Archives For Mortgage Crisis

From the front page ($) of today’s Wall Street Journal:

LOS BANOS, Calif. — In this California city, one of the hardest hit in the national housing crash, there’s good news: Homes are starting to sell again.

Investors and first-time home buyers are snapping up foreclosed houses here, with the number of local sales up almost fivefold from this time last year. While the volume of existing-home sales across the U.S. fell 10.7% in August from the previous year, according to the National Association of Realtors, there are signs that the most damaged of markets are starting to heal themselves. Across hard-hit California, sales volumes rose 65% in September compared with a year ago, said MDA DataQuick, a San Diego-based real-estate information service.

Now the part of the article that ticks me off (emphasis mine):

The bad news is that the latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California’s Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages.

Some stop paying, pocketing the money while they wait for their lenders to kick them out. A few lose their homes only to stay on as renters, paying hundreds of dollars less a month. Every fifth house in this onetime real-estate boomtown is in some state of the foreclosure process.

What about the incentive of keeping a good name and taking care of your responsibilities even when the times get tough? If the homeowner can afford the payment on the house and it hasn’t changed, then what difference does it make if the homeowner is upside down on the mortgage? The only time the amount of the mortgage should come into play is if the homeowner has to move.

I say bring back debtor’s prison—then maybe people will have an INCENTIVE to keep current.

The Letters to the Editor section in today’s Wall Street Journal contained the following response to Thomas Frank’s piece of drivel (free) from last Wednesday:

Ultimately, the responsibility is to the borrower, not everyone else. I was amazed in 2006 when my mortgage broker informed me of the amount of money I qualified for when purchasing my first home. Just because I was “qualified” for that amount did not mean I could “afford” a home in that price range. I settled on a modest home in a modest community — and peace of mind. People who bite off more than they can chew often choke.

Michael H. Flanary
Fairfield, Conn.

EXACTLY! I couldn’t have said it any better myself (probably because I’ve already said it in the past!).

I urge you to read Thomas Frank’s opinion piece. It drives me nuts when people call so many adults “victims” when they were the ones who signed all those forms at their mortgage loan’s origination. When a borrower signs that contract, they are obligated—it doesn’t matter if they read and understood the contract or not. They made a choice when they signed the forms.

Yes, Wall Street did its part in helping create this mess. I’m not denying that. Wall Street created demand for subprime loans and mortgage brokers bit. HOWEVER, it was still the borrowers who had the final say in the matter. Had borrowers practiced prudence, no mess would have been made.

Now, if the borrower signed the forms while the mortgage broker was holding a gun to their head, then yeah, they could be considered a victim. I’m also sure some fraud took place in which the mortgage broker falsified documents or outright lied to the borrower. These borrowers could also be considered victims.

That said, painting all borrowers who took out mortgages that they couldn’t afford as victims, is just crazy. It’s also a sad statement of what America has become—a nation of whiney victims.

The REAL victims in this mess are those of us who did the right thing and borrowed what we could afford to borrow and purchased homes we could afford. Now we are being forced to subsidize and feel sorry for those who made poor decisions.