The Washington Post reports that the Federal Government is considering guaranteeing troubled mortgages in an effort to persuade banks to halt foreclosures:
The U.S. government may start guaranteeing the mortgages of some homeowners who are heading for default, in hopes of persuading lenders to renegotiate the terms of troubled loans and avoid more foreclosures, Federal Deposit Insurance Corp. Chairman Sheila C. Bair said today.
Bair told the Senate Banking Committee that the recently approved economic bailout package included authority for the Treasury Department to offer government loan guarantees and other incentives as a way to encourage banks and mortgage lenders “to prevent avoidable foreclosures.”
There has been a “failure to effectively deal with” the mortgage foreclosure problem, Bair said.
She has argued that the extensive set of financial rescue strategies deployed in recent weeks needs to do more to get at what she called the “root cause” of the crisis — the millions of households heading for default on their mortgages and potentially foreclosure on their homes.
This is where the mistake starts.
Households headed toward, or in, foreclosure are not the “root cause” of the crisis we are in today, they are merely one of the may effects growing out of a decade of insanely relaxed lending practices, a real estate boom that nobody thought would end, and a government that treated homeownership as an end in itself without regard to how it was achieved.
To put it bluntly, a good number of the people whose homes are being foreclosed on today never should have gotten home loans in the first place. In a sane world, they never would have. The fact that those loans have turned out to be bad shouldn’t really come as a surprise to anyone. Rather than subsidizing these loans yet again, the best thing for the government to do at this point is to just let the system bleed itself out.
It is self serving and inaccurate to repeat the Bush NEOCON rhetoric that those foreclosed on mostly did not deserve loans in the first place.
The qualification criteria was met, payments were made, but housing prices did not continue to climb. This coupled with the fact that four dollar per gallon gas suddenly made those plastic and stick McMansions in the burbs, a very bad investment. Many of our neighbors have lost jobs or have lost much of their buying power. My September grocery bill climbed thirty per cent over the previous month. Given all of the combined economic pressures, anyone can see that one area that had to “give” was housing.
Most suburbanites’ major investment was their home. When things go bad the thought was always, Well, we can always sell the house. That was the common belief; that Real Estate doesn’t depreciate. Well, that turned out to be another government lie. Suburbanites who were squeezed, tried to sell in a devaluing market and many simply reached the point where they had to walk away from the homes. Nationally, we are talking 10-11% but that is still a lot of loan failures.
So, let’s stop blaming the citizens for this mess. Who deregulated the banking industry and allowed the banks to get in bed with the investment banking community? Bush. Who gave businesses incentives to move manufacturing offshore? Bush. Who gave ENRON the green light to use mark to market and other bogus accounting practices? Bush. Who allowed the refining cartels to repeat the ENRON shell game trick that resulted in four dollar a gallon gas? Bush.
Our economy has not simply entered a recession, our economy is just, BUSHED!
01/20/2009 THE END OF AN ERROR!
That is what is irritating about this whole mess. People to include myself were saying years ago that housing has increased far too fast to be healthy and anyone who sees an ad for zero down, no credit check, and no income verification check should automatically see a flag go up.
It is completely irresponsible to put this blame on those who got loans. We do not have loans by demand. Our banks should had known better yet the whole food chain that makes up the Real Estate Industry to include Finance just saw cha ching in their eyes, got their cut and then passed the buck onto someone else.
Too many people on top have money that should be going to the rest of us. It leaves us with having to use credit and going into massive debt collectively. When our credit runs out we get these crashes.
These are supposed to be smart people. Sure those who take out loans should have a certain level of common sense BUT your loan officer is an adviser. It is not unreasonable for one to think that in 5 years you will be making more money than you are now or that you can sell it in 5 years because that is what these people advised.
People just one year ago were still expecting housing to triple like before and again these are people IN the industry. I started taking real estate classes over a year ago and I was listing to some of these young kids in the class say how they were watching one of those flipping shows on TV and they wanted to buy a house and do the same thing. I was being realistic and saying well you could buy a house but with the current market I would not expect to get a high return. You are going to get very modest returns or if housing continues to decline you may lose money. Of course the instructor who is a licensed Realtor pipes in that we are not in a recession. I reminded her that we were in a recession when this housing boom started which was followed by a 2 year plus jobless recovery.
How many considered that what was actually spurring the economy were people refi their existing home at its new inflated value and then going out and buying another home and/or other goodies such as Hummers, flat panel TVs, etc. What happens when that money runs out and they cannot get more credit?
None of them bothered to think hey maybe all this outsourcing of jobs and degrading of wages is not a good thing. Maybe we should get back to getting people steady wage increases and not keep hitting them with pay freezes, sub par pay raises, and replacing their jobs with a lesser paying job.
You have to put real cash into the middle class hands. You cannot keep giving them more credit and never expect the music will stop and someone will be left standing.
Besides houses we seem to always forget RENTING. Those who rent have been getting slammed by higher housing prices because property management companies have been jacking up rents. Mine is 3 times what it was in 1998. That prevents people from putting the necessary money away to have that down on a house and as well to use cash instead of having to obtain credit.
We are in a sad situation but all up the food chain should had saw this coming. It is not like this has never happened before. We had a housing crash in early 90s to where even Donald Trump filed bankruptcy. We were as well in a recession before it crashed. But when income disparity is at the level it was in 1929 we do have a problem. Part of the problem is that far too many believe in Neocon lies. Unfettered (as in unregulated) capitalism is redistribution of wealth from the many to the few. Yet they keep trying to peddle that an unfettered free market makes all of us rich when historically unfettered does not mean free and those who have money have power and use that against all others to kill off competition. It is so ironic that these same types will use the Boston Tea Party as a symbol of lower taxes when the Boston Tea Party was over unfair competition. The Tea Act lowered taxes. It did not raise them. The govt of GB excused a mega corporation from paying duty tax and it could as well sell direct. This would undercut many merchants who could not compete.
It is important that the middle class educate itself as well as the lower class.
To add: A lot of these people did have good credit. Credit Card Industry tried to blame deadbeat card holders when why people were filing for bankruptcy was largely due to unforeseen expenses such as medical expenses.