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Scratch one more item from the Bush Administration’s already short list of accomplishments: by the time President Bush leaves office, about 700,000 fewer Americans will own their own homes than when he entered office.

The foreclosure rate is already the worst it’s been in at least twenty-five years, and soon may be the worst it’s been since the Great Depression. Lehman Brothers estimates that 30 percent of the subprime mortgages entered last year will end in foreclosure.

Perhaps 2.2 million American families will lose their homes to foreclosure in the next couple of years. When a family loses their home to foreclosure, they lose their life’s savings, and they lose their membership in the middle class, probably forever. Millions more will see the value of their homes collapse when neighbors lose their homes to foreclosure.

But despite the catastrophic consequences to homeowners, there has been more sympathetic press treatment of investors in hedge funds that bet wrong by buying securities backed by subprime mortgages than there has been of families losing their homes.

So let’s discuss just how we got where we are.

The foreclosure epidemic is not caused by grasping home buyers buying more house than they could afford, and then shirking their just debt to the mortgagee. Families are losing their homes because they had to borrow against their homes to pay their bills.

Approximately 72 percent of subprime mortgages from 1998 to 2006 are refinances, not loans to purchase homes. And less than ten percent of subprime loans are to purchase first homes.

About 40 percent of American families don’t have enough in savings to live above the poverty line for more than three months if someone in the family loses their job. Many families that otherwise have little in savings own their own homes. And if anything goes wrong—serious illness, job loss, divorce, major home repairs—those families have little choice but to borrow against their homes.

The foreclosure epidemic is not caused by careless borrowers signing mortgage documents without bothering to understand the terms either. Anyone who has ever been to a closing knows that the borrower sees the documents for the first time at closing and then signs ten or fifteen documents in about two minutes.

Even the American Enterprise Institute doesn’t argue that it’s the borrower’s fault for not understanding the mortgage. Here’s the testimony before the House Financial Services Committee just a few weeks ago from some guy at AEI:

...(a) good mortgage system requires that the borrowers understand how the loan will work and how much of their income it will demand.

It is utterly clear than that the current American mortgage system does not achieve this.
Rather it provides an intimidating experience of being overwhelmed and befuddled by a
huge stack of documents in confusing language and small type presented to us for
signature at a mortgage closing...

...The FTC recently completed a very instructive study of standard mortgage loan disclosure documents, concluding that "both prime and subprime borrowers failed to understand key loan terms."

Among the remarkable specifics, they found that:

"About a third could not identify the interest rate"

"Half could not correctly identify the loan amount"

"Two-thirds did not recognize that they would be charged a prepayment penalty"
and

"Nearly nine-tenths could not identify the total amount of up-front charges."

This is a fundamental failure of the American mortgage finance system.

The AEI returns to form by arguing that it’s the government’s fault by requiring so much disclosure in the first place. But the description of closing is exactly right.

In fact, many borrowers know that mortgages are too complicated nowadays to figure out by themselves, and find an expert in mortgage lending to help them. Mortgage brokers now originate 45 percent of all loans, and 71 percent of subprime loans. Brokers are much more aggressive in marketing loans than traditional lenders. But brokers also win business by telling borrowers that they’ll help the borrower find the best loan. At closing, the broker is standing over the borrower’s shoulder, explaining each document, usually saying that each document is just boilerplate the borrower has to sign to get the loan.

When borrowers put their trust in the wrong brokers, they make a big mistake. Huge.

A couple of years ago the President of the National Association of Mortgage Brokers, Jim Nabors, testified before the House Financial Services Committee. That was before the foreclosure epidemic, but the committee was considering legislation, including a bill that I introduced, to protect borrowers from predatory mortgage practices. Nabors was worried that legislation would "restrain a consumer’s ability to shop for the loan products that best suit their financial situation." Nabors defended the payments to brokers by lenders, called "yield spread premiums," as a benefit to borrowers. He said that in trying to protect borrowers, Congress might reduce "the number of lenders willing to make high cost loans, which in turn will result in higher cost financing for the consumer."

At the end of Nabors’ prepared testimony, he said he would be happy to answer any questions. So when my turn came, I took him up on that offer:

Mr. MILLER OF NORTH CAROLINA. I have a couple of documents
here that are apparently from public sources: one from the
MBA’s—Mortgage Bankers Association—sub-prime handbook and
the other is apparently just off the Internet. And both, although
they are both public documents, both do say that these say that
these are not for distribution to the general public, but are for
mortgage professionals only.
They both list their wholesale mortgage rate sheet. They both list
credit scores down one side, maximum loans on the other and interest
rates for people with different scores.
And then this one was from Argent Mortgage Company. It appears
to say that any mortgage as much as one point higher than
what would be here, based on the FICA score, would result in a
payment rebate of .5.

Is that a yield spread premium?

Mr. NABORS. I am sorry, could you say that again?

Mr. MILLER OF NORTH CAROLINA. ...This is from Argent Mortgage Company. It has down one side the credit score. Across it, it is the amount that it will finance. And then, within that grid—it shows the loan to equity at the top. And then within that grid, it shows an interest rate.

Mr. NABORS. Right.

Mr. MILLER OF NORTH CAROLINA. At the bottom, it appears to
say that if the interest rate is 1 percent higher, that there is a
bonus to be paid of .5, if it is one point higher. If it is two points
higher, the bonus to be paid is .75.

Is that a yield spread premium?

Mr. NABORS. You know, I do not do business with Argent.

I began to think that he wasn’t as happy to answer questions as he said he would be.

I asked him if he thought a mortgage broker should have to act in the interests of the borrower. The bill that I introduced required that, and so did the Republican bill introduced by Bob Ney, the subcommittee chairman. But Ney’s bill provided that the borrower could waive the requirement—hey, what’s one more piece of paper to sign at closing. Nabors said brokers did act in the best interests of the borrower, but the interests of the borrower were subject to interpretation:

Mr. NABORS. Well, the question is what is in the best interest of
the customer?

Mr. MILLER OF NORTH CAROLINA. Right.

Mr. NABORS. Okay. Different circumstances. In some cases, what
is really best for the customer may seem more expensive, right?
...
If you come to me and say, ‘‘Look, I need to borrow $20,000. My
daughter is getting married in 2 weeks.’’

Mr. MILLER OF NORTH CAROLINA. Right.

Mr. NABORS. I can come up with two options. I can come up with
a lower rate option that gives you the best rate at the lowest cost
and you can have it in 60 days. Or I can come up with, through
another lender, a higher rate with some higher fees and you can
have the money in 10 days. That is your choice.

The rate sheet didn’t say anything about a daughter’s wedding, or how quickly the borrower could get the money. It just said that if the homeowner borrowed at a higher interest rate than the borrower qualified for, then the broker got a bigger payment from the lender. So I asked again:

Mr. MILLER OF NORTH CAROLINA. Okay. But unless there is some
difference like that, that does not appear on this sheet, if you just
have a consumer who could have gotten a 7 percent loan on the
very same terms, instead gets a 9 percent loan but the broker gets
a 1 percent additional yield spread premium in addition to whatever
upfront commission they would have, does that strike you as
something the law should allow?

Mr. NABORS. If that is part of the agreement between you as a
customer and me, as part of my total compensation, that has been
disclosed to you, it would be okay. But if this is a bonus that is
paid outside the plan, if it is not disclosed on a good faith estimate
or anything else—

Mr. MILLER OF NORTH CAROLINA. So if a consumer signs a piece
of paper—

The subcommittee chairman, Bob Ney, then called time (there’s a five minute limit for questions) and cut me off.

Yes, industry argues that they want a borrower to be free to choose a higher interest rate than what the borrower qualifies for. It’s an unusual choice for the borrower, but industry cares enough about their borrowers that they’ll fight to protect it.

The other consumer choices that industry claims should be protected for borrowers, the various "exotic" loan terms, make no more sense for most borrowers than simply paying more in interest. Industry argues that "exotic" mortgage products are market innovation, and allow a borrower to choose mortgages narrowly tailored to the borrower’s specific circumstances. But former Federal Reserve Governor Edward Gramlich tellingly asked, "Why are the most risky loan products sold to the least sophisticated borrowers?"

The real answer is so borrowers will be unable to pay their mortgages, and will have to borrow again.

The worst abuses in predatory mortgage lending are repetitive loans that strip a homeowner of the equity in their home. Borrowers are stripped of the equity in their home by up-front costs and fees, and loan terms that guarantee that borrowers cannot pay the mortgage and will have to borrow again, paying more in up-front charges each time they refinance. Again, according to the AEI guy, almost 90 percent of borrowers could not identify from closing documents the total amount of up-front charges, the least understood term of the mortgage. Borrowers usually don’t write a check for closing costs, the costs come straight out of their home equity, and straight into the pockets of brokers, lenders, securitizers, hedge fund managers, and on and on.

So no, not many factory workers or firefighters knowingly choose a mortgage with an initial "teaser" monthly payment that they barely qualify for that then increases by 40 percent after two years, and has a three year prepayment penalty.

As the debate in Congress heats up over predatory mortgage lending practices and the subprime foreclosure epidemic, you’ll see prosperous-looking industry spokesmen speak up for consumer choice, and argue that reform proposals would violate all that is sacred, and will only make things much, much worse.

Just remember how those prosperous guys in suits made this mess in the first place, and notice how little they’re willing to do to clean it up.

Originally posted to Rep Brad Miller on Tue Oct 16, 2007 at 08:31 AM PDT.

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Comment Preferences

  •  Sorry Rep. Miller (24+ / 1-)

    I do hold the homeowners to blame here.  Most of that equity extraction was not in fact used to pay normal bills, but was an equity extraction to live above people's normal means.  People saw the values of their homes going up while their incomes didn't and decided to live wealthier than they were.  And we should not be bailing out those who made poor financial decisions at the expense of the more prudent who did not take out equity loans or buy more house than they could afford by using an ARM.  

    •  I Agree to a Degree (41+ / 0-)

      I want the system to be regulated to protect me from both fraudulent lenders and stupid borrowers.  And Wall St. manipulators as well.

      Just because you are stupid, doesn't mean that I should be called upon again and again and again to pay for your mistakes.  Regulation should have been in place to stop this before it happened.

      I think Sen. Clinton would make a very good president.

      by bink on Tue Oct 16, 2007 at 08:37:13 AM PDT

      [ Parent ]

    •  Have you ever been to a closing? (58+ / 0-)

      Most of the people saying that homeowners were living beyond their means are people of drastically higher means, and what they did to obtain those means are of much less obvious utility to society.

      People borrow against their homes for the same reason they declare bankruptcy--because something beyond their control went wrong.

      •  I would love to see a stat to back that up (4+ / 0-)

        From my experience, people borrow against their homes for 3 primary reasons:

        1. to finance a luxury purchase(s)
        1. to expand/improve their home (usually beyond anything necessary)
        1. to invest (typically in a vacation home)
          •  Surprised this comment got as many recs as it did (8+ / 0-)

            You're making a snide implication of elitism, and starting your own little class skirmish right here in your own admittedly useful diary.

            Don't do that.

            I work for a very large mortgage producer, okay?  I know why people have leveraged their homes over the last several years.  Precisely why, in fact.  To characterize all of them as victims who had no choice but to put their homes at risk because of life events, tragedies, crises, etc. is simply not accurate, and beneath you.

            Katrina changed everything.

            by The Termite on Tue Oct 16, 2007 at 10:18:23 AM PDT

            [ Parent ]

            •  Arrogance. (11+ / 0-)

              If anyone is "starting" his own "little class skirmish" it is you.

              You said

              To characterize all of them as victims

              (bolds mine)

              Rep Miller gave statistics and I did not see the word "all" or any implication of 'absolute' in his statements (maybe I missed it).  It is clear to me that he is breaking down the numbers and speaking of a subset of the "all".

              Maybe this could be better discussed by recognizing the perspective differences.  Yes, there are people who borrowed for that yacht in the harbor or to make $100,000/year by selling their houses and moving up to do it again (and I have no sympathy whatsoever for them).  But there are also people who borrowed to either 'invest' in their family home, to try to do a little more for their families, or to try to salvage something from a bad situation.

              Perhaps the mortgage company for which you work has a certain 'clientele' and that gives you a particular perspective that does not suit the whole.

              Investigate! Impeach! Indict! Incarcerate!

              by Cato come back on Tue Oct 16, 2007 at 11:15:00 AM PDT

              [ Parent ]

              •  I'm speaking about national mortgage data (0+ / 0-)

                Not my own company.  Though certainly my company is big and diverse enough to be representative of the market.

                Katrina changed everything.

                by The Termite on Tue Oct 16, 2007 at 11:27:26 AM PDT

                [ Parent ]

              •  Amen... (2+ / 0-)
                Recommended by:
                pbriggsiam, Cato come back

                Many folks were sweet talked into ARM's, TRUSTING the brokers and real estate agents that they referred, because they sincerely thought that the people that charge u for the commission really had your best interests in mind.

                "Oh yeah, let's see, what we have here for you in what we call a ARM starting at 6% for 2 years. It's an ALT -A loan for those with lower scores. Now it looks like your credit score is on the up an up so what we'll do is have you CONTACT ME in 2 years and we can set you set up for a fixed rate mortgage."

                Any mention of FHA? No (we didn't know about it either)
                Any fixed rate options to compare?  Nope.
                We were told that is was the BEST loan for our SITUATION.....

                That is what they told my husband and myself. Sounds just peachy keen, doesn't it?

                Were are we now, trying to refinance in this terribly uncertain market, now that our interest rate went up 3pts. and will continue to due so until it hits 12.5%  WTF (didn't tell us that in person, email, or phone)

                Can we afford the increase? Yep, for now, but with inflation upping the cost of everything else, I dont' want 250+ $ in interest a month being given to them while they conjure up ways to help themselves with the help of the fed and other banks while we become debt slaves to the screwed up.....man..

                I'm getting mad all over again as I type this...

            •  You're the Bank (9+ / 0-)

              You're working for a company that first made vast profits off this insane market, and now is looking for government bailout when the game collapsed, regardless of how it's sold to the public.

              Pardon me while I take your insight with a jumbo grain of salt.

              "When the going gets weird, the weird turn pro." - HST

              by DocGonzo on Tue Oct 16, 2007 at 11:41:15 AM PDT

              [ Parent ]

              •  Fair enough (0+ / 0-)

                If you read my comments on this topic, and there are quite a few, you will see that I am plainly against any kind of lender/servicer/investor bailout.

                So pardon my if I take your indignation with a grain of salt as well.

                Katrina changed everything.

                by The Termite on Tue Oct 16, 2007 at 11:43:06 AM PDT

                [ Parent ]

                •  I think it was an honest request (4+ / 0-)

                  not an indignant huff. I'd be curious to see that data, myself, and I'll keep an open mind until I do. But if I don't see any data, I'm inclined to believe that a good many poor, uneducated, and gullible people were taken advantage of, and there should be some regulations about clarity (something like the regulations governing nutrition information on food or credit card rates on cc offers) of mortgage interest and projected payouts. Which is I think what Rep. Miller is aiming at, btw. (Did anyone else see any mention of a "bailout" in the diary? As far as I can tell, it only appeared in an early comment.)

                  •  I need to be cautious about what I share here... (1+ / 0-)
                    Recommended by:
                    Carbide Bit

                    ...but will endeavor to dig up and post numbers, either here or in a diary of my own soon.

                    Katrina changed everything.

                    by The Termite on Tue Oct 16, 2007 at 12:48:46 PM PDT

                    [ Parent ]

                    •  Why do you have to be cautious? (0+ / 0-)

                      The agreggated data will usually by free of individual identifiers.  Are there unfortunate conclusions from the point of view of the mortgage industry that would become apparent from the data?

                      Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

                      by StrayCat on Tue Oct 16, 2007 at 01:46:42 PM PDT

                      [ Parent ]

                      •  No (0+ / 0-)

                        There's plenty of unfortunate data out there on the mortgage industry already.

                        I have internal data I can't and won't share under penalty of law.  I'm looking for sourced, public data and will share it when I've found it.

                        Katrina changed everything.

                        by The Termite on Tue Oct 16, 2007 at 01:55:48 PM PDT

                        [ Parent ]

                      •  Here's an interesting piece (1+ / 0-)
                        Recommended by:
                        Samulayo

                        Link.

                        More to come.

                        Katrina changed everything.

                        by The Termite on Tue Oct 16, 2007 at 02:31:15 PM PDT

                        [ Parent ]

                        •  OK, so households are spending (0+ / 0-)

                          rather than saving. Tell me something I didn't know. Kasriel speculates:

                          For what purpose might homeowners have been borrowing against the equity in their houses? Perhaps to remodel a kitchen.

                          But he has absolutely no grounds for such a speculation, as he admits. So why speculate in that direction? To lay the blame for the credit debacle at the feet of "main street"'s unfettered greed for consumer goods, and absolve, by implication, all the other players.

                          I think if you put his calculations together with the fact of falling middle-class incomes, you get a clearer picture: people are just trying to maintain the status quo, and sinking in the quicksand of a faltering economy. Is that greed? Is that blameworthy? Sure, there might have been some decks and kitchen renovations, but the hard numbers for consumer spending (a big proportion on healthcare, not so much on hardware) speak of other spending priorities.

                          •  Did you read the whole thing? (1+ / 0-)
                            Recommended by:
                            StrayCat

                            Particularly the part about how we're in only one of two historical economies in which people are consuming (not investing or saving, but consuming) more than they are earning?  And this spike coincides perfectly with the extraction of home equity.

                            Agree with you the picture from this research alone is imperfect.  However, I also work on the retail side, close enough to where the rubber meets the road to understand what drives our business.

