Say Anything Blog

plus, giving them a bailout will just encourage more people to take stupid risks, knowing that big brother will be right there to fix things if they go wrong.

"No Sane man will dance.”—Cicero

The people who borrowed the money were not as stupid as the people who lent them the money or the people who bought bundled mortgage debt.

Some of the people who borrowed to purchase real estate did very well
on mortgage issuers dimes.

Chuck Berry :

As I was motivatin’
Back in town
I saw a Cadillac sign
Sayin’ ”No Money Down”
So I eased on my brakes
And I pulled in the drive
Gunned my motor twice
Then I walked inside
Dealer came to me
Said “Trade in you Ford
And I’ll put you in a car
That’ll eat up the road
Just tell me what you want
And then sign on that line
And I’ll have it brought down to you
In a hour’s time”

The people who borrowed the money were not as stupid as the people who lent them the money or the people who bought bundled mortgage debt.

And I don’t favor a bail-out for any of them.

The war against illegal plunder has been fought since the beginning of the world. But how is… legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish this law without delay … If such a law is not abolished immediately it will spread, multiply and develop into a system.

Frédéric Bastiat, The Law

Rob’s recently listened-to songs:

And I don’t favor a bail-out for any of them.

Rob, You beat me to it. My thoughts exactly.

I agree 100%.  Throwing money at the problem won’t help & will likely make it worse.  The borrowers & lenders are reaping what they sewed.  Why should the government reward those who live beyond their means.  It’s enough of a problem without encouraging it.

Why should the government reward those who live beyond their means. 

The one policy that sounds good to me is the tax reduction for lenders who forgive debt. We are paying ridiculously high tax rates and those paying them recieve the same national security as those who don’t.  The idea that those who pay are actually going to get some of it back for forgiving mortgage debt is better than nothing.  I know it isn’t the conservative ideal, and hopefully we will get there, but I’ll take it, for now.

Only 80,000 people will qualify for any government help, so it’s no big bailout.

• Call for rigorously enforcing predatory lending laws and strengthening lending practices.

This is a keeper.  While you’re at it get rid of those predatory lenders like “check into cash”, and “payday”.

Although on the surface this is geared toward aiding the little guy. I’ll bet it really is intended to calm the financial markets???

This is incredibly idiotic.  So the reward for someone who acted responsibly during the housing bubble is to have your income robbed from you by the government to pay off loans for idiots, in addition to either not being able to afford to buy a home or having to pay a ridiculous amount thanks to these idiots driving up the prices with mortgages that they couldn’t afford in the first place.  Incredible.

What’s particularly frustrating, Dave, is that this bailout will deny some of us the opportunity to get in on some real estate at lower prices.

As i pointed out, those foreclosed homes aren’t going to sit vacant.  Somebody could buy them, and likely for a good price too.  But not if the feds prop up the people who bought them.

The war against illegal plunder has been fought since the beginning of the world. But how is… legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish this law without delay … If such a law is not abolished immediately it will spread, multiply and develop into a system.

Frédéric Bastiat, The Law

Rob’s recently listened-to songs:

While you’re at it get rid of those predatory lenders like “check into cash”, and “payday”.

Absolutely not.  Bart Hinkle at the Richmond Times Dispatch had a good post on that the other day when describing Virginia’s efforts to combat payday lenders:

The General Assembly fought a high-profile battle over payday lenders this year, but couldn’t work out a deal before the close of the session. The beef against payday lenders is that their usurious interest rates trap unsuspecting people in a vicious cycle of debt: The fees are so exorbitant that poor people have to keep borrowing just to meet their payment obligations on previous loans.

The Assembly did, however, pass the now-hugely-unpopular “abusive driver” fees, which can climb into the four-digit territory and which can be levied for offenses such as driving more than 20 mph over the posted speed limit, driving without insurance, driving on a suspended license, and driving on bald tires. It’s not hard to come up with a scenario in which a hospital orderly or restaurant dish-washer gets fined for speeding, fails to pay the fine because he lacks the money, has his license suspended, gets pulled over for bald tires he can’t afford to replace, and ends up being gored by the state by the new fees that he can’t afford to pay, either.

