Issues thread: The Housing Market

[Sillygirl]

So, the federal government is spending, what, billions to bail out Freddie Mac and Fannie Mae. How did things get into such a mess? And what should happen to people that took out mortgages beyond their means who are now facing foreclosure?

I think it's clear we can't just let all the shakeout happen without interference. Too many empty houses affect property values for everyone. OTOH, my husband and I educated ourselves extensively about our mortgage options and carefully bought a house we can afford. Even so, it's a good thing I like my job, because I don't think we could move away from here without taking a huge financial hit. So sure, I'm irritated that people that overbought are going to get a bailout on my tax dollars.

Those that think the free market solves everything - isn't there some role regulation could have played here? Financial transactions have gotten so complex. Does everything fall on the consumer, or do the lending corporations bear some responsibility as well? And if you think it truly is the consumers' fault, do you diasgree with the bailout - should we just let all those properties go into foreclosure? And the neighbors who are affected - tough luck for them too?

There's the question of how we solve the mess, but I think the broader question is: when should the government get involved in the free market to try to manage outcomes? Managing outcomes at this late stage in the game is going to be very expensive - could that have been avoided?

[psophia17]

I'm not entirely up on how the housing market is going in the US, but I know in this area it's finally starting to self-correct. It's doing a number on people who bought high and now want to sell, but it's nice for the people who couldn't afford to buy before, and now stand a chance. Even if it is a foreclosure.

I think the lending corporations should carry the bulk of the responsibility. They chose to loan money, often unsecured, didn't they? To do so in a market where everything is getting more expensive but wages are not increasing is to court disaster.

[jk3]

The government should not have turned a blind eye while the housing boom was on the upswing. Buyers should not have been able to secure mortgages with no money down. This is definitely a correction and will continue for some time. An absolute mess...Our area has not been affected for a variety of reasons but I feel for homeowners who are hurting.

[SammyeGail]

I think the interest-only loans should have never been an option. Sure, it helped a ton of families get homes when the market was high, but now their homes are worth less, they have no equity and their no-interest loan is coming to an end. I feel so horrible for those families. Its so sad.

We did almost consider interest-only to get a bit more house, but we knew we were going to finish DH's child support this coming April (free up $800). We never took it serious, we just couldn't do it. I am so glad we didn't. One of our twins has autism and when that money is freed up its all going to his treatment.

Its sad my SS doesn't even get any of the child support. He is totally self supportive. He started college a few weeks ago, moved in a dorm, buys all his food, etc., makes the lease payment on his car his mother promised she would pay 1/2 of and never did, his car ins, everything. I wish we could give him some money, but our little bit of saving is getting smaller and smaller for treatment for our son.

Sorry to get off track, but the housing market thing totally sucks. My MIL moved to the Phoenix area, now she wants to move close to us but can't. She's in a huge subdivision and every block has 2-3 houses for sale/forclosure. She's worried about not being able to drive, etc. We want her out of there but don't know what to do.

Samantha

[Laurel]

I think a huge part of the problem lies in a loss of the integrity of mortgage brokers. Sure there are many good people in that business, but the requirements got too lax. So many got greedy, talked people in to loans that they could not afford, and then sold the loan to another bank immediately. There was no accountability and no motivation to be honest.

I think most of us would do all kinds of research before getting a loan that big, but a lot of people were relying solely on their brokers to help them understand the process. Combine greedy brokers with the more, bigger, now of our culture and you get the disaster we have now.

So, while my gut reaction is that the people who borrowed more than they could afford need to "suck it up", when I give it some thought I have a bit more sympathy.

[BabyMine]

There are other issues besides people choosing ARMs or interest only loans. People are loosing their jobs and prices are on the rise. It isn't just a greedy mortgage industry it is a business industry that was riding a highly inflated market by Alan Greenspan. Now with the bailout we are going to be paying for that also. What I don't understand is that with so many smart people in this country why can't one figure out a truly smart way to end this. I hope this makes sense since I haven't had any sleep since my reflux baby was born 5 weeks ago.

