From CNBC’s Diana Olick: [Hat tip L!]
I was moderating a panel of two governors and an economist today on the foreclosure crisis. It was much of the usual stuff until Pennsylvania Gov. Ed Rendell made a bold proposal.
He said that in addition to the legislation making its way through Congress to save troubled borrowers, there should be additional provisions that protect borrowers from having their credit rating destroyed when they go through foreclosure.
I understand where he’s coming from. “This is not for people who took risks,” he says. “This is for people who were legitimately duped by unscrupulous people.”
He wants all those borrowers who were the victims of predatory lending to get a clean, fresh new start, and I can see where that is a very good, sound argument.
It’s just not practical. For many many months I’ve heard many many policy-makers, lawmakers, and decision-makers argue for the good of those poor borrowers who were tricked into faulty mortgage products. They paint a picture of not ignorant, but perhaps uneducated folk who truly believed that they were buying into a sound financial scenario.
But the fact of the matter is that a lot of borrowers, and not just the speculators, went in with their eyes open. They were told that their loans would adjust and that they could refinance based upon the current rate of appreciation. They bought into that appreciation; they gambled on it.
My take is that foreclosure has traditionally not been "fair". Credit scores are not designed to be a measure of borrower’s honesty, but a measure of the risk involved in lending to a borrower. Typical reasons for foreclosures in the past included illness, job loss, death of a spouse- not "failed flips". Lenders have looked at these incidences of financial stress and determined that these problems, however undeserved, raise the risk of default, and credit scores have been gauged accordingly. If borrowers are not sophisticated and are "duped", it seems unlikely that they are a better risk than the speculators.
In practical terms, as Olick indicated sorting out the "deserving" from the "undeserving" would be a nightmare. However unfair it might be, foreclosures need to go on a borrowers record, "duped" or not.
Is it just me or is anyone else incensed by the countless inane ideas being floated by our so called “leaders” designed to protect the stupid in our society? I will concede that a small fraction of the people facing foreclosure arrived there due to illness, job loss, etc. but do not the same exact things happen to renters, people who saved for a down payment and bought a house they could afford, people who own their homes, etc etc etc?
I simply cannot understand why this one particular TINY segment of our society has captured the attention of our elected leaders. The bottom line is if you are a person who is underwater and cannot afford your mortgage payment then it is a 99.999% probability that you got yourself into this voluntarily when you made a stupid decision by either a) buying an asset at the height of its bubble or 2) financing the purchase using a loan that was incumbent on the price of that asset increasing.
I am so sick and tired of hearing about how we need to “help” these people while at the same time we blithely throw away trillions on a war in Iraq, ignore the fact that Medicare and Social Security (into which we all pay) will be insolvent in the next 25 years and gas and food costs have gone through the roof.
I hope everyone who feels this way will remember come election time: it is high time the smart and productive members of our society send a clear message to our elected leaders and kick them the heck (That OK Twist?) out on their rear ends.
My $.02
Time to share the family motto:
LIFE is seldom easy and it is NEVER fair. The word FREE just means someone is paying more than it’s worth, but if you can manage to keep out of debt and hold your mouth JUST RIGHT it can be a lot of fun! The only right you have that can never be taken away is the right to try. Don’t let it go to waste.
Dogtownsurfer-
I agree- I’m all for throwing the bums out- now if we could only find a better grade of bum!
Hutch-
When I was growing up, occasionally I would sometimes make the mistake of complaining about the fairness of my dad’s decisions. His unfailing response- “Life ain’t fair, Kiddo”
It’s one of the best lessons he ever taught me. You can be bitter because others were delt a better hand in life, or you can be grateful your hand isn’t worse. Too often the “Law of Unintended Consequences” kicks in when people get too obsessed about “fair” and try and legislate it.
Dogtown,
I’m going out on a big limb here. NOBODY WAS DUPED(homeowners that is). Station casino tv ads here in vegas are now saying you can win your mortgage payments gambling. NOBODY is stupid enough to believe that. Just simple greed. Just like getting into crazy mortgage deals. Why are all the Democrat leaders always on the wrong side of these issues.
OT, but this is a very cool interactive graph on the NYT website that allows you to compare various cities home prices to the national average over the past 20 years. Check it out.
http://www.nytimes.com/interactive/2008/05/28/business/20071031_HOUSING_GRAPHIC.html#
@Dogtown
It’s an election year. Bailing out homeowners, bailing out banks, giving away “stimulus packages” – its all about literally buying votes (with our money!)
@freemonster
I think some people were duped, but only because they didn’t bother to do any research. There was a report last year that showed something like 30-40% of americans didn’t know what kind of loan they had. I have a hard time feeling sorry for those people, though – in this day and age, you deserve to be ripped off if you can’t spend 30 minutes on a simple Google search to find out what an ARM loan is.
Linenoise,
I just googled what is an arm. It takes less than 30 seconds for the answer. Unless you spend time on quickenloan which says an arm lowers your interest rate and increases your cash flow. I still don’t think they’re that stupid. They might not fully understand all the particulars but I think they all knew it would adjust up. They thought their equity would also. The FED giveth and the FED taketh. Economics2008
It appears to me that those who bought into “The American Dream” completely disregarded risk and did so because most had no skin in the game. And as my daddy used to tell me “You get Nothing For Nothing” and that is exactlynewboss what they got.