                            Please also note that I don't think people who leverage their homes are bad people, or foolish, by definition.  I said as much upthread.

                            Katrina changed everything.

                            by The Termite on Tue Oct 16, 2007 at 07:10:27 PM PDT

                            [ Parent ]

                      •  You'll need patience for this one: (0+ / 0-)

                        ...but like the first it makes a strong case.

                        Sorry, but I don't know how to extract text from a PDF.

                        Katrina changed everything.

                        by The Termite on Tue Oct 16, 2007 at 02:45:27 PM PDT

                        [ Parent ]

        •  Oz even if you are right the point is still (14+ / 0-)

          that for whatever reason people entered into these mortgages whether refi or not, regulation has to be put in place to prevent this. The Rep asks you a good question, have you ever been in a closing? I have been in dozens and before this subprime market emerged, closings took hours, primarily if lower income people were involved because there was so much documentation, disclosure and firewalls to prevent the fraud and as you say stupidity in entering into some of these loans. Were people taking on more debt than they could handle? Sure but they never intended to not pay it back. Most were told that they could just refi once the ARM adjusts.

          Then the closing started taking about 30 minutes as long as the lender had its documents in order (which most of the time they didn't because of the volume of deals they were doing and that "brokers" not bankers were handling the majority of the transaction). All the borrower did was sign his name. No one looked at the disclosures or reps, the broker just filled in whatever needed to be on the form to qualify for a certain loan. The system is broken and needs to be fixed. If we want to point fingers at who's to blame, we need alot of fingers. Brokers, bankers, lawyers, title companies, appraisers, all signed off on these deals. They all walked away with their fee, many times paid from the loan amount. People walked into closings with ZERO money down and walked out with a home "appraised" at $300K. How could this happen and what financial institutions thought this was a good idea? They are to blame as well.

          •  I have been to a closing, mine (2+ / 0-)
            Recommended by:
            Smallbottle, DocGonzo

            at which point I had already had a lawyer go over my docs (and I was getting a tradition 15 year mortgage) just so I knew every possible detail about the loan I was about to secure.  I agree that we need to make sure borrowers know what they are getting into, but that is the borrowers responsibility too.  Why are people not held responsible for getting their own attorney to go over loan docs when borrowing this amount of money.  

            •  Because the attorneys, appraisers, bankers, (21+ / 0-)

              brokers and other professionals involved in the transaction have an economic interest in seeing the loan close. No closing, no payment. Again, I am all for personal responsibility but why is it just the borrower that you attack here, while professionals that were profitting off these transactions seem to escape your wrath. There were many well educated, highly compensated professionals that went along with all of this that knew or should have known that this loan was not going to be repaid or that the amount was ridiculous from a valuation standpoint. Remember, the higher the loan, the higher the fee to the broker. Wall Street banks sucked up this bogus paper like crazy, where is there blame in all this? It was just pure unadultered greed by people collecting fees and leaving the fallout of these subprime loans to someone else to clean up.  

              •  The others do not escape my wrath (1+ / 0-)
                Recommended by:
                yoduuuh do or do not

                I do not think we should be bailing out the lenders/builders/banks either.  Many others here do a wonderful job of taking the piss out of those other parties, but no one else seems to think the borrowers were equally responsible for this mess (which I do).  

                •  Borrowers bear some responsibility, but the (2+ / 0-)
                  Recommended by:
                  Southside, AnnCetera

                  largest responsibility and blame belongs to the banks, mortgage brokers, securitizers and investors who thought they were on an infinitely high elevator.  House buyers take their cues about propriety, doability, etc. from the experts, their real estate agents, often a neighbor, their banker, the mortgage broker, and the fact that a lawer(almost always the lender's) has reviewed the papers.  Who thinks that all those people, especially those lending the money are going to lend in a shaky situation?
                       This subprime mortgage is about the eighth scam since the 1970's in the financial/banking/real estate/securities area of our economy, using the same kinds of tokens of truth and value, and each was a fraud that had to end up with a lot of harm and often a taxpayer funded bailout.  There is no such thing as a free market when the common man and women starts on the riverbankin the valley, and the moneyed class starts at the top of the mountain.

                  Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

                  by StrayCat on Tue Oct 16, 2007 at 01:57:04 PM PDT

                  [ Parent ]

                •  Then (0+ / 0-)

                  How do you respond to people who got 15000-30000 credit card limits and kept high limits and then just file bankrupty to erase it all?

                  If you don't get approved for the credit cared limit, YOU CANT charge THE MONEY!!!

                  So I think that this is a bit contradictory because PEOPLE did for a long time trust that banks (other PEOPLE)had your best interests at heart when they denied your loans or gave you minimun limits for whatever reasons....

                  what we have here is a very incestuous relationship with all fields of the mortgage industry to made money off of the backs of the POOR, MINORITY, book smart but mortgage industry unsophisticated groups of people who just wanted a place to live.

                  Now because I am a middle class poor person...my husband and I made the decision to never cash out of our house for stupid STUFF, becaseu contrary to what people do nowadays, we want to stay in our house for a LONG TIME, hopefully until it's paid off early, who knows...but people don't seen to buy homes for the long term anymore...

                  It's now about the almighty DOLLAR!!! and investment returns...

                  Go figure...

            •  Because people are simple... (11+ / 0-)

              in the town I come from, the only time you get a lawyer is if you get a divorce or you get arrested.  People don't think they need that stuff because they assume people are going to be honest with them.  In a small town you know everyone who works at the bank, the title companies, and usually the appraisers.  And people assume, hey if there was something I needed to know, Becky would tell me... I mean hell, we've been neighbors for years!

              Now, that's not a complete excuse for people who sometimes get themselves into a mess, but most people don't have the type of education or experience you have.  And I don't think it's appropriate to loop everyone into the three categories you listed above.  Most everyone I know who has gone through this had to do it because they lost their job (layoffs are skyrocketing where I live) and they didn't have an alternative.  

              I agree we are all at fault, but perhaps you can soften your image of some who are caught in this mess.  They didn't get into it alone, and just because you did it right doesn't make everyone who has made a mistake a complete idiot and a sad member of society.

              "Patriotism is the last refuge to which a scoundrel clings / Steal a little they throw you in jail, steal a lot they make you king" Bob Dylan

              by LucyMO on Tue Oct 16, 2007 at 10:22:39 AM PDT

              [ Parent ]

              •  I agree (3+ / 0-)
                Recommended by:
                my pet rock, LucyMO, bubbalie 517

                just because you did it right doesn't make everyone who has made a mistake a complete idiot and a sad member of society

                It doesn't make them a victim either.

                <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

                by superscalar on Tue Oct 16, 2007 at 10:35:04 AM PDT

                [ Parent ]

              •  It also does not mean we should bail them out (1+ / 0-)
                Recommended by:
                LucyMO

                hopefully what comes out of this mess (besides more realistic home prices) is an awareness by borrowers that they must completely understand the documents they are signing before borrowing hundreds of thousands of dollars.

                •  so in the meantime... (7+ / 0-)

                  they live... where?

                  try being without a home for a while.

                  your arrogance is over the top.

                  frankly, with an attitude like that (people are only [fill in the blank] because they're too stupid, or lazy, etc. to be like me) i'm surprised you're on this site.

                  •  Ever heard of renting (0+ / 0-)

                    these people won't be on the streets, they will have to rent (and that's only if they don't work out something with their lender first).  This isn't about arrogance, its about equity.  Why should government keep the price of housing at these absurd levels through a bailout?  Why should the guy who outbid me for a house because he was using a 3.5% ARM and could "afford" more than me with a traditional 6% fixed get bailed out because he can't afford the new adjusted rate.  They are called adjustable rate mortgages for a reason, they adjust.

                    •  If they lost their home due to foreclosure, (5+ / 0-)

                      how do you propose for them to get credit approval to rent?

                    •  so... (1+ / 0-)
                      Recommended by:
                      StrayCat

                      this is about an "upper-class man's burden" thing then. ok, so, now they're renting - they're most likely (if they live in just about any city in america) still paying the same monthly payment they had before their ARM went up, only now they have no wealth to pass on to their children, no equity to borrow against in case (OH GOD FORBID!!) they have an unexpected expense like a health care emergency (50% of bankruptcies, in case you didn't know). you're right, that's a MUCH better situation. cause guess what, you can just recycle your "personal responsibility" argument in another 20 years when their children, who had no inheritance, and whose parents could not afford a college education, need to be "bailed out" by the system once again.

                      you're just all about creating an environment in which the haves keep having and the have-nots, well, screw 'em, they're too damn stupid to understand complicated legal documents, so they can piss rent money down the toilet for the rest of their lives.

                      how democratic of you.

                      •  There are a lot of people on this thread (1+ / 0-)
                        Recommended by:
                        SilverOz

                        who should not be participating in economic discussions.

                        •  ah, democracy at its finest (1+ / 0-)
                          Recommended by:
                          StrayCat

                          you and silveroz could go start your own blog!!

                          then, guess what, you could decide who participates!!

                          til then, try seeing the people behind the numbers, it might just open your eyes a little bit.

                          and please, lay off the arrogance. it'll give you heartburn.

                          have a great day!!!

                          •  So how are the current renters... (2+ / 0-)
                            Recommended by:
                            SingleVoter, NeeshRN

                            So how are the current people who rent, because they can't afford insane house prices, supposed to ever get a house after you've propped up house prices artificaially by bailing out everyone who bought houses above their means?

                            I guess the actual poor don't deserve the opportunity to buy a house, get some equity, protect their children...

                            you're just all about creating an environment in which the haves keep having and the have-nots, well, screw 'em, they take the time to understand complicated legal documents, so they can piss rent money down the toilet for the rest of their lives.

                      •  Have you (3+ / 0-)

                        read the user threads at MSN/MSNBC?

                        Man the stories of financial debt, burden and hopelessness is very rampant on the net because NO ONE ELSE SEEMS TO BE LISTENING TO Regular folks..

                        Then you have that one or 2 posters that come with this utter BS..

                        "just move and find a new better paying job,"

                        "go back to school and do something else so you can be competitive in today's ecomomy"

                        "you were stupid for listening to your brokers and not reading for yourself before closing"

                        " you social hand-out wanting people slay me..really..."

                        "i bet you want your precious dems to get you out of this with more social services and more of my tax money...."

                        Asswipes...

                    •  'aforadable rents' (0+ / 0-)

                      Are  very rapidly disapearing.. at least in cen texas

                      Frivolity is a harsh taskmaster- B.Griffith

                      by OMwordTHRUdaFOG on Tue Oct 16, 2007 at 05:21:26 PM PDT

                      [ Parent ]

              •  "Simple" or not, most of us do not have the time (7+ / 0-)

                and education required to become really knowledgable and able to make consistently sound judgment in medicine, law, financing, insurance, general & retirement investments, home construction and appraisal, and all the other fields of knowledge that we need in order to be equiped to defend ourselves as individuals making major decisions in a complex society.  

                We have to assume that the systems we've set up as a society are fairly honest and reliable.  It seems to me that in the mortgage area, lenders are free to mislead people with abandon, with intent to misinform, in ways that only the most knowledgable can sort through, and then walk away with their money, gloating all the way to the bank.

                They're like medical insurance companies, who write policies so deliberately complex and obscure that it's almost impossible to know how well covered you really are until serious illness strikes.  But you have to make insurance choices. So you do the best you can. And then they probably change the rules on you anyway.

                Too many people are writing borrowers in trouble off as idiots, or stupid, with the implied assumption that they got what they deserved.  No, I don't think so.  

                Rep. Miller, I do appreciate your efforts, and your coming here to talk about them.

                •  ? (0+ / 0-)

                  We have to assume that the systems we've set up as a society are fairly honest and reliable.

                  That would be a nice assumption to make, were it correct.  Unfortunately it's not.

                  Loan documents are what they are because unscrupulous lenders have been preying upon borrowers since time immemorial, and continue to find new ways to do so.  So disclosures and fine print multiply, and the paradoxical effect is it's more time consuming and intellectually taxing to read the things you need to read to understand what you're getting, but you know what?  Do it anyway.  Make yourself an expert.  Because unless your brother/sister/mother/father/kid/trusted neighbor is a mortgage lender, no one else is going to do it for you.

                  Make the time.  That's my advice.

                  Katrina changed everything.

                  by The Termite on Tue Oct 16, 2007 at 01:04:37 PM PDT

                  [ Parent ]

                •  Well I certainly didn't mean "simple" (2+ / 0-)
                  Recommended by:
                  AnnCetera, Fiona West

                  as in stupid, I mean simple as in... laid back.  Not terribly worried about every little thing, perhaps naive would have been a better word.

                  But I agree with you Fiona, they make it complicated that way to make sure they have the opportunity to screw over Mr. and Mrs. Average.

                  "Patriotism is the last refuge to which a scoundrel clings / Steal a little they throw you in jail, steal a lot they make you king" Bob Dylan

                  by LucyMO on Tue Oct 16, 2007 at 01:39:36 PM PDT

                  [ Parent ]

              •  A little compassion and humanity... (1+ / 0-)
                Recommended by:
                In her own Voice

                When we forget that we are all in this together, we become more like Republicans.  Could it be that the failure of the progressive movement of the 60's was how it splintered with each group showing a similar lack of compassion towards the other?

                I'd rather default towards a humanistic approach which tries better to see the shades of grey in this issue.

                LucyMo makes a comment we all should read again.

            •  'personal responsbility' (30+ / 0-)

              This has been a way for people who are fiscally conservative to 'stick it' to those who may be less educated about finances than they are.  They trot out the 'personal responsiblity' meme, wipe their hands and ignore the sufferings of others.

              You're right, some of this is about living above their means.  But our society preaches that message consistently.  Think about the 'credit culture'.  We live in a society right now that treats you like a nobody unless you're up to your eyeballs in revolving credit debt.

              I don't have a credit card.  I am in the process of paying off a bad experience of debt after my daughter's father abandoned us and left me holding the bag.  Do you know what my credit counselor said?  He said I have reached a point in my 'pay back progress' where I should open another credit card account to build credit!  Because otherwise, I would never be considered a 'good risk'; they don't like it when you're credit/debt free.

              How wrong is that mentality?

              You can't rent a car, or book a plane ticket or hotel room, without a credit card.  Without a debit card with a Visa or Mastercard logo, you can't buy purchases in places like grocery stores, the post office or the gas station.

              We do not educate our children in school to finances.  I never had anyone talk to me about how to balance a checkbook, or how to invest.  Everything I learned was by trial and error, sometimes making more mistakes than successes.

              To assume that everyone has the requisite knowledge and understanding is a reckless thing to do; to punish them for not having knowledge you assumed they did seems completely unfair.

              If you want to live in a 'plastic culture' then you should educate people to how plastic works; and no, mortgage and credit card issuers should NOT be able to change terms midstream.  They should NOT be able to take advantage of people in dire straits for a profit.

              This is what terrifies me about those who want to give Social Security $$ back to the individual to invest.  If you don't know about stocks, bonds and mutual funds (and some of those prospecti are dense) and you lose your retirement nest egg, is society suppose to repeat the 'personal responsiblity' meme and wipe their hands of you, too?

              I'm sorry, but I am not that type of person.  Personal responsibility vs responsibility for my fellow man?  I'll take door #2, because I believe in not judging.  I believe in compassion.

              "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

              by xysea on Tue Oct 16, 2007 at 10:36:30 AM PDT

              [ Parent ]

              •  bravo (5+ / 0-)

                you said it much better than me.

                have a rec!

              •  You don't have to actually carry any debt to (1+ / 0-)
                Recommended by:
                xysea

                build that good credit history, you know. Just get the card and put some of your regular expenses through it. Pay the whole thing off at the end of each month. You will build good credit responsibly. Someone who can't do that is a bad credit risk.

                As for the rest, you are VERY correct. I sat down and explained credit to my son before he went off to college. I often think we need to educate our young people about credit in school, although I worry who will control the curriculum.

                In 2000, a criminal became President. In 2004, we failed to remove him.
                American Democracy, 1787-2004, RIP

                by davewill on Tue Oct 16, 2007 at 12:14:15 PM PDT

                [ Parent ]

              •  You are being very cavaliar about your accusation (1+ / 0-)
                Recommended by:
                The Termite

                of selfishness. And equally loose about attributing morally superior compassion to yourself.

                First, I agree with you that, in general, risk and responsibility are being shifted from organizations to individuals. I am against that, since individuals are rarely in a position to have nearly as much information as professionals and businesses.

                Second, there were clearly deceptive practices in the industry--especially among brokers (I don't think most people on this thread know what a broker actually is, compared to a bank retail operation). Those need to be remedied.

                However, your indignant rhetoric, like that of others in this diary, assumes anybody facing foreclosure is a victim. They are not.

                Is Casey Serin a victim? Are the millions of people who took out Alt-A and Jumbo mortgages "victims?"

                Most importantly, are all the people who drove up personal consumption in the past five years through mortgage equity withdrawals "victims?"

                Second, the choices borrowers faced here were not so difficult as you make out. Don't understand the closing papers? THEN DON'T SIGN THEM. No one is forced to buy a home--the way you are forced to make a decision in investing your 401(k).

                Finally, you also assume that interfering with the mortgage market through bailouts will have no negative consequences whatsoever for working people. It will have plenty, and they will be ugly.

                Housing prices need to come down, and come down hard. There is no way of getting around that.

                •  I don't think I've cornered the market (4+ / 0-)

                  on moral superiority.

                  No, I believe you beat me there first.

                  And I never accused anyone of selfishness - I said that they were disinterested.  There's a big difference.

                  Talk about your loose accusations!

                  But the point is still valid.  We live in a culture that encourages this - it is, in fact, structured exactly in this way.  Very musical chair-like.  So the people caught standing when the music stopped are going through real suffering.

