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Editor's Note: There's a new idea sweeping through the country. It's called dignity mortgages.
Backers say this new financing idea will help millions of homeowners and get the middle class back to the heart of the American recovery.
Opponents think it's a recipe for disaster that will make the first financial crisis look like a cakewalk.
Today the Fight Club is taking on this growing issue — let's get ready to rumble…
Frank Marchant: The Dignity Mortgage Is Insanity
The definition of insanity is repeating the same action over and over while expecting a different result. If true – and I wholeheartedly believe it is, this "Dignity Mortgage" idea is insane!
The dignity mortgage is supposed to provide low-cost mortgage loans for people who lost their home to foreclosure. The loan rate is supposed to be 1.25% higher than those with good credit and would drop in five years, if they make payments on time.
Upon hearing this latest sliver of insanity, I was not surprised the left-leaning Operation Hope Chairman and CEO John Bryant suggest it was a new twist on an old disaster.
I was even less surprised when a certain baseball hat-wearing colleague cocked his hat and boldly announced he would like to debate the issue. As if there was one!
Déjà vu? Didn't we try this "homes for all" debacle already? Didn't this end up one of the biggest financial disasters in American history? Aren't we still digging our way out of the mess it caused?
The so-called dignity mortgage, in a nutshell, gives people who don't qualify for a mortgage a mortgage anyway! In some cases even the down payment is provided.
You know what, I have an even better idea: Let's just give everybody a house and call it a day!
Why fool around with all that financial stuff like, interest rates, credit scores, closing fees, points, etc.? All that confusing stuff just gets in the way of the real goal:Everybody who wants a house should be given a house.
I even have a slogan for the program: "You bring the picket fence, and we'll give you the house!" It's the 2.0 version of "A chicken in every pot!" but with gusto.
Ben Bernanke could work with each new homeowner personally! The homeowner could write a short note. (We wouldn't want anyone to work too hard). Tell Ben how much the house costs and he could print that amount of cash. He sends the cash in a brown paper bag to the mortgage company for payment. Done!
Instead of The Dignity Mortgage we could call it: The No Muss, No Fuss Cash-In-a-Bag, Instant Mortgage.
Come on! Why not? We already provide enough food stamps to feed the entire population of Spain. Free cell phones are on every corner, and now there's talk of free Internet, too!
Really, shouldn't everyone have a house to keep all the free stuff? It's not like Ben Bernanke isn't already running the presses around the clock anyway. What's a few extra billion? Maybe we could save even more money if the new homeowner could pick the cash up at the Fed in person.
This concept failed colossally the first time, and it will when repeated!
It is well intended. But like most liberals and their ideas; a bit flawed. Clearly this is yet another way to redistribute wealth and here's how they do it!
Banks will originate these loans and after a year pass them along to Fannie Mae and Freddie Mac where they will become a problem for every taxpayer when not paid — once again.
There is not a reason in the world for me to believe that the same person who didn't pay their mortgage the first time will pay their mortgage now.
What is needed more than a hand out is a hand up!
The Department of Motor Vehicles educates and monitors licensed drivers. Education should be mandatory for everyone getting a first mortgage. The new mortgage holder should learn: how to become and stay employed; how to pay their bills in a timely fashion; and how to care for their home!
There is more to owning a home than just living there. The concept should be taught, to treat your home like an investment. Live there, enhance the property value and then sell for a profit. Voila. If you can't do that, rent.
If we can find a way for all homebuyers to do this, we all win! Passing out free mortgages isn't the way to prosperity, it's the fast track to yet another disaster!
Garrett Baldwin: Bank Leaders… not Homeowners… are the Real Deadbeats
Dignity mortgages provide a critical opportunity to help struggling, average Americans get back on their feet.
Despite the sirens and concerns from my detractor, aka the Man in the Sweater, this program isn't close to welfare or a devious plan to start another housing bubble.
This is a program designed with sustainability of the middle class in mind. I stress the Middle Class, because I'm sick and tired of people calling ordinary Americans "deadbeats," like one daily financial paper did recently when discussing this program.
These loan-seekers aren't deadbeats.
Some people think we're re-inflating the housing bubble. Others think that these people are somehow living off the system with their feet up in a hammock. They aren't.
These are middle class Americans looking for opportunity, and they aren't getting one from a financial system designed to suck every penny from their pockets.
Dignity Isn't a Bad Thing
Need proof these are not welfare recipients? I have it covered.
Dignity mortgage loans are designed for people who a) have jobs (show proof of employment), b) have saved enough for a 10% down payment, c) are willing to pay a higher interest rate, and d) struggle to qualify for a loan after the bottom fell out of the lending market. These individuals will pay a higher interest rate premium for the opportunity.