In both cases, of course, the individual in question could avoid the financial difficulty by making wiser choices: not borrowing from a payday lender, and obeying traffic laws. In the debate over payday lenders, however, the critics of those lenders essentially remove all agency from the individual and assume he is more acted upon than acting—forced by circumstances beyond his control into a situation he cannot escape. It seems as though the same criticism would apply to the exorbitantly high driver fees.

The people who criticize the people criticizing the abusive-driver fees say the levies are just desserts for foolish behavior. It seems as though that argument would apply equally well to the interest rates charged by payday lenders.

Bottom line: The government doesn’t exist to protect people from themselves.

The war against illegal plunder has been fought since the beginning of the world. But how is… legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish this law without delay … If such a law is not abolished immediately it will spread, multiply and develop into a system.

Frédéric Bastiat, The Law

Rob’s recently listened-to songs:

It is particularly annoying that the lenders and borrowers are taking MORE advantage of a bad situation. BUT the lenders should not have lent the money to people unable to pay the price. We all have to live within our means. We all have to accept that we are responsible for ourselves. NOT Big Gov. There are less exspensive homes and places to live.  IF you have to live in a tent or a trailer or an apartment???? That is what you have to do. It is too bad that we all have to pay for someone elses choice of life style that they couldn’t afford. The lenders should be held accountable for much of the problem.

Exactly, Rob.  This is rewarding people who were irresponsible with their money at the expense of those of us who did the responsible thing. 

I don’t buy the whole “predatory lenders” argument.  No doubt there’s a lot of scum working in the mortgage industry but I have a hard time blaming this on anyone other than those who took these loans in the first place.  There’s no excuse in this day and age with the internet for anyone to get conned by this sort of thing.  The information has been out there and easily found by anyone who wants to read up on how these loans work.  I remember reading news articles a couple of years ago predicting mass foreclosures due to all of the shady loans people were taking.  The people taking these loans are adults who should be responsible for their own actions.  I have no doubt that most of the people taking these loans fully understood the ramifications and took them anyway figuring that they’d worry about any problems in the future.  Bailing these people out now just encourages more irresponsibility in the future.

No doubt those people signed something that was suppose to hold them and them alone accountable. Yet they are getting a hand out for the USA GOV.

BUT the lenders should not have lent the money to people unable to pay the price… The lenders should be held accountable for much of the problem.

Zsa Zsa,

I hope this is your natural, inadvertent anger at the irresponsibility of others talking here.  You sound like one of those who blame the BMW dealer for the sad fact that Little Suzy Creamcheese wrapped her graduation gift around a telephone pole at 82 mph killing herself and three high school friends, or one of those leftist, Second Amendment deniers who insist that Smith & Wesson and Colt Industries are somehow responsible for the District of Columbia’s high murder rate.

The lenders who made these loans, which are now the subject of such controversy, could certainly have been more stringent in their underwriting.  But those lenders, from Countrywide on down the foodchain, are no more stringent than is required by the investors who bundle, buy, and securitize those same loans, whether that investor is Fannie/Freddie or John Edwards’ Evergreen hedge fund.

What is needed isn’t more laws protesting us from our won collective imprudence.  Nor are we in need of some sympathetic conduit into the pockets of responsible taxpayers.  What is needed is simply more more prudence and responsibility on the part of those borrowers who showed no sense of trepidation when they took the money.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

The way I see it is, this is NOT our problem. It should be between the buyer and the lender. NOT the US Gov. IF I borrow money and for some reason have trouble paying it back? It should be between me and the people I borrowed it from. Not my government. IF I lend someone money, the GOV shouldn’t be the one to pay me back. The responsibility is between the two parties. It takes two to tango…

Bottom line: The government doesn’t exist to protect people from themselves.