                  Just because you managed to keep your seat doesn't change that.  

                  But hey, let's just make them feel worse than they already do - kick 'em while they're down.  That's the sporting thing to do.

                  And I am not advocating a bail out, but I cannot foresee how the economy will be better off moving these people from an overpriced housing market to an overpriced rental market.  (Because, of course, those who can retain their properties will want to make the most they can off their renters...)

                  "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                  by xysea on Tue Oct 16, 2007 at 01:18:30 PM PDT

                  [ Parent ]

                  •  The rental market will not be overpriced (0+ / 0-)

                    especially compared to the housing market.

                    Landlords may try, but the reality is that rents are constrained by current income. You can't get a 40-year-negative-am-option-ARM to cover your rent payment. If you can't pay for it out of wages or salary, you can't pay for it.

                    Rent has not remotely kept up with the price of housing in the past five years, not by a long shot.

                    Just because you managed to keep your seat doesn't change that.  

                    But hey, let's just make them feel worse than they already do - kick 'em while they're down.  That's the sporting thing to do.

                    This is just meaningless babble, and certainly not worth responding to.

                    •  That you think the suffering of others (0+ / 0-)

                      is meaningless babble says a lot.

                      "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                      by xysea on Tue Oct 16, 2007 at 02:56:05 PM PDT

                      [ Parent ]

                      •  And ++ (3+ / 0-)

                        You're wrong about the rental market.  WAY WAY wrong.  Rents have only been going up, not down.

                        How do I know?  I'm in the rental market.  I'm a renter.  My rent has never 'gotten cheaper' as a result of a housing collapse.  Ever.

                        In fact, every year my landlord wants an increase.  Generally, that increase is at least as much as any raise I make, so I'm not exactly making out all right.

                        It's always one excuse or another, property taxes, improvements to property that never seem to happen, etc.  But what are the options?  The other rents are the same.

                        Your comments are spoken like someone who hasn't had to rent in a truly, truly long time.

                        "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                        by xysea on Tue Oct 16, 2007 at 03:00:50 PM PDT

                        [ Parent ]

                      •  Apologies (0+ / 0-)

                        I was under the mistaken impression you were mature enough to conduct a rational conversation.

                        •  I can hold a rational discussion - (0+ / 0-)

                          The problem is, can you empathize with the situations of others?

                          From your answers, it seems you cannot.

                          So, what's the point in conversing?  There isn't one.

                          "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                          by xysea on Wed Oct 17, 2007 at 05:36:58 AM PDT

                          [ Parent ]

              •  Large US corporations and banks, (9+ / 0-)

                their proxies, like the World Bank and IMF, and agencies like USAID have created debt and dependency around the world to make sure that subject peoples remain pliant to the fortunes, demands, and machinations of large-scale capital and power. What we are seeing in the United States now is the application at home of tools of subjugation that such forces have honed to a fine edge abroad.

                The wide chasm between the very rich and powerful and everyone else, which we exacerbate if not create in countries throughout Asia, Africa, and South America, is increasingly manifest here at home as the inevitable consequence of so-called conservative policies of deregulation and privatization and of the propagation of contempt for collective action under democratic controls. The personal responsibility cant is embedded in the moralizing popularized by Reagan. It is usually used to deflect attention away from systemic biases that disproportionately benefit the already wealthy, powerful, and connected.

                Of course we all need to exercise personal responsibility. We ought not fail to recognize when we are assuming debt that we are gambling against the house, in whose favor the odds are always stacked. The Fannie/Freddie/FHA/VA regime that helped create the middle class dream after World War II has, along with all New Deal-style programs, been under attack by powerful interests for years. As that balanced regime broke down, new "innovations" and new complexity grew to such overwhelming levels that even professionals had difficulty grappling with them. I'll never forget the Harvard contract law professor (although I'll never remember her name) who said that, after thorough study, she was unable to understand credit card agreements. Calling principally for personal responsibility under such circumstances seems a tad one-sided, not to say uncharitable.

                "A president who breaks the law is a threat to the very structure of our government....President Bush has repeatedly violated the law for six years." Al Gore

                by psnyder on Tue Oct 16, 2007 at 01:32:19 PM PDT

                [ Parent ]

              •  Absolutely (1+ / 0-)
                Recommended by:
                xysea

                excellent post.  I fear that society will have to be rebuilt up by my children, though....
                And I am only 28yo.

            •  I had an attorney that let an illegal loan go (5+ / 0-)

              thru on me.  The illegal aspect of it was a one year balloon when it is illegal in the state of California to have a balloon for less than five years on residential property.  That was just for starters and because I had an attorney I trusted what I was told.

        •  You're right (1+ / 0-)
          Recommended by:
          SilverOz

          Katrina changed everything.

          by The Termite on Tue Oct 16, 2007 at 10:15:09 AM PDT

          [ Parent ]

        •  Whoa (0+ / 0-)

          From my experience, people borrow against their homes for 3 primary reasons...

          So your assertions on this diary are sourced to the anedotal experience of your own life, not to anything broader or more objectively quantifiable than that?

          Let me know if you've got other sources of information -- I'd love to check them out since your assertions are so much the reverse of my experience.

          "Injustice wears ever the same harsh face wherever it shows itself." - Ralph Ellison

          by KateCrashes on Tue Oct 16, 2007 at 04:06:20 PM PDT

          [ Parent ]

          •  Precise data is difficult to come by... (0+ / 0-)

            ...since borrowers are not required to provide a specific reason on a 1003 application (beyond just refi or purchase).  However, you can intuit certain things by looking at consumer spending and surplus spending (excess of consumption over income) during periods of mortgage equity withdrawal (MEW) and draw your own conclusions.  I provided some links below.

            Katrina changed everything.

            by The Termite on Tue Oct 16, 2007 at 04:24:15 PM PDT

            [ Parent ]

      •  Some people do this -- yes (7+ / 0-)

        People borrow against their homes for the same reason they declare bankruptcy--because something beyond their control went wrong.

        And some people borrow against their home as a line credit to put in a new swimming pool, go on vacation, buy a new boat, etc.

        And the federal government (both Democrats and Republicans) has been more than happy to go along with what was happening because it has driven consumption -- and thereby has driven our 'consumer economy'.

        <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

        by superscalar on Tue Oct 16, 2007 at 08:56:52 AM PDT

        [ Parent ]

      •  You are SERIOUSLY misreading the public mood (8+ / 0-)

        Most of the people saying that homeowners were living beyond their means are people of drastically higher means

        Wrong. Many are young people stuck in rentals due to a housing bubble financed by NINJA loans. Others are people who could have signed one of these loans but were too smart to do it.

        It is a mystery to me how politicians believe they are helping people by tying them permanently to a still-falling asset rather than letting them walk away.

        •  Good point, but otoh (7+ / 0-)

          who is screaming the loudest?  At the moment, it's people trapped in the bad loans (and their billionaire enablers)(and big investors like Bill Gross looking to enhance returns/curb losses).

          Lawmakers have to understand that the howls of protest will be even louder if there is a bailout.

          Once again, the solution is, allow people trapped ini loans to suffer foreclosure and walk away with the least damage and the ability to start over with a lesson learned.  No bailout.

          And the shareholders and hedge fund investors need a lesson in, you know, RISK.

          Cheers.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Tue Oct 16, 2007 at 09:00:29 AM PDT

          [ Parent ]

          •  When did I say there should be a bailout? n/t (3+ / 0-)
            •  Then, what are you proposing? (0+ / 0-)

              With respect, you are long on attacks against people who feel the borrowers need to accept responsibility for their actions, but in this diary you're short on specifics.

              What do you propose? I think many people who are arguing with your position here might actually agree with some possible solutions.

              Are you proposing:

              - A "know-your-customer" requirement for mortgage brokers?

              - A requirement that, say, CDOs can only be marketed subject to binding renegotiations by servicers (as opposed to everybody losing out because investors are too slow and stupid to respond to a good deal for a renegotiated rate, for instance)?

              - Giving bankruptcy judges the power to cram down the secured portions of liens to current market value?

              I'd be ecstatic to see all of those.

              •  I'm already the lead sponsor... (18+ / 0-)

                of legislation to allow "cram downs" of home mortgages, which is now the only kind of secured debt that cannot be "crammed down" in bankruptcy.

                I've been the lead sponsor for the last two years of legislation that would require loan originators to act in best interests of borrowers, which would be similar to the "know your customer" or "suitability" requirement in the securities laws. I will shortly introduce similar legislation again.

                As to your other point, if I understand it, I'm not sure how we can get at the absurd complexity of mortgage backed securities, but the division of risk into a dozen or so "tranches" with different investors in different tranches, makes it impossible for for servicers to negotiate with borrowers, and makes bankruptcy relief all the more important.

                It was not the purpose of this diary to address specific policy proposals, although I have here before and probably will again.

                •  Then I applaud your efforts (2+ / 0-)
                  Recommended by:
                  The Termite, AnnCetera

                  though good luck getting any of that past NAR's lobbying (I'm aware of how much they contribute on the Hill).

                  My point is this. We agree that lenders are to blame. But those of us who think borrowers are to blame, too, are not confined to the well-heeled real estate and financial industries. Sympathy for borrowers is not as widespread as you seem to think.

                  On the CDO front: The place to deal with those is at the source. A mortgage originator should only be able to sell debt obligations if they are subject to good-faith distress renegotiations. Meaning, you want to be a passive investor, you have to consign discretionary power in renegotiations to the servicer, or you can't invest. Otherwise you have what we have now--a completely separate banking system not subject to any banking regulation.

                •  your appropos description of: (9+ / 0-)

                  the absurd complexity of mortgage backed securities

                  is spot on.

                  actually, it is absurd that these things even exist.  

                  If, as a lending institution, "you" choose to assume the risk of lending to a borrower will a high probability of default, you should own that risk and its consequences.  That the lender can "spread the risk" by "securitizing notes" is utter shit.  Please pardon the crassness.   Investment banks buy these and re-sell them to 401k fund managers, pension fund managers, etc., passing the risk down to the middle class trying to build retirement... not just "billionaire hedge funds."

                  This is a giant, legal ponzi scheme.

                  Years ago, after that county in California went bankrupt because of derivatives, edmond safra instructed the recently formed Derivatives Trading group of Republic Bank of NY to "show" him the 100 or so million dollars profit they reported by selling all the "assets" and putting the money in a simple account.  They couldn't.  The excuses included 'this thing's value is based on this other thing we don't own by owning any of this asset' blah, blah, blah...

                  He decimated the group, recognizing it for the crap it was.

                  An excellent point you make is that once these "assets" are sold, the lender can't work with the borrower to restructure, to get on a payment schedule.  

                  I would argue that many otherwise uncreditworthy borrowers got loans because the loans could simply be sold off, spreading the "risk."  Thus, it was not a matter of determining whether the borrower could repay, but rather whether the borrower could fit into a profile that qualified the loan to fit in a "securitized asset."

                  Funding the war = Killing the Troops / Privatization = Corruption / Dodd is GOOD

                  by netguyct on Tue Oct 16, 2007 at 10:46:43 AM PDT

                  [ Parent ]

            •  there has already been a bailout (3+ / 0-)
              Recommended by:
              Smallbottle, 3goldens, NeeshRN

              and Barney Frank applauded it... the Bernanke "put" of September 18, just like Greenspan's.  And like Greenspan's it served the investor class not the borrowers.  Hell, interest rates on loans and re-fi's WENT UP.

              And Barney Frank applauded.

              The rest of you were silent...

              "You can't be neutral on a moving train." - Howard Zinn

              by bigchin on Tue Oct 16, 2007 at 10:04:47 AM PDT

              [ Parent ]

              •  I believe the Fed rate will be lowered again (4+ / 0-)

                On Halloween.

                The Fed is trading growth for a declining dollar, and Wall Street's mantra is 'earnings are good, exports are good' -- yet there is little mention of who is earning or what is being exported.

                Meanwhile Hershey lays off 1500 in the US and plans a new plant in Monterey, Mexico.

                <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

                by superscalar on Tue Oct 16, 2007 at 10:16:23 AM PDT

                [ Parent ]

                •  The Fed is in a tough situation here (0+ / 0-)

                  as they almost have to lower to try to avert a recession/keep liquidity in the credit markets, while at the same time they are staring at the potential for higher inflation (which they really do hate more than recession).  Christmas will be the deciding factor for this economy, if its good (and my wife will do her part) we should sail through.  If its bad, the resulting mess won't be pretty.

                  •  I believe that they see themselves as (1+ / 0-)
                    Recommended by:
                    AnnCetera

                    Having 'gotten away with it' in September, notwithstanding the Euro having crossed 1.42, VietNam's statement, the Asian CB skittishness, etc.

                    I think they'll do it again -- I think the trade is 1 in 3 today so I know I'm on the don't side. ;-)

                    By the way

                    The Fed is in a tough situation here

                    No tougher than September.

                    <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

                    by superscalar on Tue Oct 16, 2007 at 10:45:48 AM PDT

                    [ Parent ]

                •  MSN money (10+ / 0-)

                  is speculating it will go as low as 3.75%. It's insane. They keep saying inflation is in check but I have to wonder if the Fed's basket is full of stereo and LCD tVs. It doesn't account for food. It doesn't account for fuel. It apparently hasn't accounted for housing or health care(both which have increase well over inflation amounts). What exactly does the basket include? I mean seriously. I think at some point it might be helpful if our legislators took a look at how we calculate things. It's time to relook at how we configure things like poverty or inflation so that the numbers actually mean something.

            •  Sorry, I didn't suggest you were (2+ / 0-)
              Recommended by:
              3goldens, AnnCetera

              The inability to do nuance in email strikes again.

              I was referring generically to people who are proposing bailouts (and there are many) in response to the last comment.

              Cheers.

              "When the going gets tough, the tough get 'too big to fail'."

              by New Deal democrat on Tue Oct 16, 2007 at 10:05:28 AM PDT

              [ Parent ]

          •  The sad shortsightedness of your statement... (7+ / 0-)

            ...is (almost) beyond belief!  Do you seriously want people trapped in these home loans to simply walk away from them, and let their homes go into foreclosure?  Remember the "Law of Unintended Consequences" my friend, should you find you must sell your home and cannot because the market is filled with empty foreclosures that nobody can or will buy, or that no lender will provide a mortgage for...

            But then again, perhaps you rent, so you feel that none of this matters to you.  Wrong again, pal.  Not only will the housing market be awash in homes nobody can sell, the rental market will be seriously constrained, sending rental rates through the roof!  This effects everyone, not just "stupid people"...

            •  Um (3+ / 0-)
              Recommended by:
              New Deal democrat, goon 01, bigchin

              There's a lot of reading on the economics of real estate available on the Web. Highly recommended.

              Rental rates will not go "through the roof." First, unlike a home purchase, you can't get a bank to finance your rent. Therefore, rent is constrained by income.

              Second, the more bubbly the area, the more failed flips and failed new projects have already come onto the market as rentals--increasing the supply, not constricting it. We already have a record number of EMPTY homes nationwide.

              If you stop people from foreclosing, then you force them to stay stuck in an asset declining in price. They are better off financially to simply walk away.

            •  What Smallbottle says, plus (5+ / 0-)

              the sooner the market corrects, the sooner hosuing will be reasonably priced for the large number of prospective first time owners.

              There are unfortunately right now lots of people in houses they realistically couldn't afford before, and can't realistically afford now.  Best to allow them to put the mistake behind them as quickly as possible.  Any bailout would have the "unintended consequence" of keeping housing prices at an unnaturally high multiple of median income.

              Cheers.

              "When the going gets tough, the tough get 'too big to fail'."

              by New Deal democrat on Tue Oct 16, 2007 at 10:10:03 AM PDT

              [ Parent ]

      •  I love this diary, but I've got to disagree with (3+ / 0-)
        Recommended by:
        The Termite, 3goldens, NeeshRN

        you on this point.  Our former next door neighbors borrowed against their home to build a big deck.  A colleague of mine borrowed against his home to send his oldest child to college.  It's not always a matter of being in an out-of-control situation.  In the case of my former neighbors, they assessed what they could borrow and still pay it back, and they realized that they didn't have enough borrowing power to build that addition they'd wanted... so they settled for the deck instead.  That's total control and understanding on the part of the borrower, not desperation.

        •  could you come up with more irrelevant examples? (0+ / 0-)

          My parents used a home equity loan to put in a hardwood floor.  Was their home foreclosed?  No.  Did they declare bankruptcy?  No.  So what do they have to do with people who lose their homes over, say, medical bills?

          •  Please adduce a shred of evidence that indicates (0+ / 0-)

            most people facing foreclosure are doing so because of medical bills.

            And I don't want to hear about bankruptcy. The two are not the same thing.

            •  really? (0+ / 0-)

              And I don't want to hear about bankruptcy. The two are not the same thing.

              Bankruptcy happens when people don't have money to pay their bills.  What causes a foreclosure?  When the homeowner can't pay their bills.  Where on Earth is the connection!

          •  How is it irrelevant to give the examples I gave? (0+ / 0-)

            The diarist stated that he thought that most second mortgages were due to people being in over their heads financially and in desperate straits. The point is that many folks who take out home equity loans don't do so because they are about to lose said homes over medical bills.  I think you must have misunderstood either what he said, or what I said.

      •  That's just not true (5+ / 0-)

        People borrow against their homes for a host of different reasons, unexpected life events among them.

        I work in the mortgage business.  Many people leverage their homes to put on an addition, build an entertainment center, finance a retirement trip around the world, keep up w/ the Joneses, etc.