For example, these subprime loans might require a borrower to pay 1.25% more than a typical loan. So if a creditworthy borrower would pay 3.25%, dignity borrowers would pay 4.5%. After five years of timely payments, the mortgage lowers to ordinary lending standards.
This is a project designed to help people reestablish credit. Given that the banks aren't loaning to them now (and weren't held accountable for their blatant disregard from 2004-2008), it's only logical to improve the health of the middle class homeowners who lost everything and ultimately found themselves with credit scores in the low 500s.
As you may know, the difference between building and maintaining good credit in the high 600s, and being stuck in the low 500s is life altering. It reduces interest burden and puts more money in their pockets after five years of hard work and diligence. It gets them on the right track.
Greed Built the Bubble
The very notion that we are having a debate over subprime lending shows that some individuals fail to understand the primary causes of the financial crisis — human nature, and the blatant con-artistry of the housing markets leading to the crash.
Here we are having a debate about whether we should enable individuals to have some level of homeownership and put them on a path to the American Dream, and it quickly gets scuttled into red herrings about socialism, bubble inflation, and these people being "deadbeats."
Remember, Investor's Business Dailycalled these individuals "deadbeats," but then spent the next five pages of the newspaper talking about record profits for the banks. Did they forget who lobbied for lower lending standards… who sliced and diced mortgages… who required trillions in bailouts because they refused to be accountable?
The homeowners suffered when they lost everything in the crash. Meanwhile, the banks walked away scot free. No one in Washington lost their jobs, and no one on Wall Street was thrown in jail. Yet there is still some incessant and illogical desire to go after ordinary American homeowners and blame them for the entire financial crisis.
Blaming the entire U.S. population of subprime homeowners for the housing crisis is like blaming all the fish in the sea for a tsunami.
Frank, do you know how collateralized-debt obligations work?
Neither did the banks. But they made the financial sector and investor class a ton of money, and left us holding the bag.
Homeowners seeking loans were not the primary reason why the financial crisis happened. Instead, look at two things: First, the Commoditization Act of 2000 that allowed banks to get people to sign the dotted line at all cost, then ship the mortgage off somewhere else and not be held liable for the risk.
Second, leverage. In 2004, banks were able to raise their leverage standards to 31-1, levels that hadn't been that high since the start of the Great Depression.
Start there, and work backward. Capitalism on its own survives… crony capitalism fails and crashes in a horrid spectacle. Capitalism relies on rational actors…
The financial crisis featured zero.
If banks weren't lobbying for special treatment and were doing their job in the first place, there would have been loans designed like dignity mortgages that require higher interest payments given the risk of the loan. Instead, we were living in a time of pure speculation where there was no principal required.
"Just sign this loan, no money down… don't worry about it… Trust us… Come on… trust us…"
Regardless, these dignity loans are going to help this economy. A strong economy is not possible without a strong middle class… and building a strong middle class relies on individuals having assets to help them build a nest-egg and something of value for them down the line.
If you want to keep people off welfare, allow them to own a home and build wealth. Rather than have people spend thousands of dollars a year on high rents, allow them to own a home with a mortgage that is less than the rent they are currently paying.
With rents so highly priced, it makes categorical sense to allow individuals to own their own home. If their rent is higher than what a mortgage payment would be, then what exactly is the problem?
As it is readily apparent, the job of the banks over the last eight years had been to suck every dollar out of the pockets of Americans… and then suck even more out of their pockets under the guise of bailouts, capital injections, money printing, and crony capitalism. No one cared about average Americans.
We have to stop blaming homeowners for the crisis and attempt to build a healthy middle class.
No one is advocating socialism or massive wealth redistribution here. But there are things that lie between radical socialism and unfettered libertarianism. Programs like this educate and counsel individuals, and help them get on a path to financial wealth and independence — the only sure source of freedom in this world.
Now that you've read this bare knuckles brawl, it's time to turn in your scorecard.
Choose the winner of this tussle by voting below.
Pick Today's Fight Club Champion
I'm about as conservative as you can get but garrett's right about the crony capitalism being more responsible for 08 than the unqualified who signed. I would like just one change to the proposed program, the banks who write the loans have to hold the paper with no government insurance on the loan. what no takers?
Appears everyone is forgetting the Community Reinvestment Act of the '80s when congress forced upon banks to losen their standards to get folks into houses they couldn't afford. If you wanted a branch in a marginal area the bank had to "earn" that opportunity by taking onpeople who never had a chance to pay. FHA, VA likewise were reminded by these liberals of their charter.
CONGRESS and their bleeding hearts were the real cause of all this crap. Then you had Barney Frank of MA and Dodd of CT denying anything was wrong for a few years before it hit the fan. (AND these socialist fools on their way out created the new mess of the Cosumer Agency). Outrageous that government talks about the cause as those "bad bankers and bad Wall Street MBSs" sold to the unknowing investment managers(who had the creditials to have know better).