[jk3]

There are other issues besides people choosing ARMs or interest only loans. People are loosing their jobs and prices are on the rise. It isn't just a greedy mortgage industry it is a business industry that was riding a highly inflated market by Alan Greenspan. Now with the bailout we are going to be paying for that also. What I don't understand is that with so many smart people in this country why can't one figure out a truly smart way to end this. I hope this makes sense since I haven't had any sleep since my reflux baby was born 5 weeks ago.

It is a huge part of the equation though because the loans were packaged into many products that helped certain people large amounts of money and now has spurred the demise of the banking industry.

[mytwosons]

I'm not sure what to think.

When we originally bought our home almost 15 yrs ago, you "had" to have a significant downpayment (PMI was frowned upon; if you went that route, you obviously coudn't afford the house.), employment history, etc, and people bought with the intention of living in their home for some time; people weren't buying a house w/the intention of upgrading in 2 years. Things changed, and people began buying more and more expensive houses, taking loans that weren't just ARMs, but ARMs w/artificially lower initial rates, etc.

On one hand, if the government had stepped in and banned these crazy loans, my house would be worth a lot more today. On the other hand, if middle income people hadn't felt they needed to live in a McMansion, I think we would have avoided this mess.

At a gut level, I guess I blame the people who took out these loans more than the government (for failing to step in).

[maestramommy]

I remember a couple of months ago I was listening to something like This American Life. They were telling the story of the how the whole housing meltdown went, from start to finish, mainly through interviewing one of the key players. He had to be still under 30 while telling his story, about how he became a virtual "rockstar" overnight because of all the money he was making with his company. All while know the loans they were giving out were worthless. It seems like everyone involved knew the interest only, no money down, no background check, adjustable rate mortgages were insane, but they kept doing it anyway. Nuts.

I definitely do think that there has to be some kind of regulation before the fact. Either the industry itself or the govt has to do it. Beyond that I don't know enough to go.

[kijip]

I believe that tighter regulations and stricter adherence to/enforcement of existing regulations here would have been beneficial. Plain language mortgage documents, provisions barring special mortgage program beneficiaries from refinancing without some oversight. My older brother was a shady mortgage broker (for those of you that recall anything about him, I know...what a shocker, LOL) for a number of years...he lied, cheated and stole and it was all legal. Gross, but legal. People with FHA fixed rate 30 year mortgages talked into "lowering their payments" with teaser rate 1% nonsense mortgages.

Financial literacy plays a big part in this. Like our education system fails people who can't tell you where Minnesota is or correctly multiply fractions, we fail when we graduate people who can't understand loans, compound interest, equity etc. Maybe I am a snob but anyone who does not think twice when they hear a rate of 2% or whatever is not thinking.

People started expecting home prices to rise, rise, rise with no end...which historically made no sense. Houses barely beat inflation in the LONG term. People buy houses to have a place to live or hold money out of the equities markets, not to flip and profit. A greater degree of education would have gone a long way to damper people's huge expectations.

I live in an area that has not seen a huge crash, at least not yet. We paid a very competitive price for our house and drove a hard bargain in June 2007. We also had a special, lower rate mortgage program via my city since I work at a non-profit and a sizable down payment of our own. I am not opposed to some sort of renegotiation of terms for owners who could stay in their homes with a reasonable rate or what not...primarily because it is NOT in my own self interest to see the market crash under responsible buyers like myself and most of my neighbors.

[Sillygirl]

Since this is meant to be a thread about issues, I'll link to Obama's position paper about what he'd do about the housing crisis:
http://my.barackobama.com/page/community/post/samgrahamfelsen/gGBNsq

[C99]

I'm more irritated that my tax dollars are going to support the bloated military-industrial complex. As far as I can tell, homebuyers, the mortgage industry, and the US government are all guilty of the same thing -- borrowing more than they can afford. The US national debt is nearly 3 TRILLION dollars.

[niccig]

When we went for our mortgage, DH was approved for an insane amount of money. We borrowed less, as we weren't comfortable with borrowing the max. amount. When DS told this to the broker, he was told to not worry and that if you got into trouble and couldn't refinance, you could foreclose and walk away. He was told that it's simple to do and not a big deal. Can you imagine that!