        Katrina changed everything.

        by The Termite on Tue Oct 16, 2007 at 10:14:49 AM PDT

        [ Parent ]

        •  But! (3+ / 0-)

          If you think about the point of the mortgage, should people be able to do any of these with the possible exception of the remodel? Only the remodel will add value to the home. None of the others will.

          There's a reason why car and pool and vacation loans aren't 30 years. They're depreciating (or nonexistent) assets. Basically, the mortgage companies bought into the housing bubble and allowed people to finance against equity that was most likely fleeting. And that fleeting equity was brought about by loosening finance requirements. The lenders basically said, "We'll take on more risk to get more loans and boost the market" and the borrowers said "I'll take on more risk since you trust me and try to take advantage of the boosted market". The lenders pushed housing prices higher by putting more liquidity out there and justified the added liquidity through the higher prices. Now you have a ton of people inverted on their mortgages and bankruptcy results.

          We got into this "last man out" mentality, where everyone was fully aware that the market couldn't hold - both lenders and borrowers - but as long as the lenders planned to get out early, and as long as the borrowers planned to get out early, both would make loads of money. Problem is that everyone plans on getting out early and never considers that at least half the population will get screwed and there's a better than even chance that they'll fall in that camp. How many sub-prime executives/investors got out with huge stock gains leaving the company to collapse? They were the ones that honestly stuck to the script. Same with the people that cashed out after 24-36 months before the market got soft.

          This isn't some kind of 'OMG, how could this happen' scenario. It was deliberately designed to be an exploitive market by a whole host of players, and politicians and some borrowers were asleep at the switch. Even the traditional lenders that got into the market (Countrywide, etc) did so knowing full well where it would land them. Again, it was a case of take the chance and do this or start the downward spiral due to being uncompetitive. Who is going to buy my 6.25% 30 year when they can get a 4.5% interest-only ARM that they can just refi into a 6.25% 30 in 36 months - probably when their home is worth 25%-50% more?

          But it was the very notion that cash-out refi was an acceptable option for getting that entertainment center that helped drive this. If the lenders want to absolve responsibility through 'caveat emptor' then they should sit and rot on all of these bankruptcies and see what that attitude really buys them. The problem is that they are asking for a bailout over something that they failed to take responsibility for. If any kind of bailout should happen, I hope beyond hope that regulation gets attached to it. The cost of doing business, you know.

          -6.00, -7.03
          "I want my people to be the most intolerant people in the world." - Jerry Falwell

          by johnsonwax on Tue Oct 16, 2007 at 11:35:14 AM PDT

          [ Parent ]

          •  I personally believe in credit (1+ / 0-)
            Recommended by:
            Smallbottle

            I believe in credit and I believe in people's ability to lend and borrow.  It is a market, like any other.

            But as a market becomes more sophisticated and layered, as has the American market for consumer credit and mortgage-backed securities, that transformation must be coupled with increased scrutiny on consumer information and protection, and increased transparency and regulation.  Effectively, what happened in this market is that product innovation outpaced regulation.  Even people in the mortgage business (retail, wholesale, servicing) took for granted that risk models had been vetted and "road-tested" and they had not.

            I don't have a moral (and certainly don't have a legislative) issue with people leveraging their homes.  I think people should understand what they're signing.  But within reason.  There's a balance to be struck here.

            Katrina changed everything.

            by The Termite on Tue Oct 16, 2007 at 11:41:43 AM PDT

            [ Parent ]

      •  Unfortunately, I don't think that's (1+ / 0-)
        Recommended by:
        Carbide Bit

        universally true. I don't doubt it is true in many places, though, but here in SoCal, I know a TON of cash-out refis and every single one went to some combination of remodel + new car/high-end entertainment center.

        Basically, they saw the refi as giving them the ability to buy a car at a much lower/longer term interest rate than they otherwise would have and the remodel would be justifiable as raising the inherent value of the home to better match the rising home prices. IOW, if you expect the $900,000 price tag for a 3 BR home to have any lasting value, better get the 20 year old kitchen cabinets out of there. With the lower interest rates, many people were walking away with lower payments than they had before and getting (to their eye) a free car and remodel. Yes, I've had many people describe their 60K remodel + Hummer as 'free'. (They usually bitch about the cost of filling up the Hummer in the same sentence - who could have known it would cost so much?)

        By and large, quite few of these people haven't gotten burned by their sub-prime mortgage because they have enough cushion to either refinance or sell out and move (which is extremely common here anyway). Yes, they absolutely are people of drastically higher means as a general group (median household income well over 100K).

        I'm not trying to deny your statements above, just pointing out that building a narrative on it will be difficult when large subprime markets like this one can present a rather different view on it. It's also worth pointing out that the housing prices here have held reasonably well so far. We might be down about 10% on price and the slowing sales are only now being felt. They will likely fall more, but we're short on residential building acreage, so the single-family homeowners will likely come out okay (condo owners are screwed, IMO as almost all new construction is high-density residental). Here, the subprime rush appeared to be more of a post-9/11 PTSD effect where people rushed into short-term feel-good decisions, encouraged by Bush telling people to go spend rather than a response to climbing bills or a desire to buy that first house.

        Oh, and these people are almost exclusively Republicans. I call it the Pre-Burka Binge.

        -6.00, -7.03
        "I want my people to be the most intolerant people in the world." - Jerry Falwell

        by johnsonwax on Tue Oct 16, 2007 at 11:06:30 AM PDT

        [ Parent ]

      •  2 Weeks Ago (1+ / 0-)
        Recommended by:
        The Termite

        2 weeks ago I was finally in closing, selling my mother's house after she died last year. I watched the mortgage companies blunder so much that they screwed up one closing earlier in the year, while sale prices declined. The other person I knew selling in the neighborhood also got screwed by a buyer's mortgage bank offering a mortgage, then going under before sending the check. Which meant the seller couldn't even keep the deposit (while their price declined with the market), because contracts don't anticipate that "unusual" occurrence (thousands of other buyers must have done the same thing when that bank went down "in process").

        None of the parties to those otherwise perfectly normal sales and closings "saw the documents for the first time at the closing". Nor any of the other dozen people I know who bought or sold in the past couple of years. No one was pressured in that intolerable way. And, from what I can tell of everyone else, everyone had as much info about details of financing and contracts as we wanted, weeks in advance or longer. Buyers and sellers alike.

        So I don't know what you're talking about. I know that if I was presented with docs to sign at closing I didn't already understand and accept, and my lawyer advised I sign them anyway, I probably wouldn't do it. And if I did do it, and got caught in a trap, my lawyer would be to blame, even if I shared the blame in trusting a bad lawyer.

        If people were in that situation, then everyone at the table, on their side of it at least, was at fault, and should pay the consequences. Which includes fraudulent lenders, incompetent lawyers, and foolish borrowers.

        Meanwhile, I skipped years of inviting financing. I could have flipped a bunch of houses myself, milking the market while it was hot, before real interest kicked in. But since I'm not a pro scammer living off the government guaranteeing me from losses, I didn't. So I don't want to funnel any more money than is already going down those tubes. Because there isn't a single reason why.

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Tue Oct 16, 2007 at 11:38:39 AM PDT

        [ Parent ]

    •  Anecdote is not data (6+ / 0-)

      We pulled out some equity to deal with a medical crisis - my husband landed in the ICU and insurance companies suck.  We later sold, downsized, and bought a house outright from our equity.  The people we sold to I still feel bad about - they were getting an ARM, and I kept wanting to scream at them that they should save their money, this was too big of a house for them.  But we wanted out of the big expensive house, so we let them sign on the dotted line.  We drive by sometimes, and they're still in that house so they've managed this far.

    •  it's unchecked greed (13+ / 0-)

      at an enourmous scale that puts the entire economy at huge risk.  The greed of the few compound the mistakes of the many.  This is a case of exploitation.  The lenders never cared what kind of trap they may or may not have been setting up for these borrowers but, quite clearly, they didn't care.  Nobody is advocating huge checks be written to the borrowers to bail them out of the mess.  But the lenders should be compelled to provide reasonable fixed rate loans to those borrowers that are honestly trying to make the best of a bad situation.  
      This situation is rife with all kinds of messes.  You have house flippers dumping properties, you have numbskulls that took out loans to pay for an extravagent vacation, I think it runs the gammet.
      But this situation clearly identifies a "free market" run amok that imperils the economy at large and runs the risk of turning America into a master-slave economy of epic proportions.

      "You may be on the right track, but if you sit still, you'll get run over" Will Rogers

      by gaspare on Tue Oct 16, 2007 at 08:54:05 AM PDT

      [ Parent ]

      •  Please define reasonable (3+ / 0-)
        Recommended by:
        Smallbottle, The Termite, goon 01

        because this is the bailout problem I am talking about.  Why should someone who took out an ARM at 3.5% to buy a house they probably couldn't afford with a fixed rate, now get the advantage of getting a low fixed rate plus the benefit they received from the initial ARM rate.  That ARM allowed those people to outbid prudent buyers with fixed rate mortgages and drive the price of homes out of reach of many.  

        Why are the borrowers not held responsible.  Everyone who buys a home spends a few hundred dollars to have it inspected, yet how many spent a couple hundred bucks to have a lawyer go over the docs on a several hundred thousand dollar loan?  

        •  They are being held responsible.... (10+ / 0-)

          ...they are the latest crop of homeless, desperate people who will end up driving down YOUR future wages, and send YOUR home equity into the toilet.  Do not for one second think you are immune to the effects of this, just because you are so much better and so much smarter than "those people"...

          •  LOL (3+ / 0-)

            "Homeless?"

            They have this new invention called "apartments."

            Where do you think these people lived, before they bought homes they couldn't afford?

            •  Rents go up with rising real estate values (10+ / 0-)

              Often rent is priced at the same, if not more, monthly payment of a house.  (At least from what I see in Phx AZ)

              An apartment is still cheaper when you consider the cut in electric bills, that there is less to pay in upkeep maintenance, or that some utilities may be included in rent.

              So by the time people get to the point of losing their house, there are often other factors in play:
               
              --possibly their car payments and/or maintenance and/or registration are faltering

              --a job change with either a period of unemployment or a wage cut is affecting income

              --an accident or illness has descended upon the family

              --a late payment on an electric bill has forced all credit card rates to rise to impossible levels for payback.

              Once a family gets into the rut, the whole system is set up to keep them there.  Insurance rates go up if there are lapses in payments, late charges pile up for rents and utility payments, fines pile up for unregistered/uninsured vehicles, bank charges drain accounts with overdraft charges -- all on top of the original mortgage/credit card debt.  

              Desperation is becoming the American Way.

              Investigate! Impeach! Indict! Incarcerate!

              by Cato come back on Tue Oct 16, 2007 at 10:43:07 AM PDT

              [ Parent ]

              •  I can testify to this - (9+ / 0-)

                When rents started outpacing wages,  (Average rents in my area, a college town, eat up 40% or more of take home pay when HUD says it's supposed to be 25%)
                I was told to combat that I should 'buy property' but the only mortgage offered was subprime.

                Thankfully, I didn't go for it. But more and more people see buying a home a solution to increasing rents.  And the rents are increasing for no foreseeable reason, other than the property owner wants more from the lessee.

                "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                by xysea on Tue Oct 16, 2007 at 10:54:57 AM PDT

                [ Parent ]

              •  asdf (2+ / 0-)
                Recommended by:
                Smallbottle, Tropical Depression

                You're crazy if you think rents are anywhere near mortgage payments in this environment.  For an equivalent property, rents are much lower, nationwide, than mortgage payments.  The properties are grossly overvalued due to loose money supply, which drives up prices, but rents are constrained by wages.  Here in San Francisco rent on any given property is 40% or less what it would cost to buy.

                •  Only until.... (7+ / 0-)

                  ...the demand for rental property outstrips the supply.  How does that happen?  When former homeowners becoming renters to satisfy the "Pound-of-Flesh" crowd (you know, those people who are better and smarter than the rest of us, who think people should be punished for their "stupidity").  I would expect this kind of misguided haughtiness on RedState or Free Republic, but here?  Give me a fucking break!  Yes, let's all throw the fucking baby out with the fucking bathwater!

                  (But really, why the fuck should I care?  I don't own a home, and I also live rent free, so I'd be the first person you'd expect to say, "Ah, fuck all those fucking losers for being so fucking stupid!!"  But I don't, because I pull my head out of my ass long enough see the bigger, scarier, longer term picture...)

                  •  Do you understand economics? (1+ / 0-)
                    Recommended by:
                    gaspare

                    If all these homeowners now become renters, the homes they formerly owned will be available to rent, thus keeping the cost of rents down.  These foreclosed homes are not simply going to disappear/sit empty.  And our arguments are less about punishing stupidity than rewarding it/punishing the non-stupid/keeping the housing bubble going.  A bailout will put a floor on these ridiculous home prices and keep the housing bubble afloat, thus punishing the prudent and the new market entrants (and the economy as a whole, as people have to spend too much income on housing instead of consumer goods).

                    •  Why would they be available to renters and not (4+ / 0-)

                      buyers? And wouldn't that be preferrable?  Most people don't want to rent their houses.  Your argument is a big stretch

                      Of course, they'd be a cinch for the people who want to pick up an investment property or two and/or own a second home.

                      But then again, maybe that's the intent?

                      "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                      by xysea on Tue Oct 16, 2007 at 11:27:32 AM PDT

                      [ Parent ]

                      •  asdf (0+ / 0-)

                        You need to understand that housing demand is driven by money supply.  No money supply mean no housing demand.  There will be no buyers until prices reset to accommodate stricter lending standards.  The houses, condos, and apartments that were formerly for sale will be for rent instead, because their owners (banks, developers, and investors) can't afford to service the notes without rental income.

                        •  asdf (5+ / 0-)

                          Housing demand is driven by money supply?  And here I thought it was foolishly driven by people wanting a place to live.  People who don't wish to be homeless.

                          People without money for purchase or rent of housing?  Well, they can go live in a shanty or tent Hooverville, I guess.  They were foolish enough to think that having a job of some sort would mean they could afford to at least rent a room somewhere...

                          Yes, the days of building a house without going into debt are gone, for most folks.  But does it have to be that way?

                          "You can't teach an old dogma new tricks." Dorothy Parker

                          by AnnCetera on Tue Oct 16, 2007 at 12:19:10 PM PDT

                          [ Parent ]

                    •  And just who would buy these properties? (3+ / 0-)
                      Recommended by:
                      AnnCetera, Cato come back, NeeshRN

                      Many will become distressed, as maintenance and upkeep dwindles to nothing in the runup to being tossed into the street.  Credit, by this time, will have dried up for all but those with the highest credit score, and only with substantial down payments.  Homeowner's insurance policies are already starting to be cancelled (and it has nothing to do with hurricanes, I can assure you of that!), and without insurance, forget about getting a mortgage.  So yes, indeed, there will be lots and lots of empty houses...

                      But beyond our little disagreement on the subtlties of house market economics, what about the human tragedy?  Do you, for one second, take that into consideration?  Sure, there may be plenty of stupid people who made stupid decisions because they bought into the stupid idea that consumption beyond one's means is the true road to hapiness.  But what about their kids?  What the fuck did any of them do, beyond mimicking their parents and what they see on TV?  Yes, lets throw the snot-nosed little brats out on the street, and hell, while we're at it:  FUCK YOU!  No Goddamned SCHIP health insurance either, because, after all, you were stupid enough to be born in the first place, without having to stupidly get sick to boot!  Stupid little fuckers!

                      •  think of the children? (1+ / 0-)
                        Recommended by:
                        Smallbottle

                        The current situation is the largest imaginable "fuck you" to the next generation.  Do people want their kids to have to pay a million bucks for a basic starter shack?  Do people want the next generation to work for a lifetime paying down the mortgage?  That is not my idea of progress.

                        •  You assume they will actually... (1+ / 0-)
                          Recommended by:
                          AnnCetera

                          ...live that long.  Beside, we already fucked the next generation hard, what with Social Security, Medicare and a war in Iraq funded with Chinese debt that isn't even on the books.  So whatever, you worry about what happens to the housing market when the kiddies are all grown up.  Meanwhile, I'll think about where they may (or may not) be living next week, and what can be done about it...

                          •  But plenty of kiddies are grown up now (0+ / 0-)

                            He's not talking about some mythical person in 20 years.  He's talking about everyone trying to buy their first house.

                            You think there aren't people now who want to buy a house but can't afford the hundreds of thousands necessary for a starter house?

                            But I guess because they didn't buy a house that they couldn't afford during the boom they never deserve one?  Furthermore let's tax them more to bail out the people who did buy!  Let's ramp up inflation with low interest rates to help out the buyers too!  So it cuts into the purchasing power of renters...  Guess they were too stupid to buy...

                            After all the people who bought houses they couldn't afford are the only people worth thinking about, right?

                    •  Do you understand economics? (2+ / 0-)
                      Recommended by:
                      AnnCetera, bubbalie 517

                      If all these homeowners now become renters, the homes they formerly owned will be available to rent, thus keeping the cost of rents down.

                      The circularity of this argument is sublime. No, the scenario is: homeowner loses home. Searches in haste for some marginally acceptable rental unit, very likely in a different neighborhood. Home purchased by investor, and put on sale. It and other homes like it remain on sale, dampening the market. Tax dollars flee neighborhood/town. Town services dwindle b/c of low tax collections. Stores close...

                      A bailout will put a floor on these ridiculous home prices and keep the housing bubble afloat.

                      Define "bailout." I think we're talking about some chump change to keep some desperate families off the street for a few months--long enough to allow them to get marginal control of their finances. Has anyone, anywhere, suggested a bailout that would buy these peoples' homes for them? Since you created the whole straw man/red herring of a "bailout" on this thread, do you mind telling us in some detail what you're talking about?