It's just another Bengazi, IRS, and wire taping story that our government gets away with. Any illegals allowed for the free homes?
you are full of a steaming pile of bovine excrement!!! when banks refuse to do their jobs and relieve themselves of fiscal and fiduciary responsibility, it is not the fault of the person taking out the loan, it is the fault of the bank.
this garbage about CRA is just that: GARBAGE. It is just another tinfoil hat conspiracy theory that holds no water but is believed by lots of willfully ignornat people, like yourself.
m-girl, you ill-informed about the CRA and the cancerous permeation it caused among the various lending institutions and the death of the mortgage markets at the expense of taxpayers. When government meddles they break stuff.
You are right about it not being the borrower's fault. Borrowers were simply the pawns sacrificed to bolster political careers and line men's pockets at our expense.
Bob you are exactly right….It is a repackaging of the Community Reinvestment Act of '93 that lead to the housing bubble bursting. How quickly we forget why people lost their homes in the first place…they could not make the payments so lets give them another at a higher interest rate. No one got a loan without income from '93-2007 and see what happened? The truth is the truth even if it hurts people's "dignity". Amen brother.
You're right, and thanks for being informed.
Selling contaminated SIV's and not ill-informed weak borrowers caused the mortgage collapse and you seem to have a handle on that. Many borrowers from 2004 – 2006 had plans to sell or refinance before their ARM loans matured but banks stopped lending and this created a domino affect.
There are several reasons this happened and banks share in the blame, but government intrusion by political half-wits are the primary culprits behind this devastation. This article wants borrowers to be trained how to stay employed and pay their bills prior to being "allowed" to own a home. Don't renters have to stay employed and pay their bills or they will become homeless too? Simplistic half truth remedies won't fix the problem or prevent a recurrence. Borrower's options were removed in 2008 and their only course was to default and lose their property, but they did NOT cause this.
WOW, got a little worked up there…you get faster and faster as you reel off those talking points. But what Bengazi, IRS, and wire taping has to do with the concept of dignity mortgages is way beyound my ability to connect the dots. Barney Frank = Bengazi??? Or Dodd of CT = IRS???
And for God sake, drop the bleeding heart thing. So cliche these days, it's the 21st century.
Good idea. Give all "illegals" amnesty, and then a free home. Watch our economy grow faster than ever. Compare the growth rates of New York City and Charleston SC. Which city had the welcome mat out?
I agree. Most of these "deadbeats" have been paying rent to another homeowner since they were foreclosed upon due to their inability to pay a higher mortgage due to an ARM. If they've been paying $950.00 a month since 2008 without missing a payment, allow a lending institution put them into a foreclosed unit in their budget at the LOCKED in interest mentioned above. How hard can it be?
Right On!!!
Frank has a strong argument, and Garrett has good points about no one owning up to the losses created by those insane CDOs which everyone knows was the leading cause of the crash. So let's put Frank and Garrett in a room and not let them out until they arrive at a solution!
Mr. Garret is right dignity loans would be a great help to middle class in my case our
property in BC Canada, we were forced into selling lender was paid out in full but credit
rating agency will not remove it from my credit file this property sold in April 2011. It is
still affecting my ability to borrow. Three lawers told me Equa Facts is the worst of the
Credit Rating Agencies in Canada Thank You Robert Butt
Frank takes points for steamy outrage, Garrett scores TKO with intelligent points. When people finally realize it is the banksters that are the real cause of our macro economic problems, maybe it won't be too late to reign in their unbridled greed, if not their callousness.
There are enough abandoned homes that are being vandalized and misused that don't belong to anyone now that could be given, with some reasonable requirements, to displaced families. There is no need to give away money or build any more homes. Just place families in them, give them some community service work and the healing can begin.
Both gentlemen make good points, but generating a solution ahead of the market is asking for those usual unintended consequences that result from government intervention. I say let the market repair itself. As for someone "paying" for the collapse of the housing bubble, ain't gonna happen in my lifetime, too many vested interests.
You know some of us that lost are homes weren't deadbeats. I owned a home decor store that did amazingly well till the housing crash! I paid my bills on time and was living the american dream. Unfortunately I lost my business. My now ex husband was payed salary and commission and couldnt handle the financial and emotional stress so we lost it all. He finally walked out on our family leaving a mom and kids to defend for ourselves after a four year legal battle I finally get child support and now alimony. I have been working as hard as humanly possible doing any work I can find just to pay the legal bills and our living costs. Now that I'm getting back on my feet do I not deserve a second chance because of the circumstances? I have NEVER received food stamps or public assistance even when I had to pawn every piece of jewelry I owned, and I may add have gotten back. Do my kids and I have to rent for the rest of our lives? What about when I'm to old to work? My savings is gone and my state retirement will be very small. Yes in my 30s I already worked long and hard enough to have state retirement which not even enough to pay the bills. Do I become the burden of the state or my family then or would it be better I get a dignity mortgage now? Home ownership promotes self esteem and the neighborhoods owned verses rented, help the economy, as people tend to work harder to maintain their own homes and communities. This argument is a no brainer. YES people deserve second chances.