I hold the brokers/banks responsible as they gave loans that were irresponsible. And the homeowners who got in over their heads. I do agree that if there's a way for people to stay in their home by a refinancing deal, then it's in everyone's best interest. I am angry that tax dollars are used, but not all people in foreclosure got in over their heads, a lay-off can have the same result. I would like to see better oversight so the crazy loans can't be given. Save those that don't have the sense to save themselves, because we are ALL suffering. Our house price is what we bought it for 3 years ago, and it's still going down. We have equity as paying down quickly, but if it keeps dropping, we might not.

[niccig]

The US national debt is nearly 3 TRILLION dollars.

I can't believe that either. I heard a talking head arguing that the economy is NOT in dire straits. I was like WTF!! He mustn't listen to the news about unemployment, lay-offs, gas/grocery price increases, the 13th bank in 6 months to go under etc (that's if Lehman's doesn't get bought by someone else).

[niccig]

Since this is meant to be a thread about issues, I'll link to Obama's position paper about what he'd do about the housing crisis:
http://my.barackobama.com/page/community/post/samgrahamfelsen/gGBNsq


Thanks for posting. Does anyone have McCain's position on the housing crisis that they can post a link to. I'd like to read the two side by side.

[BeachBum]

What I'm surprised that no one is mentioning is that it was the Government that mandated less stringent standards for loaning money in the first place!

[crayonblue]

We live in the D.C. area. We were HORRIFIED by what we were approved to buy a few years ago. No way could we afford what the bank was willing to lend us. Our realtor told us he had people come in with zero down and mortgages 10 times their annual salary. No wonder we are in a mess!!!

I think the mortgage companies are at fault but so are the people who bought WAAAYYYYY beyond their means.

We sold our townhouse last year due to personal reasons and took a major hit. We put a large chunk of money down, money we made from a previous sale of a home. We lost every penny of that downpayment. THANK YOU GOD we had put money down. Otherwise we would have a massive loan right now, for a house we didn't own! We are renting right now and very happy to not be in any kind of housing mess. We won't be able to buy any time soon because we lost all of our downpayment but that is OK with us.

I really don't know what should be done about all of this. I feel for the people around us who are losing their homes. There are tons of foreclosures around here- Mcmansions and 1 bedrooms both. It just stinks for the people who were wise about what they bought and are now seeing their house value plummet. I don't know what the solution is.

[lovin2shop]

I'm absolutely amazed by the amount of government intervention that is required right now just to keep our financial system afloat. The Fed, in its series of emergency weekend meetings, has brokered deals to keep Bear Stearns and Merrill Lynch afloat, couldn't even help Lehman, and just this morning is stepping in to prevent the demise of AIG. Holy moly. I'm normally completely against govenment intervention, but this is being done to prevent a full and complete collapse. It is unprecendented and necessary in my opinion. It goes way beyond whether to help out Joe Spender with his mortgage payment. Opening up the Fed balance sheet deflates our currency and sets a dangerous precedent. At a certain point, we can't keep bailing out industries (airliners next, then Ford, GM, etc.), but they have to try to stop the dominos from falling.

Blame can be pointed in many, many directions. Personally, I think that there will have to be tighter restrictions on reserves, tighter lending restrictions and more transparent reporting (none of which is happening right now because we have to settle the crisis first). But, I really think that this issue is not so much a political one. In my opinion, this freight train was coming no matter who was in office, congress, or at the Fed. It was the next cycle after the dot com boom/bust and the S&L's before that, and I think that there will be another one (if only I knew the industry) coming. My guess is that all of these financial executives who are being laid off now, are looking for their next sweet spot. And they will find it eventually and ride it up again. It is a vicious cycle that I think that we might be in for awhile. So, you learn, but usually in hindsight. Wish that I had a better answer, but other than provide emergency relief, I don't think that there is very much that the government can do about it because they are always chasing the tail.

[kijip]

We live in the D.C. area. We were HORRIFIED by what we were approved to buy a few years ago. No way could we afford what the bank was willing to lend us.