                •  I believe I said "often" (0+ / 0-)

                  not "always".

                  Investigate! Impeach! Indict! Incarcerate!

                  by Cato come back on Tue Oct 16, 2007 at 11:17:23 AM PDT

                  [ Parent ]

                  •  Renting and buying detached five years ago (1+ / 0-)
                    Recommended by:
                    The Termite

                    That was the entire reason why early bears called this a bubble.

                    I recommend a moment or two at Wikipedia.

                    Also, the data do not support your scenario. People are mailing in the keys and foreclosing while continuing to pay for--and use--their credit cards.

                    •  I recommend (0+ / 0-)

                      that you stop reading Wikipedia and actually walk among the people who are being affected by all of this.

                      Investigate! Impeach! Indict! Incarcerate!

                      by Cato come back on Tue Oct 16, 2007 at 02:10:26 PM PDT

                      [ Parent ]

                      •  I'm actually not here to read people emoting (1+ / 0-)
                        Recommended by:
                        Skjellifetti

                        incoherently.

                        And I do not personally get my information from Wikipedia. But it's a good place to start for people who don't have a clue what they're talking about, but just can't stop talking and talking and talking anyway.

                        •  Hmmm, 'emoting incoherently' or (1+ / 0-)
                          Recommended by:
                          AnnCetera

                          posting incoherently like this one about cheap rentals in Phoenix that are not in Phoenix.

                          And if you're not here to read certain posts, then my suggestion is to skip them -- but your reaction and/or discomfort to my posts will not stop me from actually posting them.

                          I respect your right to your opinions but do not respect a condescending attitude that belittles those who disagree with you.  There can be different perspectives among educated, reasonable people toward the same issue -- you don't have to imply that disagreement means 'uneducated'.  

                          Investigate! Impeach! Indict! Incarcerate!

                          by Cato come back on Tue Oct 16, 2007 at 02:44:20 PM PDT

                          [ Parent ]

                        •  You Can Learn (0+ / 0-)

                          A lot from listening to people talk. Why everything I know today I've learned from listening to myself talk about things that I knew absolutely nothing about.

                          -- Gracie Allen

                          -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

                          by Skjellifetti on Tue Oct 16, 2007 at 09:29:18 PM PDT

                          [ Parent ]

                •  I'm not crazy. (6+ / 0-)

                  I live in FL - here's an example.

                  A house that's 2100 sq ft (not huge, but not tiny either) will have a mortgage of $1180.

                  A house the same size, on a comparable lot, for rent? $1600

                  Why?  Because the landlord can get that from 3 college students.  Single families, not so much.  Single families need to either buy, or live in apartments.

                  There has been a disturbing trend to let college students move into private neighborhoods so mommy and daddy can buy an investment property instead of throw $$ on rent.

                  Why?  Because the university runs everything, that's why!  It's the area's largest employer, so it gets what it wants, despite the City and County Commissions.

                  The rest of us can move if we don't like it.  Or, well, maybe not.  Since wages are below the median here, too, due to the large pool of cheap labor.

                  ::sigh::  

                  "Let me not to the marriage of true minds admit impediments - Shakespeare, Sonnet 116"

                  by xysea on Tue Oct 16, 2007 at 11:31:25 AM PDT

                  [ Parent ]

        •  Does it never occur to you that (2+ / 0-)
          Recommended by:
          gaspare, AnnCetera

          we created perverse incentives to the self-interest that bankers and lenders naturally have in getting their money back.

          You see, normal people when they go to a bank for a loan assume that when the banker tells them that they can afford a certain loan, obviously the bank is the expert and they wouldn't lie about it because the bank wants to get their money back. This is a mental model that has existed for decades if not centuries, so it's not surprising that this is the assumption under which people operate.

          But now, the bank does have incentive to lie about it because they will bundle the loan and sell it. They have no or little incentive to only lend to people likely to pay back the loan because they won't have to deal with it and they will have already gotten their money.

          To expect people to be wary of their bank when they believe that the bank's own self-interest is protecting them from getting too large a loan seems a bit unreasonable to me.

          Happy the man and happy he alone--he who can call today his own ... John Dryden

          by ohiolibrarian on Tue Oct 16, 2007 at 01:21:47 PM PDT

          [ Parent ]

          •  yep, the bank only looks out for the bank (1+ / 0-)
            Recommended by:
            NeeshRN

            even the loan officer is so insulated from "the bank" to being a human being he often times doesn't accept the predicament he might be placing people in.  He may honestly discuss the terms of the loan, etc but he may also "sell it".  You can always refinance if rates go up, you'll save alot during the first X years, etc.  Tells the borrower exactly what the training told him to say.

            In the end the bank will look out for the bank.  

            "You may be on the right track, but if you sit still, you'll get run over" Will Rogers

            by gaspare on Wed Oct 17, 2007 at 07:33:49 AM PDT

            [ Parent ]

        •  Borrowers will have to pay refinance fees (0+ / 0-)

          I don't think that borrowers can get off scott free.  Some of these rates have shot up past 8 and 9 percent.  I'm not talking about the best rate available which is about 6.25% but closer to 7% would be reasonable.  But in general, I see alot of predatory practices that tricked alot of people into loans that they couldn't afford or were conned into thinking that they could use the load to help make payments until "they got back on their feet".  Sure, there were alot of house flippers and greedy people that took out loans that they neither intended to pay back or were stupid in how fast or much they could sell their property for.  I don't think these people will get alot of mercy.
          But we need to do all we can to stabilize the situation for all our sakes.

          "You may be on the right track, but if you sit still, you'll get run over" Will Rogers

          by gaspare on Wed Oct 17, 2007 at 07:40:53 AM PDT

          [ Parent ]

    •  One mans poor financial decision (4+ / 0-)

      An anecdotal explanation of the nature of the reasons someone would apply for a ReFi might include, a new roof.
      I know someone who did a Refi for a new roof. Why? While the value of the house increased, so had the average cost of repairs. It's highminded to say, the homeowner should have put some money away to cover these things, but few could have forseen what a new roof in 2007 costs. Secondly the greatest single source of credit card debt is health care costs. Show up in the emergency room and your CC is your Health Care card. Renegotiating that debt at a lower rate, while the equity in your home has doubled, or tripled, is logical. I would not say that either reason, escalating home repair costs, or health emergencies, are not the result of poor financial planning, or frivilous spending choices.
      The degree of properity which has accompanied the housing boom is tangible, and equity extraction makes sense on a number of counts. When mortgages are passed through to third parties, the rights of the lender are passed along as well. It may very well be that these third parties will make a raid on home owner equity at some point, and having no equity will immunize you from these distortions of the credit market. The lenders may choose to foreclose on loand which have equity.
      That remains a problem for the courts and international law. Meanwhile if you want to slow down the pace of ReFi's  you should force the CC companies to renounce usury.  

      "Everything is chrome in the future..." Sponge Bob Square Pants

      by agent double o soul on Tue Oct 16, 2007 at 10:30:24 AM PDT

      [ Parent ]

    •  You are holding them to too high a standard (11+ / 0-)

      You say you hold homeowners to blame. Listen: when my wife and I first got married we were both finishing degrees--she had just started a job (as a teacher), I was working on my thesis (no salary). We had an automobile loan, a student loan and we're renting a small house.

      Within two years we were looking to buy a house. I had been employed for a little over a year at around $32,000, my wife had now 4 years and was earning $29,000. We had an infant boy and she was on maternity (which in Canada at the time meant 55% of salary for 5 months). The bank was telling us we qualified for a $400,000 mortgage at about 7.5%. You do the math. This only makes sense if we: don't need to buy clothes for several years, never go out, eat lots of Kraft Dinner and canned tuna, and don't expect to save anything other than the equity in our home.

      This was a reputable bank offering traditional loan vehicles, not a subprime. You can't hold homeowners to blame if they aren't sufficiently educated, aware or resourceful enough to disbelieve what a "financial professional" is telling them.

      If these predators were not enabled to suck the blood of these poor people, how many subprime mortgages would have been sold? I agree that individuals have to be held accountable for making stupid decisions, but that deserves maybe 10% of the blame. 60% of the blame should go to the venomous leeches who knew what they were doing and got their cut before the foreclosure, and 30% to the venomous leeches that live or work in the White House.

      Who knew "the ownership society" was analogous to "the plantation society"? We thought it was about owning property--in reality, it's about owning people.

      -8.38, -4.97 "...there is nothing either good or bad, but thinking makes it so." Hamlet, Act II, Scene ii.

      by thingamabob on Tue Oct 16, 2007 at 10:53:27 AM PDT

      [ Parent ]

      •  I highly doubt that a bank offered that (0+ / 0-)

        loan you are describing (which would amount to $33,600/year in mortgage payments or 55% of gross income).  Even at the height of the recent absurdity no banks were offering loans like that.  What got borrowers in trouble was that they became emotional over homes/locations and were willing to buy at whatever the cost and now regret it.  In most cases these people were in over their heads from day one not due to the cost of the home (where the banks come in), but do to the cost of the remainder of their lifestyle.

        •  wow! (3+ / 0-)
          Recommended by:
          demnomore, AnnCetera, NeeshRN

          you really have a hard time with this "reality-based" thing.

          i got halfway through trying to explain to you why you need to get your head out of your rear end and try to focus on what people are saying, (like this person, who told you about his personal experiences, to which you responded "i highly doubt" that happened. ?!?!wtf?) when i realized you're just not worth wasting my time on.

          get a clue. and until then, stop blaming everybody else for your holier-than-thou class-based prejudices.

          •  You seem to have a hard time with economics (1+ / 0-)
            Recommended by:
            Skjellifetti

            This isn't a class based argument, if anything, my argument about avoiding a bailout is for the benefit of the lower classes.  The same people here who are complaining about the need to help these poor people that may go into foreclosure are the ones who were complaining about how high home prices were 1-2 years ago.  All a bailout does is put a floor on home prices that is way too high that will in the end prevent many people from ever being able to afford homes.  What we need to do is allow the market to find the right price of homes (which will be considerably lower) and that will happen through foreclosures (which are sad for those involved).  And I am not holier than thou, as the home I bought in 2003 has lost value since then, but a correction is what is needed in this case.

            •  Do you intend to patronize the rest of us? (1+ / 0-)
              Recommended by:
              AnnCetera

              Because condescension is rarely an effective way to engage someone with whom you have a disagreement. In your case, it is exacerbated by your inability to understand what people here have pointed out: regardless of the problems in the marketplace caused by overvaluing of house prices (and what, pray tell, do you think led to this "overvaluing"? Could it have been too-readily-obtained and too-abstracted-from-reality financing which kept both investors and borrowers from seeing the actual risk??!!), nothing you have pointed out in any way addresses the issue of human behavior.

              Are you interested in returning to the age of Robber Barons (we're practically there, so no need to wait in anticipation)? If so, then I get you but I can't respect you. If not, please do all of us a favour and consider someone's views other than your own.

              -8.38, -4.97 "...there is nothing either good or bad, but thinking makes it so." Hamlet, Act II, Scene ii.

              by thingamabob on Tue Oct 16, 2007 at 12:24:50 PM PDT

              [ Parent ]

              •  I think if you read my posts you would see (1+ / 0-)
                Recommended by:
                Sparhawk

                that I do believe that the too easily obtained and fancy financing is exactly what lead to these price increases (coupled with a fear of investing in the stock market post 2000).  My point here (and I have considered other opinions, but I do not agree with them) is that we should not be looking to bail out those that took on (or gave out) these financing vehicles because it will further exacerbate the problem.  And while I am for punishing those cases of true fraud, I believe that the borrower has to take a fair amount of the responsibility for their problems, as one has to be responsible for signing a document that enabled you to borrow hundreds of thousands of dollars.  Unless we let the housing market shake itself out, we will continue to have a problem with inflated prices.

                •  You are having an argument with yourself (1+ / 0-)
                  Recommended by:
                  AnnCetera

                  Most people here are not even considering the question of a "bailout" -- even if that is what Rep. Miller is suggesting (which I think is an open question). What we are doing is merely describing the parameters of the issue so that we can begin to look at solutions.

                  A bailout, whether the right thing to do or not, does not address the fundamental question of the overall economic impact, nor the questions of long-term stability nor moral responsibility. At the same time, there will be many, many Americans devastated by the economic impacts on them specifically. Not considering this impact, because one is philosophically opposed to "bailouts", is insensitive, counter-productive and poor policy.

                  But in considering the impact on Americans and the need to find effective solutions, we need not consider "bailouts", which by and large go to the offending corporate entities, not the individual (former) homeowners.

                  I'll take the longest possible view on this and assume that your opposition to bailouts had blinded you to the merits of the arguments many others have presented here. You would not be the first person to have been misled by zeal. But, I seriously believe you need to re-think either your position, or your communication style.

                  -8.38, -4.97 "...there is nothing either good or bad, but thinking makes it so." Hamlet, Act II, Scene ii.

                  by thingamabob on Tue Oct 16, 2007 at 01:17:50 PM PDT

                  [ Parent ]

        •  I don't like being called a liar (6+ / 0-)

          It's despicable. It's also false, and it doesn't help you to see what you refuse to accept: in a transaction between a lender and a borrower, three parties exist--the lender, the borrower, and the system which governs their interaction.

          Deciding to hold the borrower, the party with least power and knowledge, entirely to blame is simple pigheaded obstinacy. I tried to educate you somewhat with an actual example from my own experience. Why does the truth offend you?

          -8.38, -4.97 "...there is nothing either good or bad, but thinking makes it so." Hamlet, Act II, Scene ii.

          by thingamabob on Tue Oct 16, 2007 at 12:10:09 PM PDT

          [ Parent ]

    •  "Living" above one's means. (6+ / 0-)

      Most of that equity extraction was not in fact used to pay normal bills, but was an equity extraction to live above people's normal means.

      You mean, to pay for medical bills since they lost their health insurance?

    •  sorry Oz, (6+ / 0-)

      but that is a right wing talking point.  A bad one.  Like the one used to justify the bankruptcy bill.  Most foreclosures come from job losses or medical bills, NOT "living beyond their means."

      •  Under "normal" circumstances you are correct, but (0+ / 0-)

        not in the market we currently have.  The huge jump in foreclosures is not being driven by job losses and medical expenses but by people who used fancy mortgage products to live above their means (either through a bigger house/nicer location/or equity extraction).  And I am so sick of everyone whose only argument is "its a right wing talking point".  Personal responsibility is not a right wing anything, its a fact that people need to be more responsible with their finances and especially when borrowing huge amounts of money.  

        And your comments prove my point.  If the jump in foreclosures was due to job losses or medical bills, we would not be talking about a bailout, because no bailout would fix those problems.  We are talking about a bailout because these borrowers are looking at higher payments due to a jump in rates and falling home values.

        •  who is talking about a bailout? crickets? (0+ / 0-)

          And putting all the blame on the little guy, crowing about personal responsibility while completely ignoring professional responsibility is straight up right wing assholery.

          •  At The Height (0+ / 0-)
            of the housing madness a couple of years ago, the NYTimes had a story detailing who was getting what mortgages. One statistic that stood out was that in Columbus, OH where I live (average home price ~240K), 30% of all mortages larger than 300K were zero-down interest-only products.

            Weekend before last, the Sat WSJ had a major front page story on the subprime mess. They got the data and analysed it to see where the mortgages went. They, too, pegged a surprising amount of it at the feet of upper-middle class nicely affluent people who should have known better but bought much larger houses than they would normally have been allowed given their incomes because everyone believed house prices would rise forever at 20% per annum.

            As economist Alan Blinder noted recently, there is plenty of blame to be shared among all of the parties, including the borrowers.

            BTW, DK is supposed to a reality based community. Sometimes that reality is quite harsh and does not support what we want to believe is true. The difference between (most of us) and the current clowns-in-charge is that we are adult enough to adapt and deal with facts that don't fit our pet theories instead of screaming about right wing assholery when somone has the temerity to bring those inconvenient facts to our attention. But then you probably threw a similar temper tantrum when your older brother told you Santa Claus doesn't really exist. OH! I'm sorry! I thought he'd already told you...

            -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

            by Skjellifetti on Tue Oct 16, 2007 at 08:46:53 PM PDT

            [ Parent ]

            •  madness (0+ / 0-)

              I see you left out the fact that by keeping interest rates low, the Fed punished people who saved and rewarded those who got into real estate.  That was one of the leading cases of the bubble in the first place.

              They got the data and analysed it to see where the mortgages went. They, too, pegged a surprising amount of it at the feet of upper-middle class nicely affluent people who should have known better but bought much larger houses than they would normally have been allowed given their incomes because everyone believed house prices would rise forever at 20% per annum.

              Yawn.  Where was the follow up with the number of said upper-middle class families that ended up with a foreclosure.  Without that, your examples are pretty...worthless.

              The difference between (most of us) and the current clowns-in-charge is that we are adult enough to adapt and deal with facts that don't fit our pet theories instead of screaming about right wing assholery when somone has the temerity to blah blah rhetorical masturbation blah blah blah

              Calling a spade a spade is about as reality based as you can get.  And Oz's attitude is most definitely a spade.  As, apparently, is yours.  Of course borrowers bear responsibility for the debt they carry.  But lenders also bear responsibility for giving a loan to someone that the lender knows damn well is likely to end in default.  But 100% of Oz's ire is directed at the borrower, and none at the lender.

      •  Link? (1+ / 0-)
        Recommended by:
        The Termite

        Also, please make sure your link explains why vastly higher rates of medical problems suddenly occurred to people with 2006- and 2007-vintage mortgages.