"I owned a home decor store that did amazingly well till the housing crash! I paid my bills on time and was living the american dream."
You own nothing till you owe nothing!
Wait a minute. If one borrows money for a car/home/whatever, doesn't he have a personal responsibility to be reasonably sure he can make the payments? To claim that Barney Frank's social welfare program to coerce banks into lending to unqualified borrowers, and the banks' reluctant willingness to do as the federal government ordered them, is responsible for borrowers being too stupid or irresponsible to avoid signing loan agreements they couldn't honor is not just naive, but dishonest, maybe even malevolent.
Perhaps people should apply for and get the Loan Forgiveness Agreement (LFA). I mean if people are to be responsible for their own debt, I am not sure why such an agreement even exists. Can someone please explain this to me and why should some people be forgiven of their debt, but not others?
That is how Capitalism works. When a business or individual can't afford to pay their debts, there is a negotiation or forgiveness. It is far more common in the business world than for individuals. Developers and contractors default on a recurring basis. They just declare bankruptcy and start from scratch again. Take a look at the airline industry as well.
In a perfect World, everybody would pay what they owe. If that were the case, rates would always be low because the risk is removed from the system.
banks relieved themselves of any fiscal or fiduciary responsibility and lent money to anyone, especially those completely unqualified.
to blame the borrower is willful ignorance.
it is the banks responsibility to qualify applicants. willfully ignoring reality and approving a half million dollar loan, with no money down, to a person that makes $40,000 a year is an exercise in throwing away money. The banks clearly have been making loans, then selling them, and relieving themselves of this known toxic asset. it is a ponzi scheme being perpetuated by the banks and then blaming the scapegoat CRA program. What a joke!
These tinfoil hat nutters that claim the CRA is responsible CLEARLY do not have a grasp of financial risk and are the tools of the banksters.
Garrett is absolutely correct! Why is it that the "authors" of such "idiocracy" that figured out how to STEAL from us TWICE (once directly and secondly in bailouts) continue to pile on the profits with NO ONE going to jail? Where are these profits going? To workers? (NO) to managers (NO) but to CEO's and owners.
funny how people are so ignorant to blame the person asking for a loan instead of the banksters? the banksters refused to do their job and instead stole from the American people through the full faith and credit of the US.
I would like to know why none of the banksters are in jail? They stole money from America, but because they call themselves CEO's, how does that absolve them of being charged, prosecuted and tossed in jail and pay restitution?
"funny how people are so ignorant to blame the person asking for a loan instead of the banksters?"
Hmmm… Let me get this straight. You ask me for a loan, and basically LIE to me to get the loan. Then you default on the loan after a few years. And its all MY fault. Ummm. Yeah, Riiiight.
I'm amazed you manage to put one foot in front of the other without falling on your face.
SMH.
"I'm amazed you manage to put one foot in front of the other without falling on your face."
Norm, you should cease being so amazed. The liberals are in the majority. You need to read Kurt Vonnegut. I will leave it to you to make the effort to understand my premise.
How then, did the smaller banks survive the crisis? Requiring minimum standards of credit, income etc., with the normal paperwork, most likely. Did they securitize their mortgages and sell them off, thus relieving them of risk? Even non-banking people can see through the straw man defense of the big banks.
And nothing has changed. The august House of Representatives wants to weaken already wimpy Dodd-Frank so the whole mess can continue. Reinstate Glass-Steagall, and support state banking modeled by the Bank of North Dakota. For good measure let's actually prosecute some of those responsible for gambling with the world's financial resources, eliminate risky financial products created just to provide something more to gamble on, restore some sanity to the wage disparity (Can anyone truly justify paying someone thousands of dollars an hour or more, while paying someone who serves their meals at a restaurant $2.10 an hour? It is easy to criticize when people are forced to overextend just to feed, clothe and house their family if you can, without noticing, spend hundreds of dollars on lunch, a week's pay for for many you then refer to as "deadbeats," all the while supporting cutting safety net programs. Garrett has it right, but it is only the first step in restoring the middle class to some level of dignity for the work they perform each and every day under often stressful working conditions. They are the true means of production in this country. I'd like to see a month when the only work done in this country was done by those "earning" over $500,000/year. Then we'd see who does the real work in this country.