ITA. When we were first looking, we even had some realtors and brokers tell us not to bother with a downpayment (we had a sizable chunk for one) AND they were approving us for amounts that were insanely out of reach to our income at the time and would even be a stretch on our income now, which is 1/2 again as much as it was when we bought the house. We insisted on a conventional measure for our monthly payment, factoring in taxes and insurance. We made a large downpayment and we made sure our monthly budget works (one reason for that is no other debt besides the mortgage). Without financial literacy, it would be easy to believe what the "professionals" were feeding you.

[bethie_73]

But, I really think that this issue is not so much a political one. In my opinion, this freight train was coming no matter who was in office, congress, or at the Fed. It was the next cycle after the dot com boom/bust and the S&L's before that, and I think that there will be another one (if only I knew the industry) coming. My guess is that all of these financial executives who are being laid off now, are looking for their next sweet spot. And they will find it eventually and ride it up again.


I am one of these people who had to move when the market started the bust, and am currently renting out my other house as I actually look for one here. (We don't mind renting but we believe we will be able to be in a house for a few years this time, and we are nervous about the owners of the properties we rent being foreclosed)

I have to agree with the above statement. It is greed, pure and simple, and combine that with people always needing bigger and better than they had before. I don't have an issue with allowing people to buy houses, people who believed they would never get into one. I have an issue with greedy mortgage brokers who didn't educate their clients, but saw them as another bonus. I have an issue with people who truly believe that they are entitled to the biggest/best of everything and if it doesn't work out they they will just walk away and have someone else clean up their mess. I'm mad that people were qualified for sub prime loans because they didn't know what they were getting into (or maybe they did), and brokers were greedy. And I"m mad that securities based on sub prime mortgages were given high grades by credit rating companies and it allowed the sub prime boom as well.

[Sillygirl]

But, I really think that this issue is not so much a political one. In my opinion, this freight train was coming no matter who was in office, congress, or at the Fed. It was the next cycle after the dot com boom/bust and the S&L's before that, and I think that there will be another one (if only I knew the industry) coming.

I disagree. The housing bubble wasn't inevitable. It was helped along by Bush's insistence on dergulation and gutting the existing oversight of the lenders. It is consistent with the conservative philosophy of letting the market work with minimal interference, and in this case it was a total failure. What that philosophy fails to realize is that as the world has grown more complex and interdependent, problems in one area spill over with huge repercussions across broad sectors of the economy. If we had been permitted to keep an eye on the lenders, they would not have been able to offer more and more irresponsible loans. Now the taxpayers (really, our grandchildren - see the deficit tally that W. has run up) will be paying for the consequences of that failed philosophy.

[lizajane]

i just don't know, really. as PP said, we did our research, found a house we could afford with more room than we needed at the time (in preparation for having kids) and put down as much as we could (which was little, but something.) we were in awe of how much money lenders wanted to give us. we LAUGHED at how much house we "could" afford according to the mortgage brokers. we planned for a mortgage that DH could cover on his income alone in case we had a family earlier than expected, and good thing! i lost my job the NEXT month!

so in my tiny little simplisitic view: people should not be allowed to borrow more than they can pay back. period. lenders should offer LESS than what buyers income indicate they can pay in order to provide a buffer between the buyer and unexpected emergencies and the mortgage.

[lovin2shop]

I disagree. The housing bubble wasn't inevitable. It was helped along by Bush's insistence on dergulation and gutting the existing oversight of the lenders. It is consistent with the conservative philosophy of letting the market work with minimal interference, and in this case it was a total failure. What that philosophy fails to realize is that as the world has grown more complex and interdependent, problems in one area spill over with huge repercussions across broad sectors of the economy. If we had been permitted to keep an eye on the lenders, they would not have been able to offer more and more irresponsible loans. Now the taxpayers (really, our grandchildren - see the deficit tally that W. has run up) will be paying for the consequences of that failed philosophy.