Rob, I have to disagree about the “payday” loans.  These companies take advantage of the many lower income citizens by preying on their financial irresponsibility just because they can.  Just because something is legal doesn’t make it right.  Payday loan companies are not doing right by their customers; they are not acting in their customers best interest.

Qualification for many of those “predatory loans” specifically interest only adjustable rate mortgages is based on immediate income weighed against the initial mortgage payment amount.  When the initial 3% rate rises to the current rate, and the balance of the unpaid interest is piled back onto the principle, payments can be 1.5 to 2 times higher than at the start of the loan. If the lender was required to qualify the home buyer responsibly, based on future earning potential and debt ratios, there would be far less qualified applicants.  Bottom line both parties share responsibility and blame for the current sub-prime forclosure mess.

Qualification for many of those “predatory loans” specifically interest only adjustable rate mortgages is based on immediate income weighed against the initial mortgage payment amount.

HG,

I’m not sure where you’re getting your underwriting information, or your loans, but every adjustable rate mortgage loan I’m familiar with, whether interest only or fully amortizing, is underwritten not against the initial payment, often based on a “teaser” rate, but on the payment calculated on the first full interest rate adjustment.

Regardless, mortgage companies all underwrite to the standards set by the investors who ultimately buy and securitize the loans… whether that’s a government agency such as FHA, a GSO such as Fannie Mae, or a private market investor.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

Bat One...What about our FICO #?  Just kidding! In memory of our dearly departed Diane… OR whatever that was?

ZZ,

Ah… yes!  The mythical California Century-21 agent who could not distinguish between Social Security withholdings, and a credit file evaluation program written by Fair-Isaac and Company software programmers.

Rest in peace.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

Don’t be scared to buy that home, don’t worry about all those little banks closing there doors, fuck the CFC anyway. Bushy saved us all from a bad depression, And all just for S10.99. right?

don’t worry about all those little banks closing there doors

I don’t think that the sub prime market is going to run the local bank out of business.

The Debate is over!  Global Whining has been confirmed.

Bat One,

I have a professional and friendly relationship with the management of the largest mortgage broker in our area.  Both the husband and wife work for the company and have discussed available products with me on numerous occasions.  Many of my clients deal with this mortgage broker as well. 

Another beauty is “stated income” for those who wish not to document their income.  Of course, these and other products were recently pulled but were selling like hotcakes over the past few years.  Local housing prices more than tripled over the past 5 years.  Of course, now that qualified applicants are fewer in number, the prices have dropped off about 20-30% depending on the school district (that’s a biggy here).

HG,

Interesting.  Though none of what you say here conflicts with my description of mortgage underwriting.

Stated income loans (NIVs) have been around for a lot of years, and most always carry a both a higher credit threshold and a higher interest rate to offset the lender/investor’s additional risk on the less thoroughly documented loan.

Incidentally, if your mortgage broker friend has been in the business for more than a dozen years and is moderately bright, he should have foreseen the current situation, if not the full scope of the ramifications.  Mortgage interest rates dropped quite a bit back then, then went back up again, and a number of sub-prime lenders were forced out of business after taking a loss on their portfolios.  As steeply as rates dropped over the past few years since 9-11-01, none of what has happened in the past year is terribly surprising.

It is also interesting to note that while defaults and foreclosure rates are up, they are not at all time highs, and are pretty much concentrated in jumbo rather than conventional mortgages and in those geographic areas which had experienced the biggest run-up in housing values, as you alluded.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

Though none of what you say here conflicts with my description of mortgage underwriting.

Agreed.  You sound well versed in mortgage underwriting.  Almost like you’re in the business.

It is also interesting to note that while defaults and foreclosure rates are up, they are not at all time highs, and are pretty much concentrated in jumbo rather than conventional mortgages and in those geographic areas which had experienced the biggest run-up in housing values, as you alluded.

