing their homes anyway. I’d prefer that to happen sooner rather than later.

Mike Says:
July 30th, 2008 at 12:51 am

That post by PJ is about the best post by a European reader that I’ve seen since I started blogging back in 2005.

Meaghan Says:
July 30th, 2008 at 9:27 am

JLP,
Thanks for responding.

It is certainly possible that there will be buyers for all the houses that get foreclosed on. In my opinion, though, due to the volume of easy credit and the widespread notion that rent is ‘throwing money away’, most of the people who are qualified to own houses are already in them. There are people my age (recent college grads renting while saving up for a downpayment, etc) who don’t own homes, who will probably take advantage of a soft housing market and buy, but I don’t think that it’s enough to make up the difference in most areas. Another issue to factor in is the tightening credit situation. Are there really that many non-homeowners who have great credit and a 20% downpayment?

In the area I live (not my immediate neighborhood, but neighborhoods around it, and one neighborhood I used to live in) there are a significant number of boarded up houses. There are areas in other parts of the country (Detroit being an extreme example) where whole blocks are mostly vacant. No one is going to want to buy a house in those areas, at any price, if they value their personal safety at all.

As to whether it’s simply delaying the inevitable, it’s certainly possible. And I certainly don’t know enough about economics to say whether the delay will do a net harm or good. I can believe that it might give those people who would like to take advantage of the market enough time to save up a downpayment, or that it would give people in danger of losing their house due to illness or job loss a better chance to fix their situation, but I can also believe that the more quarters that pass during which the prices of houses decline, the more people who might buy into the market are going to be convinced that real estate isn’t a great investment after all.

Joe @ Simple Debt-Free Finance Says:
July 30th, 2008 at 1:23 pm

I think this part says it all:

“I truly believe people are not in this housing predicament because they are reckless with their financing.
I for one pay all my bills and will continue to do so.”

Personal finance is MUCH more than simply paying your bills. Will she still be able to pay her bills when her mortgage rate resets?

Terri Says:
July 30th, 2008 at 1:56 pm

“Are there really that many non-homeowners who have great credit and a 20% downpayment?”

Yep, there are. We’re military and live in San Diego County, CA. In late 2001 when we first moved here from an overseas duty station we moved straight into military housing. There were hundreds of homes being built around us and we were shocked at the prices being asked and rather distraught that after 26 years in the military, and once again living on US soil, we could not afford to buy a ‘forever’ home where we wanted to retire.

We were equally shocked when so many people began moving out of our military neighborhood and into those houses wondering how in the world they were able to afford them - especially those that were very low in rank. ARM, to their rescue, or so they thought at the time. We didn’t bite.

We are now estatic about the housing situation here. We have watched homes once advertised at $600-800,000 now being offered at $300-$500,000. We have been saving all this time just waiting. So we have more than 20% to put down, and we have outstanding credit.

I do not work to bail out those who were impatient and stupid and am really disappointed at the potential ‘help’ I see being offered.

Irina Says:
July 30th, 2008 at 3:59 pm

It is interesting reading all the posts so far about my situation. I feel like clarifing a few things.
Firstly, JLP mentions somehow there is something wrong with government help. What did you do with your rebate check the government sent you?
How about financial aid for school, that comes from the government.
Tax rebates also come from the government.
I can go on and on from here.
In some way we all as tax payers receive our tax dollars back from the government.
So, in other words, not all government assistance is in the form of Social Welfare, which we all dislike.
JLP responds with “to right the situation …it means losing her house”. I am no where near foreclosure. What I have been trying to do is refinance. When I purchased the house my intent was to move 3-4 years later. That is why I took out a 3 year ARM. Remember, I put down 20 % equity. With the market the way it is now, I have 3 homes on my block that have been for sale for over a year. There are no buyers. Why?? Because banks are not giving out mortgages because of falling home prices. So, I have no choice but to wait it out. You probably are asking if I knew I was going to sell my house 3 years later, why bother buying. Well, I have always been a homeowner. The tax advantages of being a homeowner are greater than being a renter.
The one thing I don’t understand are people saying they are waiting for prices to fall even further. To me its a self fulfilling prophecy. With that kind of thinking prices will keep falling. When will we say its now time to buy.
I do agree that there are homeowners who can not be helped. The government will weed them out and make a decision that refinancing is not for them. But there are others like me, who are in ARMs with rates that will reset to 8-12%. They should have the option of refinancing to todays more acceptable 6% range.
You could be in my shoes one day. Trying to sell your house but can’t because the buyers mortgage company wants over 20%, maybe even 30% down. Could you afford that in todays environment. What happens if you need cash to send your child to college, and you apply for a home equity loan. Forget about getting approved. Hope your child is a Mensa genius. Do you see where I am going with this. Its easy to say forget about ‘them’. But ‘them’ could be you tomorrow. Read Tuesdays Financial Times ‘US credit crisis is hitting the wealthy’. How about them apples. LOL. Irina.

Velvet Jones Says:
July 30th, 2008 at 8:20 pm

I agree with other posters who mentioned that if we are going to rail the homeowner, we MUST hold the feet of these banks and brokers to the fire. Don’t even get me started on the developer fraud that was rampant in Chicago and in other major cities. I’m really troubled by the ire I see for homeowners when this bailout is really for the banks. Where’s the fire, brimstone, and angry emails to lawmakers about that?

Anyway, Irina? The reason why I can’t buy a home is because homeowners who overspent in 2005 for their home believe they are entitled to sell that home for that price PLUS 10% added on to that. Sorry sellers, but this is not the market you bought into. The price you paid was artificially inflated and is not worth what you paid for it and the extra you’re trying to make on it. There are buyers out there ready to close. But a great deal of sellers are in denial.

Nathan Says:
July 31st, 2008 at 10:43 am

@Irina
“When I purchased the house my intent was to move 3-4 years later. That is why I took out a 3 year ARM. Remember, I put down 20 % equity.”… “So, I have no choice but to wait it out. You probably are asking if I knew I was going to sell my house 3 years later, why bother buying. Well, I have always been a homeowner.”

You gambled by taking the ARM instead of a fixed. You lost that gamble and now you get to pay the consequences. Why should others who were more conservative subsidize you for taking that gamble?

You also gambled by buying a house when you knew you’d be selling just 3 yrs later. I’ve been in that situation many times and didn’t buy because I knew I’d have to get significant appreciation just to break even, not to mention the real possibility of a downturn that would create a big loss. You gambled. Too bad. I don’t want to pay for that. You (and others who did the same) wouldn’t be sending me a check if you had had gotten a big gain, now would you?

The market was overheated and needs to fall to a level where incomes can support the price without government propping them up.

Super Saver Says:
July 31st, 2008 at 8:13 pm

I’d like think with all the constituent opposition to the housing bill that the members of Congress who voted for the bill would lose their seats in upcoming elections. Unfortnately, mostly the same Congress will be in office after the 2008 election.

I think it’s time we booted out the current legislators and put in people with financial common sense. It would be great if financial bloggers could become a political force

Anonymous Says:
August 1st, 2008 at 1:33 am

Let me expand on why I feel the government shares some of the blame. In Greenspan’s book, he tells how the government(around 2000) wanted to expand home ownership among all citizens.He thought it was a good idea. The banks cooperated. According to a Kiplinger”s article,”Mortgage Standards became lax starting in 2000 but really fell off the cliff in early 2005,led by the unprecedented writing of subprime loans with two years “teaser” rates”. Where was the oversight?

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