I'm definitely not an apologist for the Bush Administration, and I do think that there is blame to be shared. But, I think that the problem is *so* much more complex than just saying that people shouldn't have been given risky mortgages. If it was just that, you might see a foreclosure problem, but not the toppling of major financial institutions. The crisis started with the housing industry but really spun out of control because of the massive leverage behind the structured products, CDO's, etc. created by the investment banks (which include, but are not limited to the packaging and reselling of mortgages). These transactions can get so complex that it can be difficult to regulate. And as soon as you regulate one type of product, there is a way to structure around it. I'm not saying that it can't be done and I do believe that there will be reform. But, as much as I would like to point the finger, to be fair, I believe that this would have happened in any political environment.

ETA because I didn't make this point very clearly - The CDO's were originally hailed and highly regarded as a major financial innovation. They were not regulated because they simply didn't exist until fairly recently. Perhaps the SEC should have required more disclosure, but we are in the post-enron era where SEC rule making and enforcement is at the highest levels it has ever been.

[mamicka]

Thanks for posting. Does anyone have McCain's position on the housing crisis that they can post a link to. I'd like to read the two side by side.

http://www.johnmccain.com/Informing/News/Speeches/bea72b48-35ba-48cb-8cea-b3b68b9be7ee.htm

I haven't had a chance to read it through yet, I've only skimmed it. But I think this is what you're looking for.

[mamicka]

I agree that it's a total mess right now. I'm not sure what I think the answer is at this point. But I think its very important that in finding the solution, we look back to figure-out how we got here. Again, if you haven't done so already, do your own research, form your own opinion about how we got here.

Things I'm sure about, IMO... This wasn't a failure of the free-market system as we no longer have a free-market system. We have a free-market system that's been so corrupted with bits & pieces of socialism that its unrecognizable & certainly no longer acts like a free-market. I don't believe that the government should be bailing anyone out. I think that the government's interference is what helped cause this crisis in the first place.

I feel for those people who are now in really hard times as a result/symptom of this crisis.

ETA: Its curious that heads aren't rolling like they did (rightly so) with Enron, Worldcom, etc.

[jk3]

I'm definitely not an apologist for the Bush Administration, and I do think that there is blame to be shared. But, I think that the problem is *so* much more complex than just saying that people shouldn't have been given risky mortgages. If it was just that, you might see a foreclosure problem, but not the toppling of major financial institutions. The crisis started with the housing industry but really spun out of control because of the massive leverage behind the structured products, CDO's, etc. created by the investment banks (which include, but are not limited to the packaging and reselling of mortgages). These transactions can get so complex that it can be difficult to regulate. And as soon as you regulate one type of product, there is a way to structure around it. I'm not saying that it can't be done and I do believe that there will be reform. But, as much as I would like to point the finger, to be fair, I believe that this would have happened in any political environment.

ETA because I didn't make this point very clearly - The CDO's were originally hailed and highly regarded as a major financial innovation. They were not regulated because they simply didn't exist until fairly recently. Perhaps the SEC should have required more disclosure, but we are in the post-enron era where SEC rule making and enforcement is at the highest levels it has ever been.

This is a correct view but even though CDO's and other structured products were relatively new there was little transparency and there could have been some regulation. The individuals who were packaging, selling and trading these products knew the blowup would occur at some point even if they could not predict the exact point and just how dire this situation would be for our overall economy.

[tiapam]

This whole issue burns me up. We bought our first house in 2002. We sold that very quickly in 2007 after buying a new house. Many people thought we were crazy to buy with no contingency to sell our firs house. and then we were "lucky" to sell our house so quickly. But we made our own luck by buying in an area that offers many things people want nearby - shopping, transportation, parks. And we priced it *reasonably* and still sold it for more than we paid.

Owning a home is not the American dream. The American dream is being able to get a job that pays enough so you can SAVE enough money to buy a house one day. This is what happens when you try to rush that process.

[lovin2shop]

This is a correct view but even though CDO's and other structured products were relatively new there was little transparency and there could have been some regulation. The individuals who were packaging, selling and trading these products knew the blowup would occur at some point even if they could not predict the exact point and just how dire this situation would be for our overall economy.

I guess I just doubt the ability of any gov't administration to stay on the cutting edge of finance. Maybe I'm not giving them enough credit though. I also believe that most of the firms thought that this could go on and on and on. There were a few purveyors of reason, but not many that I heard.