It was Mitt Romney that called 47% of Americans deadbeats, you need to keep the politics out of your articles. Turns people off. Romney lost the election. All liberals do not think like you think they think, many are hard working individuals that pay their bills, keep up their properties, and are not on any type of subsistence.
it is politics that caused the Glass-Steagall Act to be repealled — the republicans were the instigators of that ponzi scheme that enabled the complete irresponsibility of banks to make toxic loans. There is no valid reason why the Glass-Steagall Act was replaced by the Bliley-Graham-Leach Act other than republicans making legal what was once illegal and create the biggest transfer of wealth, ever, to themselves and their cronies.
If it weren't for politics, this whole financial crisis would never have happened. And the genesis of the crisis lies with the republicans, and their overwhelming votes repealing the Glass-Steagall Act.
Calling a club a club, and a spade a spade, is where you need to start. You might be turned off, but facts are facts, like them or not.
m-girl: You have no credibility. Glass-Steagall repeal was a bipartisan effort.
On January 4, 1995, the new Chairman of the House Banking Committee, Representative James A. Leach (R-IA), introduced a bill to repeal Glass–Steagall Sections 20 and 32. After being confirmed as Treasury Secretary Robert Rubin announced on February 28, 1995, that the Clinton Administration supported such Glass–Steagall repeal.
Murphy: Your description of liberals does not match with the world I live in. I'm the only conservative on my block. I'm the only one who has stayed on the block long enough to pay off my house. I'm the only one with a lawn.
They say the devil is in the details and unfortunately, the details of the program are lacking. First, Garret's discussion of the banks being greedy and guilty is irrelevant here. While I agree that they have some guilt, it really is not important to this discussion. Two wrongs don't make a right.
The question really boils down to this; will this program be another boondoggle or will it help those who are able to afford a home but due to present circumstances, not be able to get a home, and thus, truly help the economy? Let's ask some questions. First, what happens to the interest rate after it reaches "ordinary lending practices" as Garret says. Will it be a fixed rate or an ARM? Second, why is the taxpayer going on the hook for this? (for that matter, why is the taxpayer on the hook for any loan?) Third, having worked on mortgage modifications, I can assure you that the individuals are as guilty as the banks, brokers, government, etc. What will be different this time?
No one seems to answer how this is different now. Given the state of the economy and the direction the jobs market is heading, why would we think this won't be another taxpayer funded bailout?
While agreeing with most of your comentary about Dignity mortgages, I take issue with one statement in particular. "The new mortgage holder should learn: how to become and stay employed;". How can you expect the general hard-working person to do that rediculas statement when they are for the most part, fighting the greedy corporate owners that dump them on the street after working faithfully for almost enough years to retire. The key word here is "Almost". I have seen over and over how businesses have filed bankruptcy then after the employees are put in a position to lose everything, the same people buy the company back at the bankruptcy sale and it's business as usual. Only with new employees and no retirement to pay out, nor suppliers to pay who have had to lay off thier people because the first business did not pay them. So re-think your statement there Slick. When you experience it first hand, you are then qualified to comment. Sometimes there is more to the story than just figures on a chart.
When you give a person a second chance, they should not be rewarded for the previous failure. Just let them line up with the rest and judge the application based on its merits.
Garrett Baldwin Has It Right!!!
I am a 75 year old General Contractor and have been building and selling homes to the average middle class American for 55 years and have experinced all of the ups and downs during those years. It has been a constant battle with banks and mortgage companies and interest rate swings, etc, trying to find ways that people could afford to buy a home, it is a very difficult business, most of the difficulty is with the banks. The banks are the major problem with our housing, economy and the belittling of our American middle class, which are made to feel unworthy everytime they go into a bank and ask for a loan, these people are the people that built America, they are deserving of the right to own their Home with fair rate of interest.
Garrett Baldwin has it dead RIGHT, best description I have ever read on the Housing need of America!!!
Dewey: Participating in the business over the past 55 years, contributing to the expansion of basic home square footage from 1300 sf with no amenities to 2200+sf with vast amenities, have you ever considered the economic unsustainability of that paradigm in light that real incomes have grown a mere 4% while "basic" house floor area and amenities have expanded nearly 100%? Probably not, because yours and the bankers' profits were expanding right along with the square footage. So, just what kind of first home do you believe the people who have "built America" deserve? I believe they deserve the best home they can afford to pay off, and that home is probably one which is far smaller than the one you wish to sell.
One thing keeps puzzling me; if someone in line for a dignity loan has problems with paying bills, making payments and has a limited income etc. why are they supposed to pay a higher interest rate? Does a risky borrower suddenly become less risky when charged with a higher interest rate?
Really? Doesn't this makes it even more difficult for them?
I am convinced that the housing crisis could have been a lot mitigated, if not prevented, if right at the beginning when teaser interest rates expired all mortgages would have been frozen at the lowest market level. I know a lot of "middle class" people who would have stayed in their homes if their mortgage interest rate modification would have been successful. Nobody wanted a premium reduction just a reasonable interest rate.