True.  It is possible if not likely that the media is hyping foreclosures.  With a substantial drop in the poverty rate, low unemployment rate and 4.0 growth, bad economic news is hard to come by these days.

Bat One… Do you remember the 80’s Savings and loan bust? Is this housing thing anything like that?

The Saving and Loans debacle that was primarily caused by the federal government?

1.  Tax reform act of 1986 collapsed the commercial real estate market by removing tax incentives.  Good idea, but too drastic of action.

2.  Congress forced the S & L’s to sell off their low rated (Junk) bonds which collapsed that market.  Most of those bonds never defaulted.  They were a good investment but Congress knows better.

3.  With a stroke of a pen Congress changed the requirements making many banks that had been solvent “insolvent.”

Maybe we should keep the government AWAY from important things like banks and financial markets.

The Debate is over!  Global Whining has been confirmed.

Zsa Zsa,

Sorry for the delay.  I do indeed remember the Savings and Loan debacle, which is variously estimated to have cost the US taxpayers somewhere between $150 billion and $500 billion.  It was a classic case of mixing too much regulation with too little, with a healthy portion of political gamesmanship thrown in by Congressional Democrats who raised per account federal deposit insurance from $10,000 to $20,000, from $20,000 to $40,000, and finally from $40,000 to $100,000.

Today’s “housing bubble” and sub-prime mortgage “crisis” as they are being unknowingly called are of nowhere near the same magnitude, although the imprudence, greed, and in some select cases, fraud behind it all are certainly similar.

As both Rob, and Fed Chairman Ben Bernanke have noted today, the markets will right themselves if allowed to do so without the interference of financially illiterate politicians. 

President Bush’s proposals are very modest in scope, intended, I believe to be merely a confidence-building signal to the markets, especially the commercial paper market, rather than any sort of bailout.  Congressional Democrats, oblivious of costs or prudence and anxious to demonstrate their ignoble, “too-much, too-late” social commitment, will try to over-achieve and make a monster of the president’s initiative.  But there is always the veto pen.  Meanwhile, real estate prices were modestly up over the past 12 months except in those few overpriced markets, and the sub-prime mortgage market is already starting to come back, though you won’t read about it in the NYT or hear it on CNN.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

I do indeed remember the Savings and Loan debacle,

Then you remember the Keating Five! Four Democrats and one lone Republican: John McCain!

Those who think the party or the country, will be “taught a lesson” by handing the levers of power over to the liberals will learn a lesson, but it will be at the expense of our country and her liberties. And there are no guarantees that the party or the country will come out stronger, more conservative or better positioned to win elections against the incumbent liberals.

There are plenty of more recent reasons for viewing McCain’s candidacy with skepticism: immigration “reform”, the Gang of 14 fiasco, and the McCain-Feingold abomination.

There is also, however, his steadfast resolve to defend this country against Islamist terrorism to be considered.

Incidentally, I never thought John Glenn was much of a Senator either.  Another of the Keating Five luminaries, he single-handedly defeated any serious inquiry into the Clinton-Gore reelection finance corruption, and was rewarded with a ride on the Space Shuttle and the title of oldest human to defy gravity.  B.F.D.

“Poverty of goods is easily cured; poverty of the mind is irreparable.”

1.  Tax reform act of 1986 collapsed the commercial real estate market by removing tax incentives.  Good idea, but too drastic of action.

TEFRA removed real estate as a tax shelter, which made a great number of real estate loans written by S&Ls bad almost overnight.  The reality was that TEFRA was typical Dem class envy politics, and we all paid for it, as usual, while the Dems played it as being about the market.
They always use taxation and regulation to screw things up.
I didn’t regard it as “a good idea”, and still don’t.
Jiggering the real estate market is screwing with the lives of Americans, very directly.

"If the good men are silent only the wicked are heard.” - Edmund Burke

This is utterly false, it will never happen.