[almostmom]

It's not only people living in McMansions who got screwed. When we applied for a mortgage in 2003 we were told we could hve one that was WAY above what we could afford - like double what we took out, which we can barely afford. We knew better. But my co-worker was younger and didn't have parents like me to help advise her. She came to me one day and told me she had been told she could afford a house/condo at the same price as what I bought, with no down payment, and I got so scared for her! Luckily, she didn't buy then, but man, she would have been so screwed! She had no one else to go to, she just trusted this man who said, 'You've told me your finances, now here is what we will lend you.' Scary stuff, and I'm sure lots of people were put in that situation. Just my experience.

[Sillygirl]

I guess I just doubt the ability of any gov't administration to stay on the cutting edge of finance. Maybe I'm not giving them enough credit though. I also believe that most of the firms thought that this could go on and on and on. There were a few purveyors of reason, but not many that I heard.

Seriously, because I'm trying to understand - what is it about "government" that makes you mistrust it? What if they hired the same people as Wall Street? Is it the lack of market-based incentive to push their actions? Do you assume they're all in the pockets of lobbyists? This broad-based mistrust of "The Government" seems to be a common thread in conservative thought. But really, you know, the employees are just American citizens, same as the whiz kids at Bear Sterns or Lehman. Why trust one set and not the other?

[lovin2shop]

Seriously, because I'm trying to understand - what is it about "government" that makes you mistrust it? What if they hired the same people as Wall Street? Is it the lack of market-based incentive to push their actions? Do you assume they're all in the pockets of lobbyists? This broad-based mistrust of "The Government" seems to be a common thread in conservative thought. But really, you know, the employees are just American citizens, same as the whiz kids at Bear Sterns or Lehman. Why trust one set and not the other?

Well, I wouldn't call it mistrust, more like lack of faith in the ability of those employed in the financial roles. This is due to my experience, albeit anecdotal, in dealing with the SEC when I worked for one of the largest public accounting firms and in my current dealings with the IRS related to my current employer. Let's just say that I certainly haven't met the cream of the crop and generally know that these positions have never been as well regarded and do not pay as well as industry.

My panties just get bunched when I hear the blame game from both parties, a promise for change on both sides and no real suggestions for solutions. You can blame Republicans for lack of regulation, enforcement and oversite or you can blame Democrats for the programs that opened up the mortgage industry with the intention of helping to get first time buyers and minorities in houses. But, as with most issues, I think that this crisis will require a bipartisan solution.

When you ask about mistrust and "The Government" it makes me think that I sound like some kind of paranoid conspiracy theorist and that makes me chuckle. I'm actually not all that conservative generally (and my DH would delight in hearing that I may sound that way since we often have "spirited" political discussions). I'm just conflicted over this issue as it concerns me how the government intervention in the financial sector and the associated to cost to our currency and economic strength; but yet I fully acknowledge that the Fed had to step in. I support regulation to a limited degree (anti-predatory lending policies, reserve requirements, etc.), but also believe that too much government involvement tends to muck things up. Sarbanes Oxley was a good example of this, as companies spent staggering amounts of money and man hours to meet the requirements of this law after the Enron era scandals and it did nothing to prevent the disaster that we have today.

[KBecks]

I disagree. The housing bubble wasn't inevitable. It was helped along by Bush's insistence on dergulation and gutting the existing oversight of the lenders. It is consistent with the conservative philosophy of letting the market work with minimal interference, and in this case it was a total failure. What that philosophy fails to realize is that as the world has grown more complex and interdependent, problems in one area spill over with huge repercussions across broad sectors of the economy. If we had been permitted to keep an eye on the lenders, they would not have been able to offer more and more irresponsible loans. Now the taxpayers (really, our grandchildren - see the deficit tally that W. has run up) will be paying for the consequences of that failed philosophy.


It's not all Bush. Here is an editorial that lays some of the responsibility on Clinton's Community Redevelopment Act.

http://www.ibdeditorials.com/IBDArticles.aspx?id=306370789279709