These comments from Peter Schiff were too good to relegate to the sidebar:
The financial institutions that are calling most loudly for a bailout claim the Government must act to protect homeowners. However, the most severe losses will not be born by homeowners but by those who loaned them the money. Therefore any bailouts will ultimately go to lenders not borrowers. Homeowners who offered no down payment and who have no equity in their homes will in reality lose nothing in foreclosure, except perhaps a debt burden on an overpriced house. In addition, even those homeowners who made down payments likely extracted larger sums in subsequent refinancings or home equity loans. With plenty of available foreclosed homes on the market to rent it is unlikely that these former homeowners will become homeless.
As a result, the only losses for most homeowners will be psychological, as their dreams of real estate riches vanish. For some paper millionaires, the sudden realization that they are flat broke will be somewhat disheartening. Also for those who thought retirement was simply a function of living in a home and allowing it to appreciate, the sudden realization that they will now have to finance their retirement the old fashioned way, by saving up, will be quite an eye opener. However, even if misguided government bailouts enable more borrowers to keep their homes the equity they thought they had will still be gone.
If a homeowner has no equity- he’s essentially just renting from the bank. Let’s not forget who really benefits when we convince homeowners that what they want most in life is to keep on paying too much for their rental.
I find it depressing how much effort is going into to helping keep people in an overpriced home which they can’t afford, and have no equity in.
I decided to go look for news that would hint at a possibility of recovery, proof that our government had some sort of reasonable plan to address the issues, or even a shred of evidence wall street, the banks, the fed, or the government were considering any sensible approaches to reduce the fallout that will occur as a result of the inevitable market corrections.
Since I couldn’t find any, here’s a video with some kittens instead. They seem to have found a place that’s affordable, reasonably sized, and even a little bit “cozy”. Granted, it’s a cardboard box, but perhaps there’s a lesson to be learned here.
Kittens-Coca Cola Box – video powered by Metacafe
That’s a great perspective by Peter Schiff, Twist. It’s another reminder of how far off of the fundamentals we have become in our lives…
My wife and I want to have a house at some point, mainly to be able to host our extended families and take care of our parents when they are older. To build and maintain traditions.
We can afford 3x our combined salaries after putting down 10-20%, making mortgage payments for 30 years or so, just like most everybody else. It never occurs to us that a house can be a way to finance our retirement…that is what our pensions, savings, and hopefully social security are for.
We keep a budget and save money every month, living well within our means. We’re going to a very nice restaurant this weekend because its our anniversary, not because we deserve the “finer things in life.”
We avoid parties and “friendships” where folks typically chat about their investments, who they know, how hip and cultured they are, and how successful they are. Conversely, we are turned off by simple answers to complex questions because folks just don’t want to work that hard to understand things.
Not because we’re better than anyone else (including those who are not americans), but because we are NO better than anyone else. Because we all need each other.
The housing correction, along with the economic damage it will leave in its wake, is actually the very best thing that can happen to the US. It’s not a collapse, it’s simply the reversal of a bubble phenomenon, a ponzi scheme.
The fundamentals. Not kool-aid, not greed and materialism. They don’t work and they lead us to addictions and to hollow lives. We have simply got to act like responsible aduslts and let this ship turn itself around before it sinks.
This is all a nightmare 1/20/2009 can not get here soon enough.
Who says you can’t go back in time.
There is a Bush in office.
We are in a war with Iraq.
Now there is a housing crash and bailout.
Now if I still just had my old hairline.
Sherman crank up the way back machine for Mr Peabody.
Bush will bailout homedebtors like he bailed out New Orleans. He will likely let the weak drown and give the strong a hand up. FHA loan programs being kicked around would only help those with zero or positive equity in their houses. Although cram downs are likely (like a short sale only for refinance), borrowers would still have to show a strong ability to make mortgage payments. It is estimated that only about 1/3 of the homedebtors would qualify for this and that only 1/3 of those would actually be helped in the long run. I expect only about 7-8% of those in ARMS to benefit from this. The flippers and investors are out of luck as this will only apply to properties occupied by the owner for at least 24 months. Also, it does little for the sinking home values.
“I find it depressing how much effort is going into to helping keep people in an overpriced home which they can’t afford, and have no equity in.”
Agreed. I have friends who still believe that high house values are good for everybody. Some people just don’t seem to get the economics of housing.
Admin – I like the video you posted!:)
>>even if misguided government bailouts enable >>more borrowers to keep their homes the >>equity they thought they had will still be >>gone.