Higher rates are charged to compensate for the risk of the borrower.
the higher rates means that the risky borrower has less buying power than someone who has typically been a more stable borrower (paying bills on time, being lucky to not have lost their job, being lucky to never had a serious health issue, etc).
The stable borrower and the risky borrower may each have the ability to pay $2,000 per month payments, but, the stable borrower can have a present value purchase of ~$419,000 while the risky borrower has a present value purchasing power of only ~$352,000. (based on 2,000 payment, 360 payments, 4% stable borrower rate versus 5.5% for risky borrower)
Technically, the thought is that if the risky and stable borrower both borrowed 500,000, then charging the risky borrower more would technically make them more risky, but, in reality, how it is supposed to work is by reducing the buying power of the risky borrower, not to make them more risky.
the risky borrower has less buying power which is exacted through a higher rate.
And why were banks lending to people they knew couldn't afford a mortgage, and then packaging and selling these loans as a collatoralized investment? Does anyone remember the "Community Reinvestment Act"? They were mandated to give these loans by Congress under threat of "penalties" Don't lay all the blame on the banks as once again the politicians are the source of the problem. I blame a meddling Congress who is always mucking things up, and sticking their collective noses where they don't belong.
this is FALSE.
Nothing in the CRA said be ignorant or make irresponsible loans. NOTHING.
The CRA was to force banks to apply equal lending standards to all people – meaning, they were NOT allowed to charge a premium interest rate due to skin color.
However, people, like yourself, have twisted the language of the CRA to fit their own nefarious explanations instead of the actual language of the CRA.
Furthermore, the banksters were NOT performing their fiscal or fiduciary responsibilities and loaning APPROPRIATE amounts of money to people. The banksters were loaning excessive amounts of money to people whose credit profile did not warrant that amount of money.
Please understand the difference between loaning money to someone at a fair rate instead of charging them a higher rate because they are female, black, hispanic, or old versus a bank OVERlending to someone that simply cannot pay back the amount because the bank refused to perform their fiscal and fiduciary responsibilities.
The blame DOES LAY AT THE BANKS FEET. COMPLETELY AND TOTALLY. Banks did not have to lend money to anyone that clearly could not repay it or in amounts that they could not repay.
How you don't understand that loaning TOO much money to someone that cannot repay the amount is completely the irresponsible action of the bank is sheer willful ignorance on your behalf.
It frightens me that results are 50/50. Do half the people in this country forget that making loans to people who did not qualify for a loan is what caused the economic situation we are now trying to recover from ?
How about all of us that pay our home loans that are underwater because we signed a contract in good faith. We pay taxes that helped banks and dead beat home owners get all these special home loan programs that we are not qualified for because we make our monthly payments. I asked my bank for interest break from 7% to 3.5% and the first question they ask when was the last time you made a payment if you are up to date there is nothing they can do. I am fed up with helping the greedy and the lazy, if my interest were lowered I would take those extra dollars and help stimulate the economy.
I am not at risk of losing my home but I would feel better if I got a little break.
You are being lied to by the banksters! You can get your loan refinanced. You just have to meet the criteria for a refinance. www-bankrate-dot-com Shop around. Your bank will NOT give you a break just because you asked for it. Nope. Don't be stupid. And be thankful that you haven't had a medical illness or job loss to put you in the category for an automatic loan modification.
This is a free market so if you are upset with your bank, find a loan somewhere else. Your bank cannot stop you and it is YOUR fault if you do not shop around.
I confronted my insurance company about why my rates were jacked up for no reason and to meet the much lower rate of a competitor. they refused. I took my business to the competitor that offered me a much better rate and better coverage.
If the banks had been exercising fiscal and fiduciary responsibility in the first place, then this whole crisis would not have happened. But, the banks weren't doing their jobs. They overlended. Period. The banks are to blame. Not only were the banks making loans to people who didn't qualify, the banks OVERlent to people who did qualify, but in excess of the amount they were capable of repaying. Math, people. Simple math.
No bank will touch you if do not meet one or all of the government requirements. They designed the rules for people who do not make payments for what ever reason from loss of job or over extended beyond their means. I am about upside down by $90,000.00 if know of any bank or program that will help I am all ears.
What Garrett neglects to take into account is the pressure Bill Clinton's AG put on banks to lower their lending standards allowing poorly qualified people home mortgages. Reno threatened lenders with federal lawsuits if the banks didn't comply. A do-good law, the Community Reinvestment Act, signed by Carter in '77, enabled Clinton to create this mischief and it was all based on the socialist idea of wealth redistribution.
take off your tinfoil hat.
The CRA did NOT say go out and loan money to people in the amounts that they cannot repay.
The CRA said that banks could NOT refuse to loan appropriate amounts of money to people because they were black/hispanic/female/old.