I completely agree with Dogtown. But, here’s a new take, I was chatting with a couple who just turned 30 years old, I was flabberghasted when I heard their excuse, it went like this, “Well, we really didn’t know what an ARM loan was and that it adjusts, and we were certainly never told we had to pay it back, we had absolutely no idea that we’d have to pay it back.” They had “no idea” that they’d have to pay it back! C’mon when did they stop teaching math in schools?
How do you take out a loan and have “no idea,” that you’d have to pay it back? Maybe all the metal in their faces from the facial piercings, the black and green hair dye, and the tatoos interfered with their reception, dulling their ability to hear what the loan officer was saying. What planet were they from?
Speedy
I love it when they go through the airports. What idiots
It appears that most of us on this site are educated and intelligent. I only hope you all truly appreciate (or thank God, if you believe) the blessing that is your intelligence and education. Beleive it or not, there ARE people that ARE just that stupid (or ignorant, or uneducated, or however politely you can put it). There are also people that are gullable enough to believe what a lender tells them.
I’m not saying the debts should be forgiven, or even that assistance should be made. Just keep in mind that there are (even if it’s a small % of the problem/population) some out there that are not blessed with your intelligence.
Freemonster-
A bit off-topic, but you reminded me of one of my stranger experiences flying.
I was once on a flight from Phoenix to L.A. sitting next to two young people I dubbed “Ditsy” and “The Tattooed Man”. “Ditsy” was a fluffy blonde who shook her hair a lot- “The Tattoed Man” was wearing a “wife-beater” and had about as many tattoos as I have ever seen on one person. They had a conversation that went something like this:
Ditsy- Excuse me, but, like, I couldn’t like, help but notice you’re totally into tattoos?
T.M.- Yeah….
Ditsy- Could I, like, ask you a question?
T.M.- Sure.
Ditsy- When I was with, like, my boyfriend Michael, like, I had an M tattooed on my ankle. Since we are, like, not together any more, I went to the tattoo parlor to have it covered up with like, another tattoo.
I was thinking like, flower or butterfly, they wanted like, skull or dragon. I got tired of arguing with them, and just had them put this on.
[At this point I was very curious about what it was, but I couldn't see it from where I was sitting.]
At any rate, I hate it, and I want to get it removed. I want to know if like, after I have it off, I can get something else right away, or if I have to wait a bit?
[At this point I'm thinking, "Girl, what part of PERMANENT do you not understand?]
The conversation wanders after that. He tells her about going to a job interview with long sleeves and a watch to hide the tattoos, and his boss’ reaction the first day he wears a tank. She asked “Do you ever think about how you will feel about your tattoos when you’re 40?” They both laugh hysterically.
Ditsy- “Like you care what you look like when you’re 40!”
Then he tells her the reason he had come to AZ was to visit his parents. His father had worked and saved for 45 years, and now he had a ranch in Arizona. The conversation continued:
T.M.- It’s a shame retirement doesn’t come until you’re old and can’t enjoy it. We should be able to do it now.
Ditsy- Like, yeah. I don’t know, like, how your father could stand working for the same company all those years.
T.M.- Me either. I can’t stand to work more than a couple of years in one spot. I wish I could afford to do more though.
Ditsy- Oh yeah. Like, isn’t it stupid that credit card companies, like, give you a card when you are in college and can’t afford to pay it back. Then when you get a job and want to buy stuff, you can’t. Like, how stupid is that?
At this point I wanted to shake them both for their short-sightedness and foolishness. Thank heaven it was a short flight and we were about to land. I doubt I could have listened to the baloney much longer.
They both apparently had college degrees.
There are those who haven’t had an opportunity for an education, and you can’t blame people who do the best they can with what they have. This pair however, should have known better.
I wouldn’t be surprised if both of those two were “duped” into bad mortgages and are in foreclosure somewhere- and probably blaming the “stupid” mortgage companies. Some folks refuse to learn.
dogtownsurfer said -
Not “stupid”, perhaps “unintelligent” lol – Gawd, does Diana Olick even know what ignorant means or is she umm…
Well to protect all those “uneducated”, perhaps we need a law that requires a test to borrow money for more than one months salary. Talk about a credit crunch!
“They both apparently had college degrees.”
Somehow I feel the need to defend ASU here…
Kind of like a bad reality TV show. Must have been hilarious at the time though. I would have had a hard time not LOL. Educated or not these are the people that are going to pay our SS? No, these are poster people for the mess we’re in right now. I bet they got together and formed a no doc partnership on some property in Vegas to live the American dream right now. The end times are nigh!
Hi, all! I’m not even sure the issue here is about intelligence. Maybe it’s more about common sense and emotional maturity.
The adages “nothing in life is free,” “you get what you pay for” or “what goes up must come down” are things we all heard growing up. The current home price trends and the related mortgage “deals” were things anyone with common sense could have sniffed out without any education.
A ponzi scheme or a gambler’s emotional makeup have really nothing to do with intelligence or education, unless you’re a card-counter or a sophisticated racketeer, in which case why would society feel any responsibility for your mistakes?
The emotional desire to “work the system,” “pull off the hustle,” or “beat the house” are really just chilish fantasies and cop outs from putting in hard work over many years…work that feels great to those who are emotionally mature and take true responsibility for what happens to them.
DCBeacon-
I agree. There is a huge difference between “intelligence” and “common sense”. Just because you have one doesn’t mean you have the other.