In other words, George Bush is going to help some stay above water just enough so that they can pay down their upside down mortgage for the next umpteen years? Gee, what a pal!
Even CNBC’s Cramer was recently advising anybody that is underwater on the value of the property to walk away – NOW! It makes sense; in many cases it is the wiser financial decision to walk away, for the sake of the future.
And how is consumer spending supposed to rise if all these people being helped are just going to barely be able to afford their mortgage payments, nevermind the useless knick-knacks that our economy depends on everybody buying?
Yes, this plan looks like it is out to help the corporate lenders, not the American people.
As I read the advice to “bail out, you have nothing to lose”… do you know how to spell deficiency judgement? You don’t just walk away from a mortgage, it ain’t that easy.
Even if it were, those who choose to do so will be sub-prime, no house, no credit. The money that these lenders are going to lose isn’t theirs, it belongs to all the people who invested into the markets. Money that they were depending on for Middle America’s retirment accounts.
I wish it were as easy as “just walking away.”
mtnmike:
>>those who [bail out] will be sub-prime, >>no >>house, no credit. The money that these >>lenders are going to lose isn’t theirs, it >>belongs to all the people who invested into >>the markets.
Not to sound heartless, but so what?
For starters, these people were sub-prime, no house, and measly credit to start off with. Stating that they’ll be that way afterwards should be no big surprise. Why are lenders being suprised by this? Why?
Now, at the risk of over-generalizing, here are two general future scenarios:
(1) If subprimers don’t forclose (thanks to government help), house prices will stay ridiculously high. This will punish those that decided not to buy into this foolish market. Yes, that is right, I’ll see your “Middle America’s rirement accounts” and raise you one “Young families all over America unable to afford a home”.
(2) If a majority of subprimers forclose, and lenders stop lending to subprimers, house prices have a chance of retreating back down near historical norms, where they should be. Yes, investors will lose money, but think of all children! Oh so many children whose average American parents will have a hope of owning a home.
Now can you see why I say “so what”? Tears are going to fall no matter what happens. The point is to think about who deserves to be shedding those tears the most (or the least, if you want to put it that way).
Mtnmike, you talk about the people who put money into the lenders hands, through investments. You say that if people foreclose, bail out, the investors (not the lenders) are the ones that will lose all the money.
These were never were “guaranteed investments” to begin with!
Investments of these types are all about:
(1) risk!
(2) accurate reporting of risk
(3) more risk!
(4) and even more risk!
If the people that lose money on their investments can’t afford to lose the money, too bad! They had no business investing that money to begin with. If they didn’t want any risk, there were other places they could have placed that money.
Also, if the people managing the lending did not accurately represent the risk involved, and/or are found to have been idiotically incompetant in loaning billions of dollars to people that could not possibly afford to repay…. then I hope the investors sue their pants off!
What other possible way will both the investors and the lenders learn that their actions were that of complete incompetence? God forbid that the lessons learned here might be put to good use in the future!
I cannot see why anyboy would rather defend incompetents (the investors and lenders) than those average American families that wisely stayed away from outrageous housing prices but are apt to suffer if prices do not come back down to historical norms.
mtnmike says:
“As I read the advice to “bail out, you have nothing to lose”… do you know how to spell deficiency judgement? You don’t just walk away from a mortgage, it ain’t that easy.”
In many states (California for one) you can walk away without fear of deficiency judgement. The loan is only secured by the house. There is the still the tax on the difference between the house and the loan to worry about though.
At first I didn’t understand why the government wanted to get rid of the short sale tax when the house is upside down, but now I think I do. This is to help lenders too.
With so many empty homes, the banks are looking to allow people to stay in the homes and sell while it is still occupied. When the house is abandoned the banks costs go way up.
I look for prices to go down much quicker when this happens, because sellers won’t have the tax burden on their minds.
My comments regarding “it isn’t just that easy to walk away from a mortgage” should have been explained more clearly, my opps.
Government is the biggest culprit in this entire mess. Reviving a failing economy on the unsustainable platform of residential contruction, should have even embarrased government. These are HOMES not a gambling device.
Government, as you have heard, had no idea that all these unscrupulous mortgage lenders were engaged in these predatory practices. They apparantly slipped in the 12 million illegals that government knew nothing about.
The entire process was an orchestrated means aimed at reviving a failing economy (any port in a storm).
Government should do absolutely nothing to help anyone who voluntarily put paper to pen on a mortgage. The next thing ya know we will be bailing out the rent-to-own furniture crowd.