The CRA did NOT require banks to actively market to any demographic, but the CRA required the banks to make loans to demographics that clearly qualified and in appropriate amounts.
Please learn the true intent of the CRA. The banks got greedy and made loans to people in amounts that were excessive. It is the banks that screwed up. The fact that you are blaming poorly qualified people demonstrates your ignorance of the problem. The ONLY loans that should be made are ones that have a reasonable certainty of being repaid under the terms and conditions stated. The CRA basically told the banks to quit discriminating based on particular demographics and did NOT say go be stupid.
M-Girl you are totally correct. And when underwriting standards were being upheld all the way through the mid 90s, the mortgage biz worked just fine. Your house is not an investment but rather a wealth builder. You pay the loan and you gain wealth. You rent you increase someone else's wealth. Hmmm. Good incentive. That is why home ownership is so important.
Bob Colby (comments) and Frank got it right; Garrett got at least part of it wrong. To buy more votes and get re-elected, our Princes and Princesses in DC pushed the CRA on the banks and others. Read the official transcripts. Old Barney pointed the finger at everyone but the true culprit in the mirror. Google "Barney Frank roll the dice" for just one of the smoking guns.
And Garrett, the last thing banks want to do is lower their lending standards; that drastically increases risk… unless, of course, the legislators set-up conditions to mitigate that risk. Which they did. And in the process, our P & Ps set-up conditions to unleash greed on everyone's part (not just bankers).
The 2000-2008 real estate market conditions roughly paralleled the 1920s when stocks could be bought on "margin"– pennies on the dollar and you borrow the rest. Any decent student of history could have predicted with certainty the logical outcome in the 1920s and 2000s. It seems that we re-learn the same lessons that our grandparents and g-grandparents learned. Google "Kondratieff Cycle".
History DOES repeat itself, and paraphrasing Mark Twain– it doesn't repeat exactly, but it rhymes.
I like the idea of the interest rate going DOWN in a year or so. One of the problems was the balloon payments and interest going UP after 5 years in the old loans. People were always hopeful their situation would improve in five years, and when it didn't, they were in over their heads. I read somewhere that REAL wealth has only gone up 4% in the last 36 years for the bottom 50%. Not 4% a year, but 4% total!
The more those in charge make people look at piecemeal aspects of something, the easier they distract us [like magician's do] from what is really going on – the bigger picture > ACCESS TO CREDIT. They know and control that simple principal – because they have the sheer power to keep access.
Up front, I am an independent, responsible person, but against the current banking system; it is prejudicially set up to insure the banking elite, linked with the political elite however you want to describe it, always have access to credit and all others [except large corporations] so intermittently and so much less so as to perpetuate the serfdom kingdom.
Comedian Shelley Berman said anyone can lie with statistics [the left side of the audience has 30 % less cavities … but the right side has 50% more teeth]. What is an interest rate except what someone with enough power [the Fed] says it is – for loans, savings, and increasing spreads? Has anyone linked need for money printing to where it goes? How can a society function on 15% to 24% interest credit cards? Another example of two sets of rules. We probably could give everyone a house [not to sell of profit from – but to live in mortgage free] – for far less than the current money printing / bailouts AND with remarkable reduced societal stress.
The US as a nation has over decades since WW II changed more toward two earner families – with little or no effective family financial gain in a fiat money system – more work and less peace. The financial industry has little clue of the psychological toil & stress on families of the reduced child raising time; sure that is OK if you want to raise robots. Maybe the constant manufactured strain of the endless [if we stay distracted] "war on terror" will provide a clue.
Hold this thought, reflective of policies. Back in the 1970s, as a US Navy officer, I had a Philippine chief steward [food and personal service on ships]. He said he was better off working in the US Navy and shipping money home than seeking work back home where he was a licensed C.P.A. and reserve fighter pilot in the Philippine Air force. In his home country, only 2 of 5 educated people could find work. Where is the US headed under our lame, financially controlled leadership?
Our leadership needs to look to policies that truly would foster self reliance, not government dependance [now approaching 50%]; but that means also providing a financial-political framework where there really is work available [yes created by entrepreneurs – but other than just those at large corporations, which patent law favors more now than ever]. Finance, and scrutiny of Madison Ave marketing, have by design never been significantly taught in schools.
A long ago friend, Senator James Webb, obviously had had enough seeking change through Congress after one term. We need a whole Congress of James Webbs at the same time to alter the status quo of access to credit – to do the right thing, including a focus on full education, not producing robot followers. The financial segment of society needs to be a true society facilitator, of the real economy – taking 3% of GDP profits, not 25% to 30%.
Capitalism fails when ethics are thrown out the window. Our society as a whole has been degrading ethically for at least 40 years if not more. It's so obvious at so many levels it's simply self-evident. The sheer number of laws and regulations in existence is proof of the erosion of common ethical decency, requiring more rules to fuel more lawyers and create a society perpetually thrashing in the courts.
