Today
Let’s not Blame the People Who Wanted to Buy Homes
by Paul B. Brown
Posted October 6, 2008 5:32 AM
Posted October 6, 2008 5:32 AM
Posted in
If this was 24 years ago, I would have been blamed for causing the meltdown on Wall Street.
I was about to turn 29, and couldn’t walk in our tiny two-bedroom condo. Every inch was covered with stuff devoted to the care, feeding and entertaining of our hyper-active two-year-old.
My wife and I decided to go house hunting and found the perfect place: A three-bedroom, two and half bath home on a third of acre of land in a terrific school district.
That was the good news. The bad news was it cost $138,340, and I was making all of $40,000 a year (my wife didn’t work) and we didn’t qualify for the traditional $110,000 mortgage (at 13%) we needed.
I begged my boss for a $5,000 raise and that got us closer. But the only thing the bank was prepared to offer us was something called a “Growing Equity Mortgage.”
Basically it is a loan, where your monthly payment does NOT cover principal interest. After a year of writing mortgage checks our outstanding balance would actually be GREATER than it was when we started. (Somewhere around $112,500 as I recall.)
We took the loan. And I did the equivalent of taking a taking a second job. I started writing books on nights and weekends. The advance from the first book allowed us to convert to a traditional mortgage. The advance from the second finally allowed us to buy some dining room furniture. (The room was empty for nearly three years.)
Why do I tell you all this?
As the dust settles on the Wall Street bailout, revisionist historians have started to take a new tact: The financial disaster was caused by all those people who wanted to buy a home. If only those people realized they couldn’t afford a place of their own, this entire mess wouldn’t have happened.
The obvious, and correct, reaction to that line of reasoning is: “How silly can you get?”
It was up to the folks who made the loans to make sure the people they were giving it to could pay it back.
And for many, an unconventional loan was the only chance they had to live the American dream. I know that was true for me. In my case, the bank determined correctly, I was a good credit risk.
It was the lenders and not the borrowers who caused the problem. The lenders always could have said “no.”
Comments (6)
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Posted October 24, 2008 5:44 PM
Your point about who's at blame is misdirected. Yes, the borrower's who "overbought" share some blame, as do lenders who were more interested in fees and profits than in the reality of borrower credit. All of it was predicate on the assumption that home values were increasing so rapidly, every new buyer would be in "equity heaven" before any Resets or whatever. Compounding the problem for 2004, 2005,and 2006 borrowers was the fact that home equity DID rise substantially and quickly.
Not satisfied, borrowers and lenders got together to take out that equity in the form of Seconds, then home equity loans and credit card equivalents. Worse, the money mostly wasn't used for improvements to make the home more livable, more valuable, it was used for new cars ("remember, Mr. Joe the Plumber the interest may be deductible"), vacations, bling and whatever.
Now, values are down, equity is nonexistent, even underwater, and goodbye loan - and home.
So, first I blame congress for promoting, and legislating, to make home ownership easier through adjusting the requirements for Freddy and Fannie, and others. Then the mortgage originators, financial "instrument" packagers, investment bankers, downstream guys, now seen to be playing "musical chairs" with the CDO's, Derivatives, Swaps, whatever.
And the borrowers and speculators as well. Not a few of these loans went to straw borrowers fronting for organized crime to "game the system."
I think a program to help the deserving, those who are owners in their homes, doing their best, and who can pay a reduced mortgage and interest rate, and maintain their home; those folks deserve a chance. The speculators, "overborrowers," shouldn't get or take advantage of government support (meaning taxpayers like you and me).
Those who took out all the equity, refinance the deal at an interest rate and payment term for what you can afford, but no markdowns in your favor, no deals that get taxpayers on the hook.
We can work this out, if the people who made the mistakes and profited from them "pay the price," as the rest of us do when facing the consequences for our mistakes.
Posted October 18, 2008 10:05 PM
I have jsut spent a number of weekends touring with a daughter who was looking to purchase a home in Loudoun County, VA. An area with many foreclosed homes. Many of these homes were "owned' by illegal aliens. Previously good middle class neighborhoods were totally trashed. Every bedroom in the homes we looked at had dead bolts on each bedroom door. One home actually had a new wall installed in a previous "family" room that divided the fire place in half. I think we can look to Jimmy Carter, Bill Clinton, Chris Dodd, Barney Frank and groups like ACORN who intimidated previously responsible lending institutions into sub prime loans. I don't see any improvement from an Obama adminstration so I won't vote for him or any other Democrat any time soon
Posted October 18, 2008 8:33 AM
It sounds like you took responsibility and worked your butt off and made it work. Unfortunately, many today look to someone else to bail them out.
Posted October 7, 2008 12:22 AM
oh please...blame the barney franks...the dodds...the nancy pelosis...and all the other dems...helll they were all in the take...funny how the media blames the repulicans..and yet cant tye one to this problem. If they could there would be many indictments..etc...all over the TV ROFLOMAO...
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