    •  Who is at fault isn't getting named here (1+ / 0-)
      Recommended by:
      Must Have Been The Roses

      It isn't Bush. It isn't Congress. It isn't ignorant homeowners.
       It's the Fed that forced real interest rates down into negative territory and then held them there. They punished savers and rewarded risky lending.

      The 2nd Red String Conspiracy

      by gjohnsit on Tue Oct 16, 2007 at 11:38:42 AM PDT

      [ Parent ]

      •  Oh, the fed does bear some responsibility (0+ / 0-)

        here, but what else did you expect them to do in the face of terrorist attacks/recession/deflation?  That still doesn't explain why we have the subprime issue.  What the fed did was give everyone a chance to refinance/buy at historically low fixed rate mortgages, but people got extra greedy and went for off the shelf products and for ever bigger homes instead.  

        •  The Fed's responsibility (1+ / 0-)
          Recommended by:
          SilverOz

          After 9/11 I can understand a quick and dramatic lowering of rates, even to 1%.  By early 2003, however, it was clear the danger of deflation and recession had passed.  And yet the rate remained at 1% until mid 2004.  I fail to see how that could be unless (1) it was to benefit Bush's re-election (especially after his daddy blamed Greenspan for his 1992 loss); or (2) the Fed mistakenly followed core CPI and failed to consider a secular advance in energy and headline CPI; or both.

          The Fed also had the power to reign in mortgage lenders.  As I am sure you recall, Greenspan was advised of the problem but for ideological reasons, failed to lift a finger to stop it.

          Cheers.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Tue Oct 16, 2007 at 12:12:42 PM PDT

          [ Parent ]

          •  Oh I agree (0+ / 0-)

            the Fed held the rates down too low for too long, but I am not sure that was a big issue since even after raising them to 5.25% a 30 year mortgage was 6% (thank you China).  The problem, as I stated above, was not the low rates per say, but the increased use of both ARM's and equity extractions.  And I still think a big reason we have this mess today is because of the stock market "crash" in 2000, which lead people to invest more in their homes and less in the markets, thus driving up the demand for real estate.  

    •  and for an alternative POV (8+ / 0-)

      a good article...

      "Defaulting middle-class U.S. homeowners are blamed, but they are merely a pawn in the game," he says. "Those loans were invented so that hedge funds would have high-yield debt to buy."

      Check it out.

    •  This is a typical response (6+ / 0-)

      No offense meant here but the 'irresponsible borrower hype' is meant to deflect attention from the real culprits; Wall Street and mortgage corporations who, like the new crop of 'private' student loan lenders, is raking Americans over the coals all with the help of the 'federal government'

      Yes there are people who try to live beyond their means, but when the governmental repsonse to an terrorist attack is to go shopping, its hard to really blame people.  

      CTHULU '08 ~ Why vote for the LESSER of 2 evils?

      by Goodbye Kitty on Tue Oct 16, 2007 at 11:55:41 AM PDT

      [ Parent ]

    •  I'd very much like to troll rate you (0+ / 0-)

      Of course I don't post here often enough to have that ability.

      You've ignored the thoughtful arguments of the representative stating why we need additional regulation to prevent predatory lending and acted as if he just said that sub-prime borrowers should be bailed out.  You've mis-characterized his words and, worse, because you don't acknowledge this in your response and it is the first post it redirects everyone who wants to be involved in the conversation from the Representative's argument and undercuts (practically made me forget) everything he said.

      Next time READ THE DAMN ARTICLE.

      Thank you.

    •  Where is your proof? (1+ / 0-)
      Recommended by:
      AnnCetera
      Coulfd you please provide some links because I believe this has pretty much been debunked and is as apocryphal  as Reagan's Cadillac-driving welfare queen. At a time when wages are flat or decreasing and inflation has been steady, especially in things most people spend money on that aren't including in the "official" inflation rate (food, energy, health insurance), it seems obvious that MANY people are borrowing against their homes to stay afloat, to say nothing  of those who have encountered a serious illness or have no other way to pay for their kids' education in an era of skyrocketing tuitions where "saving for college" is no longer possible (hard to believe in my day a kid could work summers and parttime during the school years and cover ALL college costs!)

      A 2005 Harvard study showed that more than 50% of bankruptcies are caused by medical crises and that about 75% of those people had health insurance coverage at the time of the crisis onset. What reason do you have to believe that the figures on equity extraction are any diferent? I eagerly away your links and research.

      We're retiring Steve LaTourette (R-Family Values for You But Not for Me) and sending Judge Bill O'Neill to Congress from Ohio-14: http://www.oneill08.com/

      by anastasia p on Tue Oct 16, 2007 at 12:23:10 PM PDT

      [ Parent ]

    •  Source? (0+ / 0-)

      Most of that equity extraction was not in fact used to pay normal bills, but was an equity extraction to live above people's normal means.

      Thanks.

      "Injustice wears ever the same harsh face wherever it shows itself." - Ralph Ellison

      by KateCrashes on Tue Oct 16, 2007 at 04:01:53 PM PDT

      [ Parent ]

    •  CC companies (0+ / 0-)

      did there own ponzi scheme. Loaning at VERY low rates... then jackin up the fees from hell !
      Alot of people had to get out of those 'bad investments' & refinance offered another more better low cost loan.....

      Frivolity is a harsh taskmaster- B.Griffith

      by OMwordTHRUdaFOG on Tue Oct 16, 2007 at 04:20:34 PM PDT

      [ Parent ]

    •  Not a drop of evidence for "above their means"... (0+ / 0-)

      motivation related to these mortgages.

      The industry hid the terms of these contracts. Frequently the text provided early on did the penalty sections by reference.

      Not that 99% of us could read the legalisms anyway.

      Prepayment penalties are especially dishonest.

      That problem could, in fact, be remedied by immediate and retroactive cancellation of all such clauses.

      A similar action was taken to protect the silver futures market back in the 1970s. A couple of Texans had "cornered" the mzrket. They were summarily demolished.

      State legislatures and the Congress are perfectly within their rights to nullify any part of Standard Code. Rule of Law can work.

      BTW: wartime actions have gone way further than nullifying these prepayment penalty clauses. Contracts are not Holy Writ.

      Dixie Chicks and Amy Winehouse. Imus and Lenny Bruce. Overcome evil with good.

      by vets74 on Tue Oct 16, 2007 at 04:37:14 PM PDT

      [ Parent ]

    •  Gots some stats on that? (0+ / 0-)

      Because you can't back that assertion up with any numbers.  The fact is that the cost of living, even adjusted for inflation and exclusive of luxury goods, is far more than it was for previous generations and jobs created are not at the same pay as they were for the previous generation.

      The only thing that has truly saved this economy through wage growth that can't keep up with inflation is the fact that many, many two parent families are also two income families as opposed to the single wage earner model of years past and the fact that home values increased at an unrealistic rate.

      This is a truly ignorant remark to make.

      NetrootNews coming soon!

      by ksh01 on Tue Oct 16, 2007 at 08:42:39 PM PDT

      [ Parent ]

  •  You know what makes me happy? (31+ / 0-)

    Knowing that we've got Congressmen like Brad Miller who are smarter than the rest of us and unafraid to learn, explain and make a difference on important-but-complicated policy issues like this.

    And then come here to tell us about it.

  •  Cleaning It Up (8+ / 0-)

    Well, right now we have banks banding together to figure out a way out of the mess that they helped create.

    How do we get in there and make sure that their solution isn't just to dump the mess on you and me?

    I think Sen. Clinton would make a very good president.

    by bink on Tue Oct 16, 2007 at 08:35:21 AM PDT

  •  thanks for posting this (20+ / 0-)

    the playing field has increasingly been slanted in favor of corporations and the wealthy investor class, and against people merely attempting to make ends meet.   Thanks also for staying on top of this issue.

    Peace.

    Those who can, do. Those who can do more, TEACH! If impeachment is off the table, so is democracy

    by teacherken on Tue Oct 16, 2007 at 08:36:26 AM PDT

  •  Bush's Ownership Society (10+ / 0-)

    Remember that phrase - the ownership society?

    Turns out he was talking about the wage-slavery kind of ownership.

  •  Thanks Rep Miller (11+ / 0-)

    for your leadership and service on this topic for working Americans.

  •  I really couldn't imagine signing anything (7+ / 0-)

    that important w/o being sure I understood it.  I'm simply amazed that people would sign a document of that gravity without identifying the purported loan terms in the document itself.

    •  you forget (7+ / 0-)
      1. The psychological tactics used by salesmen
      1. When people are confused and are asking questions, what happens if they're basically lied to in response?

      Yeah, sure, I can take the documents to my lawyer. That's another few hundred bucks.

      But then, I deal with real estate people and other salespeople on the presumption that they are never to be trusted. I think that's something to be taught in school  

      •  If you cant afford (2+ / 0-)
        Recommended by:
        Utahrd, goon 01

        That's another few hundred bucks.

        then don't buy a house.

      •  Remember who? (15+ / 0-)

        Lying is the core issue.  It has been the issue of Enron & Ken Lay, Health South & Scrushy, Market timing Mututal Funds.

        One day the US will create a system of corporate laws that make lying the worst possible crime corporate crime that penalizes the corporation first (or the business license), and the individual second.  Sunshine is the greatest disinfectant.  Companies that provide false material information and shroud their transactions in darkness must get penalized and ultimately, if the behavior does not cease, get  liquidated.  (Three strikes you are out for all  corporations)  

        Rep. Miller, I encourage you to keep shedding light on these transactions and examining the myriad conflicts of interest that exist within the entire home financing business.  I know that Democrats like yourself are the only hope for appropriate regulation a la 1934 Act that would impute fiduciary duties on certain brokers.  

        The mortgage subprime and forclosure crisis is a true political football.  While I hope that the Republicans get blamed for the ordeal it is not in their nature to accept blame.  Thus the question is how do you nail them to this issue?

        I believe the big picture avenue is to nail Republicans to the issue of dishonesty and cheating.  The upside is that the Republican leadership is so engulfed in lying, cheating, profiteering, and covering up the business miscreants there is plenty of dry timber to get the bonfire going.  The downside is that the Democrats are seemingly unwilling to recognize that all Republican officials are the enemy and must be systematically defanged, subdued and contained.   Whatever new policies you envision as helping your fellow Americans realize that the person seated at your right with the R on the name plate is scheming to undermine the plan at every juncture.  There is no compromise for these persons, there is only submission.

        Thus far the Republicans have been able to take a slide past all the corporate scandals, all the Iraqi intelligence failures, all the swift boat lies, all the page and outhouse scandals.

        To say that Republicans are to blame for Subprime is speaking truth to power, but means nothing unless you have a concerted co-ordinated longterm effort to paint a picture and write the story which everyone will talk about for years to come.  Democrats now have the book in their possession, it's time to calming walk over and rip the pen from the Reds hands and get to work.  This is not a time to play nice.

    •  Not reality (9+ / 0-)

      A lot of people are not sufficiently educated or don't have the English language skills to understand the documents.  But, oh, their buddy the loan broker, who speaks their language and at their level, has explained everything to them, yessiree.  And they trust him, and he has cultivated that trust.  Because he gets paid on commission.

      "If there is no sufficient reason for war, the war party will make war on one pretext, then invent another . . . after the war is on." -R.M. LaFollette

      by Spirit of Fighting Bob on Tue Oct 16, 2007 at 10:27:43 AM PDT

      [ Parent ]

      •  precisely (1+ / 0-)
        Recommended by:
        AnnCetera

        this shit should be grounds for banning the slime from the profession. Talk about moral turpitude.

        •  The market is handily taking care of that now (0+ / 0-)

          But unfortunately killing off honest brokers too as the whole loan market takes a dive.  

          Interestingly, in my cases the brokers tended to be from the same racial, socioeconomic, and geographic group as the borrowers.   This is somewhat intentional by the brokers and direct lenders, as borrowers will trust such brokers.  However, it was a bit disturbing to see people screwing over people from the same groups as they, all to line the pockets, loan by loan, of the untouchable owners -- comfortably, legally isolated far up the food chain.

          "If there is no sufficient reason for war, the war party will make war on one pretext, then invent another . . . after the war is on." -R.M. LaFollette

          by Spirit of Fighting Bob on Tue Oct 16, 2007 at 04:00:23 PM PDT

          [ Parent ]

  •  Of course they do (1+ / 0-)
    Recommended by:
    The Termite

    So no, not many factory workers or firefighters knowingly choose a mortgage with an initial "teaser" monthly payment that they barely qualify for that then increases by 40 percent after two years, and has a three year prepayment penalty

    Because they think real estate only goes up, up, up! And it will be easy to refinance.

    AND 62% STILL BELIEVE IT.

  •  This entire sub-prime mess is the responsibility (7+ / 0-)

    of reckless and greedy wall-street executives. Those executives completely ignored the proven investment principles of risk-management. They deliberately turned a blind-eye to the underlying risk of investing in sub-prime. At the time of housing markets' haydays they only looked for spectacular returns on their risky investments. And when their risky investments went bad, they turned to fed to rescue them and fed like an obeying parent complied with their childish request.

    •  You let entirely too many people off the hook (4+ / 0-)
      Recommended by:
      3goldens, bigchin, Newzie, NeeshRN

      Including the entire House Financial Services Committee and the Senate Banking Committee.

      This issue is not new, it's more than four years old now.

      <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

      by superscalar on Tue Oct 16, 2007 at 09:29:22 AM PDT

      [ Parent ]

      •  If you can't afford a mortgage loan... (0+ / 0-)

        ...don't sign up for it.

        How is that the fault of wall street executives?

        Do not ever say that the desire to "do good" by force is a good motive. Neither power-lust nor stupidity are good motives. - Ayn Rand

        by CA Libertarian on Tue Oct 16, 2007 at 11:59:03 AM PDT

        [ Parent ]

    •  "No One Could Have Predicted" Mortgage Collapse (6+ / 0-)

      No one could have predicted that exploding interest rate mortgages would cause financial problems.  Just like no one could have predicted that the levess would collapse.

      There were plenty of indicators that the situation was out of control.  The Federal agencies responsible to regulate the industry just issued advisory "guidance."  The Federally regulated institutions were outside the reach of many state laws. There seems to be very unclear authority between which Federal and State agencies are allowed to regulate.  

      In most states, mortgage brokers were not regulated by anyone.  The one I used (I found out later) had just gotten out of State prison.

      We need to help the people who really were conned, and penalize the con-men.  At the same time, we need to avoid bailing out the irresponsible lenders and the irresponsible borrowers.  Part of the problem is that many of the predatory mortgages have high pre-payment penalities.  That means that it is hard for a person to refinance at a reasonable rate, even if the Federal Housing Administration offered an alternative.  The companies should be required to waive all pre-payment penalty if they want any Federal help with any borrowers.

      We need better truth in lending laws. The truth in lending statement should clearly state the maximum amount a mortgage could go up each year, through the life of the mortgage.  

      The most heartbreaking cases are the ones where a low income person had already owned their own home.  They took out a mortgage to pay medical bills or repairs, without realizing how high the interest rate would jump after the initial teazer rate.  Many lost homes that were in their families for years.  There is a special place in hell for those con-men.  

       

      JPZenger was a newspaper publisher whose jury trial in the 1730s for seditious libel helped establish the freedom to criticize top government officials.

      by JPZenger on Tue Oct 16, 2007 at 10:26:08 AM PDT

      [ Parent ]

  •  Neither Bill Clinton nor Bush invented greed (3+ / 0-)
    Recommended by:
    New Deal democrat, Utahrd, AnnCetera

    Greed is constant human characteristic, and it waxes and wanes.

    During the late 90's, grossly overvalued securities were bought with savings by many people, using borrowed money. A prime motivation to buy was the fact that prices had increased sharply and were expected to continuie increasing.

    The similarities with the housing bubble are interesting.

    In the case of the stock market bubble, people took their losses and learned some lessons, all without a government bailout.

    I do not oppose some forms of assistance to current homeowners, but I do strongly oppose any plan to give government aid to any speculators.

  •  Buying the agents. (6+ / 0-)

    Classic move to get someone to sell YOUR product instead of someone else's product: larger commissions.

    The agent will sell the product that give him the best payment.  

    There are two possible solutions:

    1. make all of the agents accept a scale price on the LOAN AMOUNT instead of the INTEREST RATE, whereupon competition comes back
    1. have some kind of inverse-commission so that the agent gets a better fee for a lower interest rate.  (So the agent actually works FOR the buyer.)

    #1 is possible but would require legislation.

    #2 I can't see a way to enact this.

    (Good diary, Representative Miller.  So why AREN'T you running for Liddy Dole's seat, again?)

    Happy little moron, Lucky little man. I wish I was a moron, My God! Perhaps I am! -Spike Milligan

    by polecat on Tue Oct 16, 2007 at 10:00:55 AM PDT

  •  thank you for good reporting (3+ / 0-)
    Recommended by:
    bustacap, dharmafarmer, protectspice

    the real question people don't ask is:  why do the ARMs increment so often?  This is a symptom of hedge funds literally playing craps through derivatives games with bundles of mortgages. Did your ARM just increase?  Must have been flipped like a poker chip at the hands of hedge funds.  They are the true villains in the game.  When the mortgage meltdown got going, a lot of hedge funds insider trading schemes stood naked for al the world to see, but of course the MSM blamed mortgage holders instead.

    The hedge funds want higher interest because in today's Ponzi market schemes, that's what is easier to sell.  Lower rates/more stable fixed mortgages are not as attractive to huge "players" because they don't cough up as much interest.