Systemic ethical failures are exemplified by corrupt institutions such as the government, banks, and wall street. The proof of systemic ethical failure is simple … people who should be fired (at minimum) are not, people who should go to jail, don't. Then there are all those who live in a state of never ending delusion and denial, leading to systemic dysfunction, derangement, and disconnect. These people are neurotic to the point they should be on disability, and have almost zero ability to see or understand reality … Nancy Pelosi comes to mind, she's clearly mentally ill, yet has been leader of the House … in a sane world, Pelosi could not be … and yet, there she is.
Individuals then pick up on the corruption they see from the elites and privileged and start to emulate it. In the 90's it became clear that perpetual daily lies told by holders of high office literally became the norm. I argued with people I knew at the time that when a society starts pretending that lies are truth, society is in deep deep trouble. Of course, nobody cared, too busy rooting for another 1000 points on the dow. Today, many if not most voters wouldn't know the truth if it was standing in front of 'em with a baseball bat. Ignorance is now worn with a badge of honor.
Today, the lack of anything remotely approaching ethics is like a cultural cancer. We listen daily to liars lying, and frauds spinning, and con-artists throwing crap against the wall to see what sticks. It's all about what you can get away with … people are not even embarrassed by their own egregious mis-deeds … if called on it they act like it was someone else who did it … if you tell the truth, you get crucified, so you're actually incented to lie. The '08 meltdown was systemic cultural failure all the way from Washington D.C. to Main Street, U.S.A. … you can't really just blame one thing although you can certainly identify causes and effects for sure. '08 was the perfect storm exposing a greedy, thoughtless, secular, materialistic society whose concept of ethics has simply turned to dust.
I'll know that ethics is making a comeback when actual justice prevails. That would mean Solyndra executives going to jail, crooked pols impeached or in jail, etc. … I figure it's going to be a long wait.
Garret makes a good point about the banks not having been punished for their role in the financial crisis. However, this program would not solve that problem. The solution to that problem is to go after the banks and investment firms responsible for this mess. Give them more than just a hand slap fine. Put those responsible in jail. However, that issue should not be used as justification for this program. I'm inclined to agree with Frank that this program just takes us down the same path all over again.
A simple equation:
Too big to fail = Too small to survive.
Addendum:
Too big to fail = Not letting the market correct itself
OK, the mortgage industry was working fine until we stopped underwriting the loans. FHA was the means of getting younger people qualified to buy a house. They paid 1+% up front mortgage insurance, and 1+% per year in that same insurance. Oh yea they had to have a job, decent credit and a decent debt t income ratio. OK FHA, Fannie and Freddie were doing fine. Then in the late 90s well Wall Street got into the act. Well we really don't need proof that you have an income, ah what the hell, forget the down payment. These programs backed by the idiots on the hill poured new money into housing. WOW, I can buy 5 houses. If I buy one today for $150K it'll be worth $200 next year, I'll take 5. Mr and Mrs. Jones that make combined $60,000 well yea you can afford that $500K house and why not we'll lend you the money for a new car and furniture too, yea get the upgrades what the hell make it $600K.
FHA's percent of the mortgage business went from the 40s to below 5 in 2005. Why because they insisted you had a job that could support the payments. It was Wall Street and the fancy financial instruments they sold that put us into that mess. I know as I have been involved in the housing industry since the early 90s.
Just like now with the stock market. These idiots in our central bank are printing money, which is inflating stocks and bonds. When the pin goes in it will be ugly. When the shoe shine guy is telling you about hot stocks time to go find another party. You see Buffet and Soros those fake Dems getting out of the market, they know.
As long as you underwrite loans and give them to people that can afford to pay them, then the price of housing will rise with wages. Owning a home is incredibly important for America. Now if homebuyers are educated properly, then they will know, pay the interest and mortgage insurance and in a few years you'll have equity. Wow then you can refinance and get rid of the MI. OK and if your career advances (isn't that what America is about) and you have some equity, and the price of your house rose over those 7 to 8 years, well you might be able to move up. This was how it worked until these idiots on Wall Street with our idiot government yea Dodd and Frank, the SEC who were watching porn instead of doing their job, got into the act.
As usual the few ruin it for the many Now these underwriters are afraid to approve a loan. They want to see people's underwear before they write the check, and it doesn't matter if you make $400K per year, putting down 40%. It is incredible.
I am a Republican, who believes we need to build a strong America and one of the things that will get us there is home ownership, we just need to be sensible, people need to prove they can make the payment. Think about what payment do you skip rent, car, credit cards. Rent comes first or you're in the street. So the mortgage payment is the rent. I love how everybody runs their mouths here but very few of you know what they are talking about. And it so simple!