    This is also why we see credit cards here in Mexico just given to ANYONE who wants to sign up for them, no credit history necessary.  While this makes no sense to the little guy, for the 12 interest-free months after the credit card is issued - before anyone knows whether or not the first-time credit card holder will/not repay - it is high interest emerging market debt... the most delicious kind for big security-makers like hedge funds.  For those 12 months they can buy/sell that emerging market debt and hypothecate any value on that debt they feel like making up.  Emerging market debt is as good as cash to those players who buy/sell/trade that debt.

    I only mention the credit card deal to point out two things:  one, that is what the hedge funds did with mortgages to "monetize" mortgage debt, and two...  well... you know that pension you've been paying into all this time?  You may just be betting against first time credit-card holders in Mexico, India, China...  no credit history required.  Made into securities/bonds whatever.  That's the stuff of which a lot of pension funds are made, and I wish everyone much luck.  

    •  It's the Republican's fault (0+ / 0-)

      why do the ARMs increment so often?

      </snark>

      <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

      by superscalar on Tue Oct 16, 2007 at 10:23:05 AM PDT

      [ Parent ]

  •  The property buyers were (5+ / 0-)

    stupid on the micro level.  The people who allowed them to buy the property, the folks who invested in leveraged  properties, and the stooges who regulate them were macro stupid and should have known better.

    Tax payers always end up holding the bag for the financial speculators. It has always been that way, depression after depression. And there is always the fiscal terrorism tool that the government/banking industry pulls out: if we don't bail out the __ (S&Ls, hedgefunds, whatever) there will be a real depression, cough up your money or else.  

    So get ready to empty your wallet, well, no your grandchildren's wallet, and pass a set of laws that the next set of shysters will circumvent.

    Verbal gymnastics are more offensive when they're about oral sex than they are when they're about state-sanctioned torture.--Josh Marshall

    by sailmaker on Tue Oct 16, 2007 at 10:12:43 AM PDT

  •  This is dead on -- and I know (16+ / 0-)

    I have represented clients against mortgage brokers and lenders, in trying to rescind subprime loans that were foisted on the clients under fraudulent (and illegal) circumstances.  Along the way, I learned about the tricks of the trade from testimony of broker and lender ex-employees:

    1.  The "Coke Machine" -- where broker employees would put blank forms over authentic borrowe-signed form, place them over the bright light on the door of the Coke machine, and proceed to trace the borrower's signature.
    1.  The "bait and switch"  -- giving a borrower a non-binding "Good Fiath Estimate," and then, on the day of closing, having the client sign off on a loan with much different (and deleterious) terms.  
    1.  The "se habla Espanol" -- staffing offices with Spanish speakers and doing Spanish-language marketing, presenting the terms of the loan orally in Spanish, and then, at closing time, presenting English forms (that the borrower cannot read) that contain entirely different terms.
    1.  The "bulk it up" -- the broker/lender either has an appraiser overvalue the home considerably over market to bulk up the loan.  (This is also done with borrower incomes to meet lending standards on no/semi-doc loans, sometimes without borrower knowledge.)
    1. The "jack it up"  -- borrower tells his/her real income to the broker and puts it on the application for the loan; this document is "lost" and the client signs a new types application at loan closing that lists a higher income (so that the lender can loan up and bulk up the loan).
    1. The "load it up" -- sticking substantial fees and charges into a loan (often without any borrower knowledge -- see #s 1-3, above).  These are substantial, and killers -- I've seen over $25,000 in fees on a $200,000 refi.  The sad thing is that some borrowers get stuck in subprime loans when they have the credit scores to have prime or Alt-A loans, but nobody tells them this or tries to get them into a better product.

    I could go on and on.  Suffice it to say that the segment of the population that we most want to see integrating into the economy and stable communities through home ownership, is at great risk.

    "If there is no sufficient reason for war, the war party will make war on one pretext, then invent another . . . after the war is on." -R.M. LaFollette

    by Spirit of Fighting Bob on Tue Oct 16, 2007 at 10:15:48 AM PDT

  •  Closings are a joke (4+ / 0-)
    Recommended by:
    SarahLee, bwintx, illusionmajik, Newzie

    Anyone who has ever been to a closing knows that the borrower sees the documents for the first time at closing and then signs ten or fifteen documents in about two minutes.

    Yep, yep, yep, and yep.

    At my last closing I was presented with a stack of documents probably a foot high, to which my wife and I attached 50 or more signatures in the space of about 10 minutes.

    Thankfully I was clever enough to know what I was getting -- a fixed-rate, 20 year mortgage at 5.5% -- and also clever enough to avoid ARMs, "exotic" products, balloon payments, etc. I had worked with  my mortgage loan broker before, and trusted her to do roughly the right thing.

    Which is not to say that I couldn't have been swindled mightily if they'd had the mind to do it. God only knows what's in the pile of papers they shove at you -- it would probably take 6 or more hours to read it all.
     

    Molly Ivins wanted WHO for President? But WHY?

    by Positronicus on Tue Oct 16, 2007 at 10:42:24 AM PDT

    •  No one had a gun held to your head... (0+ / 0-)

      ...to sign those papers in a few minutes.

      You had the option to take all the time you wish to review them or have an attorney review them.

      It's really interesting how we like to blame every one else for OUR issues...

      Hoping we can do better before we annihilate ourselves...

      by OldManOnFire on Tue Oct 16, 2007 at 12:05:20 PM PDT

      [ Parent ]

      •  right, because (2+ / 0-)
        Recommended by:
        AnnCetera, Positronicus

        we've all got 6 hours to spend at a closing.

        we don't have like... jobs or something? to use your example: the kind of jobs that we need to go to everyday or we won't have enough money to buy the house in the first place? the kinds of jobs we often have to work more than one of?

        oh, that's right. it's just our own damn fault if we don't have a job with good perks and lots of vacation time. nobody held a gun to our head when we applied for our jobs. and hey, if we have to work more than one job to be able to afford housing, it's our fault for being poor.

        it's really interesting how we like to assume that everyone else in the world has the same issues we do, and then use that assumption to condemn those who don't deal with them in the same way.

        •  You have choices... (0+ / 0-)

          ...and as long as you wish to be careless in your life, to make choices that put you and your family at potential risk, you cannot blame everyone else for your reckless behavior...

          Hoping we can do better before we annihilate ourselves...

          by OldManOnFire on Tue Oct 16, 2007 at 06:47:07 PM PDT

          [ Parent ]

      •  No issues here (0+ / 0-)

        I knew what I was doing and I'm happy with the results. I have no issues.

        The general point is that if there's an unscrupulous mortgage broker or other agent in the mix, then there's nothing in the way of consumer protection to guard against fraud and/or misdirection.

        It might be nice if all mortgages came along with a one-page, ultra-simple, truth-in-lending disclosure form, something like the energy efficiency rating on your water heater. Here are the closing costs, here is the APR, here is the total cost of the loan, here is how much you'll pay in interest over the life of the loan.

        One page that takes no more than 2 minutes read.

        One page that anyone can understand.

        Molly Ivins wanted WHO for President? But WHY?

        by Positronicus on Tue Oct 16, 2007 at 06:43:54 PM PDT

        [ Parent ]

        •  You can make an 'if' scenario for just about... (0+ / 0-)

          ...any transaction.  

          And we can't condense life to one page!

          As long as people DO NOT pay attention to the details, especially in large purchases, there remains potential for harm.

          I don't know the numbers, but I'll bet for each foreclosure we hear about, there are 100 other home buyers who are making it work!  And because of the relaxed mortgage plans, many many people are living the dream of owning property; so this story is not only about doom and gloom...

          Hoping we can do better before we annihilate ourselves...

          by OldManOnFire on Tue Oct 16, 2007 at 06:56:41 PM PDT

          [ Parent ]

  •  Due to the freedom in the marketplace (0+ / 0-)

    all sorts of things could (and can) go wrong and did.

    The government needs to create a credit scale, A, B, C, D, and F.

    The A group would say have at least 20% down/equity, continuous employment for the past two years, no debt more than 30 days past due in those two years, income/loan ratio of at least .4, etc.

    Lenders have to offer loans based on the credit scale. They should be free to reject people falling in any group below B.

    Loans in the A group would have to be tied to a government approved index with at most a 100 basis point premium.

    Loans in the B group would have to be tied to a government approved index with at most a 150 basis point premium.

    Loans in the C group would have to be tied to a government approved index with at most a 150 basis point premium.

    Loans in the D group would have to be tied to a government approved index with at most a 300 basis point premium.

    Loans in the F group would have to be tied to a government approved index with at most a 400 basis point premium. All loans in this category would have to be individually approved by all local and state regulatory agencies with jurisdiction desiring to review loans in this class.

    ARMs could be at most a 100 basis buydown. The buydown would be tacked onto the principle.

    The maximum permitted loan costs would be:

    1. government recording fees and taxes
    1. 1% origination fee of the loan for A and B class loans
    1. 1.5% origination fee for C and D class loans
    1. 2.5% origination fee for F class loans
    1. $1,000 for all provider loan origination work on top of the origination fee
    1. $800 for a lawyer working solely in the interest of the mortgagor at his option

     

    •  The government approved index (0+ / 0-)

      should be a rate that is considered fair based on the term of the loan.

      For a 15 year loan, say the latest 10-year Treasury auction rate plus 75 basis points.

      For a 20 year loan, say the latest 10-year Treasury auction rate plus 100 basis points.

      For a 30 year loan, say the lower of the latest 10-year Treasury auction rate plus 150 basis points or the last 30-year Treasury issue in the past year plus 75 basis points.

      For an ARM, the latest 1-year Treasury auction rate plus 150 basis points with no rate cap or 200 basis points with a 500 basis point life of loan rate change cap.

  •  You should add "Usury" to your tags. NT (3+ / 0-)

    ...Operation Rota is Closed... New Blog Coming Soon With Pictures!...

    by nowheredesign on Tue Oct 16, 2007 at 10:45:31 AM PDT

  •  ahh (2+ / 0-)
    Recommended by:
    SeekCa, Fiona West

    the "ownership society" at work

  •  Bankrupt Logic (3+ / 0-)
    Recommended by:
    Sparhawk, Smallbottle, protectspice

    Your transfer of responsibility for people who bought loans they couldn't afford has several logical flaws.

    Approximately 72 percent of subprime mortgages from 1998 to 2006 are refinances, not loans to purchase homes. And less than ten percent of subprime loans are to purchase first homes.

    If you could show that those 72 percent refinances were because the borrowers couldn't afford to live without the extra cashin on their home equity, that could be a solid argument. But how many of them were doing OK, but couldn't resist refinancing when the new deal would drop their upfront interest obligation, then squandered the money on something else, like blowing it in the stock market? How many just transferred their safe but slow-growing home equity investment out of greed into high-growth investments that were risky, then collapsed? Your numbers don't by any means rule that out, and it's obvious that many people did so, because that's where much of the money, especially in Bush's propped up investment markets, came from. Since there wasn't any other money left, when Bush failed to manage a "soft landing" of the deflating Bubble that left Bush's traditional corporations largely out of the money.

    The foreclosure epidemic is not caused by careless borrowers signing mortgage documents without bothering to understand the terms either. Anyone who has ever been to a closing knows that the borrower sees the documents for the first time at closing and then signs ten or fifteen documents in about two minutes.

    Well, I was just in a closing myself, and I'd seen all the documents, from loans to contracts, well in advance - weeks in advance. I certainly would not have signed them, or paid my lawyer the kind of money they got, if I didn't understand and agree with them without facing an hourly deadline on such a substantial deal.

    Then you've got a litany of stats from AEI, which you claim supports your statement that borrowers didn't take obligations they couldn't understand, or didn't agree to meet. But those stats repeatedly underscore that borrowers took obligations they didn't understand, couldn't understand because they couldn't even identify the fundamental factors defining their obligations.

    I don't want to see families, or anyone, on the street just because they couldn't exercise the basic adult responsibility of taking only debt they understood how they'd repay. But I also don't want to have to bail them out just because I did exercise that basic responsibility. What I want is to see them compete for public housing like everyone else "down on their luck". A year ago practically all of those people were the ones complaining about paying taxes to maintain just that kind of safety net, because they thought their "middle class" status was indestructible. Even when they squandered it on bad bets they didn't understand. I note that the states with the most foreclosures are the ones whose voters most voted for Bush. I took a relative loss in living quality the past decade I didn't take more debt than I could either understand or repay, while those people robbed me every way they could, while screeching about "capitalism's winners and losers".

    The vulture they called has come home to roost. I don't want it feeding on my living body, when it's those other people's stench that called it over. I want to give them a proper burial, so they have a chance to be reborn in some new economic context, but I don't want to hock my inheritance, or my children's, just because they insist on being a permanent underclass of economic illiterates. So many of these people wanted their Republican Congress (and its Democratic partners - I'm looking at you, Joe Biden) who rewrote bankruptcy laws before those voters realized it was targeting them when their loans came due.

    Find the actual frauds and make the fraudsters pay rather than the actual victims. But don't use those actual victims as human shields to bilk me of yet more money just to protect the lending banks which made record profits while Americans went hungry, jobless and even homeless because they weren't even "subprime". It's yet another hustle, and I won't be conned this time, either.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Tue Oct 16, 2007 at 11:12:40 AM PDT

    •  To be fair... (1+ / 0-)
      Recommended by:
      susie dow

      ...most refinances between 2001-2003 were rate and term refinances, which means that they were purchased by consumers who were "in the money" and could save enough on their monthly payments by refinancing to cover the cost.  Conversely, most refis since have been of the "cash out" variety, such as the ones you describe.

      During that refi boom, many people were turning over mortgages two or three times a year without taking out a penny of equity.

      Katrina changed everything.

      by The Termite on Tue Oct 16, 2007 at 11:30:50 AM PDT

      [ Parent ]

      •  Even More Fair (3+ / 0-)
        Recommended by:
        Sparhawk, The Termite, AnnCetera

        To be even more fair, even Miller's holey stats in this diary ignores the 28% subprimes who got new mortgages, and the <10% of subprimes that are to purchase first homes really tells the story.</p>

        It's classic politician spin. The percentages don't have to add up: it's "rhetoric math", more fiction than even "damned statistics". The real macroeconomic fact, that everyone knows, is that lots of people kept the 1990s equity bubble going by creating a debt bubble. Learning nothing from the most blatant demonstration of investment economics since 1929, and perhaps ever.

        The party was over in 2001, and now the afterparty, financed on credit cards, is over. And the double hangover doesn't mask a majority of people with "no choice". Just a majority of people who didn't bother to choose wisely. And just because there was an industry, backed by a government, to exploit their bad decisions, doesn't mean they weren't responsible for dancing with that devil.

        The bottom line is that if you can't understand your liability, you're still liable, and you shouldn't assume it. Changing that basic economic mechanism will make even this catastrophe fail to bottom, and dig an even deeper hole that cannot be escaped.

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Tue Oct 16, 2007 at 12:01:09 PM PDT

        [ Parent ]

  •  States might consider creating (0+ / 0-)

    mortgage loan review homeowners associations with the right to review loans to be issued in their jurisdiction.

    If you want a loan on a property in say northeast Cleveland, and the rate is above 8% or the costs above $2,000+2% of the tax market value assessment, the association would have to review it for fairness and freedom from protected group discrimination and approve the loan if it was fair before the city clerk could record the loan. The homeowner could also petition a judge to do the same task.

  •  If you don't know what your interest rate is (1+ / 0-)
    Recommended by:
    Smallbottle

    when signing a mortgage, perhaps you shouldn't sign it.

    Don't start a blog, build a community with SoapBlox - the NEW blog framework.

    by pacified on Tue Oct 16, 2007 at 11:17:17 AM PDT

    •  interest rate is only one thing (10+ / 0-)

      at my closing, the mortgage company actually lectured me for taking the time to read the documents. She said she didn't have time for me to do that. I told her that I was going to read them anyway. She was very nasty about it. It was obvious that they do not even budget the time in their day as closers to accommodate a genuine reading of everything. I wanted to make sure that the docs all matched what I'd gotten inthe mail, and then there were at least 20 additional pages I had never seen. Just for a 30 year fixed.

      Even after reading those docs, I still had to depend a bit on my realtor to make sure there was nothing really wrong in them. I checked for interest rate--which was displayed in a very difficult-to-understand fashion--and prepayment penalties, checked that it was "fixed" as I expected, etc, the things I knew to look for. but in some cases they were hard to find. For people also getting a HELOC--very common today at closings--it must be far more confusing. Then you have multiple rates. I didn't do that.

      But I am getting sick of all the people who say borrowers "know what they're getting into". It requires in some cases graduate-level reading skills to get through this crap. Most realtors aren't as savvy as mine and aren't much help. We're turning America into a giant obstacle course in which anyone who is not unusually bright will eventually get taken down.

      •  Any lender who'd go to a closing... (4+ / 0-)

        ...and browbeat a consumer for reading loan docs should be at the very least fined and have her state origination license permanently revoked.

        And I agree mortgage docs are onerous and Greek.  Like anything else that is a function of cheats and lawyers, and consumers and good mortgage lenders suffer.

        Still, they are not indecipherable, and understanding a contract should always be an obstacle to entering into one.

        Use the interwebs.

        Katrina changed everything.

        by The Termite on Tue Oct 16, 2007 at 12:53:55 PM PDT

        [ Parent ]

  •  Look I'm all for Bush bashing but didn't Clinton (2+ / 0-)
    Recommended by:
    New Mexico Dem, Goodbye Kitty

    open the door when he deregulated the banking industry, which was put in place by FDR. And wasn't banking regulation considered an essential component of the New Deal?

    To sin by silence when they should protest makes cowards of men~~ Abraham Lincoln

    by Tanya on Tue Oct 16, 2007 at 11:19:12 AM PDT

  •  There is a house next door (0+ / 0-)

    to me in Florida bought shortly before the peak for $242,000 and which the investor sunk about $35,000 more into.

    It now sits empty and for rent. It probably has lost about $70,000 in value.

  •  Karl Rove's fault (0+ / 0-)

    In his first interview since leaving the White House, on Rush Limbaugh's show, Rove took 'credit' for changes to (the law that reportedly made it easier for people to buy homes.  (More likely, it made it easier for investors to "flip" homes because previously tax law penalized that.) Possibly, other changes made it easier for loan sharks to take advantage of people buying and refinancing homes, or taking out loans on them.  Someone should look deeply into Rove's claim.

    Among a people generally corrupt, liberty cannot long exist. - Edmund Burke

    by Deep Harm on Tue Oct 16, 2007 at 11:26:07 AM PDT

    •  What a scam... (0+ / 0-)

      ...home "ownership" is not a virtue, nor is it something that the government should be encouraging beyond some minor incentives (I'm not even sure that I support the mortgage interest tax credit).

      If the economics of home ownership make sense, people will buy. If it does not, people will rent and will need to save for a down payment. The market will sort all of this stuff out: there is no need for a market-distorting "incentive" program.

      What IS needed are good disclosure laws requiring lenders to disclose the terms of their loan in simple and readable text, the maximum a borrower could conceivably have to pay, etc.

      •  History (0+ / 0-)

        That sounds nice but it's not the emotional reality of countless generations of America's immigrants denied land ownership back in the "old country" -- that kind of a legacy leaves a mark, spoken and unspoken.

        Scottish crofters, the Yucatan's Mayan, Palestinians, Irish, Armenian, Native Americans, the list goes on and on of countless peoples who have for one reason or another been denied the right to own the very land they've lived on for generations.

        Note to Pelosi and Reid: continued funding is passive aggressive approval and support of the war in Iraq.

        by susie dow on Tue Oct 16, 2007 at 05:56:42 PM PDT

        [ Parent ]

        •  So we, now... (0+ / 0-)

          ...in 2007 should subsidize home "owners"? I, who choose to rent for a variety of reasons including the latest credit clusterfuck, am asked to subsidize people who choose to buy their domiciles?

          I don't see why money should be taken from my taxes to help home owners buy property, keep their values up, or whatever.

          •  ?? (0+ / 0-)

            I was responding to your comment, "If the economics of home ownership make sense, people will buy. If it does not, people will rent and will need to save for a down payment." It ignored the emotional side of home ownership.

            btw, your taxes already subsidize home "owners" in this country.

            Regards the credit clusterf*ck, I'm a big proponent of "don't buy it if you can't afford it."

            Note to Pelosi and Reid: continued funding is passive aggressive approval and support of the war in Iraq.

            by susie dow on Tue Oct 16, 2007 at 08:46:37 PM PDT

            [ Parent ]

  •  Rich people own tons of real estate.. (6+ / 0-)

    ...there is no way they are gonna let a bunch of yahoo middle class consumers dump their real eastate onto the market thru foreclosures. That would devalue all real estate via a glut of product and the wealthy landowners won't stand for that. The "bailout" is ultimately a bipartisan economic fix because it benefits the rich the most.

    -7.5 -7.28, What's a guy gotta do to get impeached around here?

    by Blueslide on Tue Oct 16, 2007 at 11:32:00 AM PDT

  •  Republicans killed the American Middle Class, (0+ / 0-)

    and they did it because we threatened the power of the elite 1% who they serve.

    Period, end of story.

    Electing a Republican is like electing a foreign enemy of the United States. Same thing.

  •  In my area of Florida (0+ / 0-)

    teachers and police officers can now afford to buy a home of their own after the recent price drops.

  •  To prevent racial and ethnic (0+ / 0-)

    discrimination by broker incentive a folded 8x11 sheet of paper could be required to be sent by certified mail to the borrower listing the lower rates available from the lender and the reason by each lower rate why the borrower(s) didn't qualify. This would have to be recorded with the mortgage.

  •  It's the fault of the consumers... (0+ / 0-)

    I am certainly empathetic to those who have lost, or will lose their homes to foreclosure.  But I cannot defend people who make horrible financial decisions!

    No matter the item, when we want to purchase something, we must pay for it!  We can do this with cash or credit.  When we use credit, there are a million different options to choose; from low risk fiscally responsible plans to high risk plans--no one has a gun held to their head in making this decision!!

    American consumers are notorious for spending more than we have--not worrying about tomorrow!  

    Sure...buying on credit allows us to purchase things we would never have the cash for, but buying beyond our capabilities is a huge gamble!  

    This issue has NOTHING to do with the lenders!!  This is an issue about consumer greed, arrogance, and stupidity!  

    Finally, it's great to own property if we can afford it...but it's also great to rent if we cannot afford a purchase...

    Hoping we can do better before we annihilate ourselves...

    by OldManOnFire on Tue Oct 16, 2007 at 11:52:53 AM PDT

    •  And we shouldn't get sick or lose our jobs either (2+ / 0-)
      Recommended by:
      susie dow, protectspice

      So, there!

      Happy the man and happy he alone--he who can call today his own ... John Dryden

      by ohiolibrarian on Tue Oct 16, 2007 at 02:15:22 PM PDT

      [ Parent ]

      •  If you are replying to my comments... (0+ / 0-)

        ...then I have no idea your point??

        Yes...people must plan on getting sick or losing their jobs!  If a person lives pay check to pay check with no rainy-day fund, then they better not be buying a home!  

        You can't blame all these extraneous scenarios and lenders for the failure of consumers to do their homework and be sensible...

        Hoping we can do better before we annihilate ourselves...

        by OldManOnFire on Tue Oct 16, 2007 at 06:39:51 PM PDT

        [ Parent ]

  •  Repeal 12 United States Code 85 (0+ / 0-)

    the law that the Supreme Court said allows state usury laws to be trampled.

  •  Individual responsibility? (2+ / 0-)
    Recommended by:
    Sparhawk, Skjellifetti

    I beg to differ with the premise of your diary.

    People know if they're borrowing more than the house is worth.

    People know if they're doing no-money-down that they're in trouble if the value of the house go down.

    People know that with an adjustable rate mortgage, the rate can go up.

    This is not some little tiny fine print that only shows up at the closing process.

    I am disgusted with the suggestion that there is no individual responsibility in many - if not most - of these cases.

    Remember, the vast, vast majority of consumers - myself included - made better choices.  And they were choices.  People on the financial ropes with their home have other choices besides taking out an incredibly risky loan - they can downsize.

    Do not ever say that the desire to "do good" by force is a good motive. Neither power-lust nor stupidity are good motives. - Ayn Rand

    by CA Libertarian on Tue Oct 16, 2007 at 11:57:02 AM PDT

    •  Off subject... (0+ / 0-)

      Thank you for the info the other day.

      I was happiest as a heathen.

      by MouseOfSuburbia on Tue Oct 16, 2007 at 12:00:50 PM PDT

      [ Parent ]

    •  Transaction costs can eat (0+ / 0-)

      up 10% of the property value.

      Selling under pressure can cut the sales price by about 5%.

    •  Agreed, This Diary Is Bad (2+ / 0-)
      Recommended by:
      Sparhawk, CA Libertarian
      But despite the catastrophic consequences to homeowners, there has been more sympathetic press treatment of investors in hedge funds that bet wrong by buying securities backed by subprime mortgages than there has been of families losing their homes.

      There has been lots and lots of sympathetic coverage of homeowner problems. To pick out a single article that has the lenders as its focus and try to claim that there has been more sympathetic press treatment of investors than homeowners is pure BS.

      Approximately 72 percent of subprime mortgages from 1998 to 2006 are refinances, not loans to purchase homes. And less than ten percent of subprime loans are to purchase first homes.

      Maybe someone who is sharper with search terms than I am could help me pinpoint where in the linked report this stat is to be found.

      Anyone who has ever been to a closing knows that the borrower sees the documents for the first time at closing and then signs ten or fifteen documents in about two minutes.

      This is the biggest purchase most people will make in their lifetime. Are most people really so dumb that they haven't demanded copies of all documents that they will be signing well in advance of the closing and had a lawyer review anything they don't understand?

      -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

      by Skjellifetti on Tue Oct 16, 2007 at 01:45:32 PM PDT

      [ Parent ]

    •  Really? (0+ / 0-)

      Since any asset is worth what people are willing to buy it for, and many people were paying top dollar for houses, so how was a house buyer to know that the value that matched other 'comparables' in the area was inflated?  Just wondering.

      Happy the man and happy he alone--he who can call today his own ... John Dryden

      by ohiolibrarian on Tue Oct 16, 2007 at 02:19:39 PM PDT

      [ Parent ]

      •  See (0+ / 0-)
        The section on rent measures, particularly the bit about owner's equivalent rent. There are many ways of valuing assets besides using comparable market prices.

        -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

        by Skjellifetti on Tue Oct 16, 2007 at 08:56:07 PM PDT

        [ Parent ]

        •  And the average consumer is supposed (0+ / 0-)

          to know about these ... how?  Real estate 'professionals' use comparables. So naturally, people (who expect to be guided by the many professionals involved) are expected to seek out information that they don't know that they need. Otherwise they are at fault for not being experts in an area in which they do not claim any expertise and after they have actually hired people who do claim expertise. Brilliant!

          Happy the man and happy he alone--he who can call today his own ... John Dryden

          by ohiolibrarian on Wed Oct 17, 2007 at 06:47:32 AM PDT

          [ Parent ]

          •  In Ohio (1+ / 0-)
            Recommended by:
            CA Libertarian

            Certified General Appraiser applicants are required to have 300 hours of specific core-curriculum courses and at least a Bachelor’s degree or 30 semester credit hours in specific subjects.

            Certified Residential Appraiser applicants are required to have 200 hours of specific core-curriculum courses and at least an Associate’s degree or 21 semester credit hours in specific subjects.

            Licensed Residential Appraiser applicants are required to have 150 hours of specific core-curriculum courses.

            Having TA'd one of the appraisal courses at OSU, I can assure you that the real professionals do a lot more than simply use comparable values as the basis for their appraisal.

            I'm sorry, but I do not have a whole lot of sympathy for any consumer who is about to make the biggest single purchase of their life and is unwilling to do their homework.

            -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

            by Skjellifetti on Wed Oct 17, 2007 at 07:30:57 AM PDT

            [ Parent ]

            •  And the 'professional' that most consumers (1+ / 0-)
              Recommended by:
              NeeshRN

              encounter is not an appraiser, it's a real estate agent or broker. Who, I know, also take courses before and after licensure.

              It's also interesting that the appraisal for tax purposes and the appraisal for sales purposes often differ significantly. One would think that they would be the same if done during the same year, but strangely, not.

              And of course, the consumer usually gets the appraisal filtered through the agent or the lender in the form, "based on the value of the house and your credit, you qualify for a loan of x". Of course, if "x" happens to be  more than the appraisal actually says the house is worth, that can be a little problematic. Or if the appraiser inflates the value of the house, which has been known to happen.

              Silly consumer ... how foolish to believe that so-called professionals will be both competent and ethical in their dealings. Obviously, fools who trust people whom are being paid for their knowledge and who ostensibly have an interest in providing an honest service to a customer, should be cheated unless they double-check and second-guess the assertions of the so-called experts. Got it.

              Happy the man and happy he alone--he who can call today his own ... John Dryden

              by ohiolibrarian on Wed Oct 17, 2007 at 08:54:53 AM PDT

              [ Parent ]

              •  Huh? (1+ / 0-)
                Recommended by:
                CA Libertarian

                A consumer who is about to take on a multi hundred thousand dollar loan is stupid beyond belief if they have not done their homework. Personally I think we should blame the current real estate mess on librarians who failed to make books with titles like "How To Buy A Home Without Getting Screwed" available to anyone for free who is about to make the biggest purchase of their life. Oh, wait! They do make such books available! WOW! You can even learn the basics of real estate appraisal! Aren't those librarians great!

                Nothing in life is free. I can pay taxes to support libraries and librarians or I can pay taxes to support regulators who will hold the hands of people who are too lazy to do their own research (which has the side effect of increasing the cost of loans and real estate transactions for those of us who would have willing to do our own research). I am not willing to pay for both. Which would you prefer? Personally, I choose to support libraries and librarians.

                -- You are all individuals! -- I'm not! -- Shut up! Be quiet!

                by Skjellifetti on Wed Oct 17, 2007 at 09:48:24 AM PDT

                [ Parent ]

                •  People can also read neighborhood sales summaries (0+ / 0-)

                  I get at least one every week from local realtors (which would cover the refinance case).  Detailed sales data is also commonly published in the newspaper real estate section.  And of course any realtor will give you a dump of recent neighborhood sales data if you ask.  There's just no excuse for not knowing local market conditions.

                  Do not ever say that the desire to "do good" by force is a good motive. Neither power-lust nor stupidity are good motives. - Ayn Rand

                  by CA Libertarian on Wed Oct 17, 2007 at 12:21:48 PM PDT

                  [ Parent ]

  •  Fantastic piece (0+ / 0-)

    Thank you very much for sharing this.

    It is beyond my comprehension how lawmakers such as Ney could not be interested in their own constituents well being.

    He should have allowed you more time or even better, taken up the questioning where you left off. How could he do this to his people and sleep at night?

    If this exchange was relayed to his constituents, who would ever vote for him?

    I was happiest as a heathen.

    by MouseOfSuburbia on Tue Oct 16, 2007 at 11:57:25 AM PDT

  •  I greatly appreciate your stopping by (1+ / 0-)
    Recommended by:
    NeeshRN

    However, please don't think that the problem is only one of disclosure.

    Black folks and immigrants were being savaged by financial wolves and they were often deeply aware of every bite while others averted their eyes and spent the government's cut of the action.

  •  Representative Miller (2+ / 0-)
    Recommended by:
    AnnCetera, New Mexico Dem

    I have but one thing to say.  Thank you.

    Greensboro, NC, 10-16-2007.

    Another day, another devalued Dollar. -6.00, -6.21

    by funluvn1 on Tue Oct 16, 2007 at 12:46:34 PM PDT

  •  Where did all the right wing trolls come from? (5+ / 0-)

    My wife gets a headache trying to read 1 page of legal documents.

    95% of the people do not have the knowledge necessary to read legal documents, and a lot don't know they need to get a lawyer when they don't understand it....  They just figure that things will work out...  They are optimistic.

    And they are taken advantage of mercilessly by the finance industry, cause they know what people are like.  And the finance industry is mostly responsible for lending money to people beyond their menas to repay.

    Rick
    08 - Leaning Edwards, Kucinich, Gore, Clark, Obama
    -9.63 -6.92
    Fox News - We Distort, You Deride

    by rick on Tue Oct 16, 2007 at 12:55:05 PM PDT

  •  Thank you, Rep. Miller (4+ / 0-)

    For an enlightening history of the credit mess.

    It's too bad this very interesting diary was hijacked in the comments by the words "bailout" and "personal responsibility."

    I wish people could understand the difference between discussions of policy that attempt to solve widespread economic problems, and discussions of personal economic and moral decision-making.

    Why can't we be saying "yes" to personal responsibility and also "yes" to regulating what are clearly predatory  lending practices? In fact, I think we can say "yes" to personal responsibility AND "yes" to offering some assistance to people on the economic rocks. These are not mutually exclusive, though there are those in this discussion who have strongly and diligently implied as much.

  •  Shameful. Thanks for this diary. nt (0+ / 0-)
  •  sweet delicious snark (0+ / 0-)

    Yes, industry argues that they want a borrower to be free to choose a higher interest rate than what the borrower qualifies for. It’s an unusual choice for the borrower, but industry cares enough about their borrowers that they’ll fight to protect it.

    Well done sir.

    And in all seriousness, your effort in truly looking out for the customer, and truly bringing clarity to deliberately murky waters are greatly appreciated also.

    "Think. It ain't illegal yet." - George Clinton

    by jbeach on Tue Oct 16, 2007 at 04:57:13 PM PDT

  •  Mortgage Brokers Should Be Lawyers (0+ / 0-)

    the same as for attorneys. Or perhaps only attorneys should be mortgage brokers.

    I don't really understand how it is that someone who is NOT an attorney can legally give someone advice on a financial contract. If I give someone legal advice, I'm practicing law without a license: a felony.  For some reason brokers are allowed to represent themselves as giving advice without running afoul of the same laws, and I'm not sure that's a good thing.

  •  Remember that the stuff happening this year... (0+ / 0-)

    ...started in 2004; three to five year ARMs.  And the hot buying of properties didn't stop until summer of 2006, so there are ARMs given to questionable buyers in 2005 and 2006 which will continue this problem for another couple of years.

    I notice Home Depot is about out of business and Lowes is not doing much better, and the ripple effect from this issue will surely sting the economy for at least two more years.

    Let's see what the spending is during Xmas this year which will send a signal how tight money is in terms of affording high mortgage payments...

    Hoping we can do better before we annihilate ourselves...

    by OldManOnFire on Wed Oct 17, 2007 at 07:43:57 AM PDT

  •  One other comment on this... (0+ / 0-)

    I believe the property appraisers should be investigated in terms of did they appraise an actual property value or did they always try to hit the price target to enable the mortgage to work???

    And in satisfying the mortgage company and the buyers, did they further inflate the prices to avoid the 80% loan ratio of which an additional insurance is required if this is not met???

    I believe the realtor association should also be investigated in this mess!  In my opinion it's a trifecta!!  The mortgage company, the appraisers, and the real estate agents work together to fill each other's pockets!!!!

    Investigate...investigate...investigate!!!!!!!!!

    Hoping we can do better before we annihilate ourselves...

    by OldManOnFire on Wed Oct 17, 2007 at 07:51:47 AM PDT

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