The Federal Government, after reducing the interest rate at a historic rate, is now trying another method to bolster the sagging economy. Earlier this week, Federal Reserve Chairman Ben Bernanke endorsed a need for the government to intervene directly to reduce the amount of foreclosures continuing to sweep the nation’s housing market.
His plan is to call upon lenders to allow deep cuts on loan repayments or for the government to slow the pace of the foreclosures. The government’s actions then would be based on the fears of more widespread financial trouble. To see what he had to say, and whether the government should be bailing out homeowners, read more.
According to Bernanke:
High rates of delinquency and foreclosures can have substantial spillover effects on the housing market, the financial markets and the broader economy, therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.
This will prompt many to question whether the government is in fact rewarding risky financial behavior by bailing out as well as overriding the legality of the contracts involved in the loans. So far the central bank has reversed an age-old policy to remain uninvolved in such matters by proposing rules to protect consumers from “unfair and deceptive mortgage lending and advertising practices”.
The new numbers indicate that trouble is wiping its feet on the welcome mat. Nearly two percent of America’s 50 million-plus mortgage borrowers were three months or more behind on their payments in 2007, up 50 percent since 2004. There have been 1.5 million foreclosure proceedings last year, up 50 percent from the previous year and that number is expected to climb this year.
Next week the House is considering a broad housing package that includes a $7,500 credit for first-time homebuyers, and bills to overhaul the FHA and more tightly regulate Fannie Mae and Freddie Mac. Are the economic ramifications of the mortgage mess big enough to require a bailout? Are we rewarding irresponsible borrowing by doing so? Are you more concerned with the impact on collapsing communities and the corresponding health risks from rampant vacant dwellings? Whose side are you on?
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Yeah, it was irresponsible borrowing, but it was irresponsible lending too. Sub-prime loans targeted those that were pretty vulnerable to begin with, financially speaking at least and probably in general too. Bottom line is we need to fix it. The economy's in recession and vacated housing is a drain on tax dollars (if the housing/lots are getting their lawns mowed and trash cleaned up by the county, if not that's a whole other set of problems), it attracts crime, and it can make a good neighborhood a bad one in no time. I don't know the specifics of his proposal, but as this is a new problem, let's start trying solutions and see what works because the first try probably won't be a sure fix.
This year I was an intern with our county health department and our new mayor is making vacated housing one of his top priorities. In our city there is an entire subdivision - of nice, new houses - that is vacated. It's a huge drain on our funding, which just got dramatically cut, and there are too many empty lots to keep maintenance on. Plus I've found trying to refer a client to a homeless shelter is near impossible because they're all full and have been for months. It's a big problem, and I don't think ruminating on the principle of the thing - if we're "rewarding" bad financial behavior - is important. It's crippling our economy and our communities, so something just needs to be done.
1The House is voting on the housing package today... stay tuned!
2well they've got NAR on their side...
3(national association of REALTORS) I forget sometimes that acronyms tend to run wild (much like the liberals at night)
4
syako!
5is everyone sleeping in from the primaries last night?
6Must be! I went to bed after South Park, which funnily enough, was the one that spoofed the 2000 election and all the recounts...
7i'm still sleeping because I was knocked out on allergy meds, but I'm slowly emerging from slumber!
so, why is it again that people are having so much trouble with their mortgages? sy, please fill me in. Is it because of their adjustable interest rates, or hard times in general? or that they couldn't really afford what they bought to begin with?
8awake from your slumber, arise from your sleep, a new day is dawning, for all those who weep...
sorry, church song.
9IMO the government needs to let the housing market correct itself. I'm sorry that millions of people are going to lose their houses, but it's not the governments responsibility to bail them out because they made horrible financial decisions.
Obama picked up 19 delegates over Hillary. How does she spin this as a victory?
10I am not well-versed in the topic AT ALL. I just know that NAR has a huge lobby in D.C. and they have been working really closely with Congress trying to pass and not pass certain legislation. If you want more of their stance on it go to realtor . org and then click on Government Affairs (I'd put the link but it would get flagged)
11Me loves me some deregulation!
12anne: well said. we do have to do something to prevent more homeowners from losing their homes to foreclosure. part of my job is analyzing housing stats and i saw this on the horizon almost 2 years ago. we were all confused because foreclosures were creeping up, but home values and sales were still skyrocketing. solutions to problems like this that affect every part of our economy are never simple, and on its surface it does appear to be a bailout, but the alternative is not something we want to see in america: empty neighborhoods, more and more people putting a strain on public services, further job losses.
i think the fed's proposal will do some good, but there also needs to be some accountability in the lending industry. mortgage brokers and real estate appraisers who purposely jacked up home values to raise their own commissions should be penalized - maybe they should be responsible for the loans that are foreclosing due to their shady practices.
13my mortgage is the first thing that comes out of my bank account each month. I was fortunate to have a good down payment, get a decent rate, and find a good deal. I just don't understand not being able to make your payment each month, unless you lose your job, or your interest rate has just skyrocketed. there are bills you can juggle or eliminate that won't get you kicked out of your home. Cable, even electricity. I just keep thinking of all the circumstances that could lead to a person not being able to pay their mortgage, and I agree that they are unfortunate. I just wonder how many people's problems have to do with personal finance and bad decisions.
14And I am not discounting shady lenders, and the part they play here. I'm just trying to wrap my head around it!
15Bush just said he's going to veto the foreclosure relief package. Compassionate Conservatism at it's best.
16Depends who you're compassionate about.
17"there also needs to be some accountability..."
YES!! With CITIZENS!!!
18here's what happened.
lets say you're going to refinance your house to add a bathroom, or to pay for a medical expense, etc. you choose to do it in a good market (about a year ago) to get the most out of your loan. the appraiser came in and told you your house was worth $800k. you're thrilled because your original loan was only $450k.
you feel like you're the smartest guy in the world because your investment has now almost doubled. the appraiser works with his buddy the broker and they set you up with a second mortgage for $350k, an ARM with zero closing costs and interest only for the first year. you are worried because that's a lot of money, but you're not a real estate expert, so you ask your broker and appraiser, "are you guys sure this is a good idea?" they say "oh yeah, the market is on fire! home values don't go down in this market." you trust them because THEY are the experts, they are the guys you are paying to help you make decisions.
so you take the loan. you get the new bathroom, and you add a fourth bedroom - to further increase the value of your home... you buy your kid his braces, whatever... you spend the money, because your house is a bottomless pit of value - and like the broker told you, it's never going to lose value.
and then, BOOM! the housing market collapses and suddenly your house isn't even worth the original $350k you took out on your original loan. now it's worth $279k. now you owe on two mortgages that equal just about triple the value of your home. and then BOOM! the rate adjusts and now the interest ALONE is more than your original mortgage payment was. what do you do? do you think "gosh, i sure made a big mistake. i guess i should have gone to school to get my real estate license before purchasing a home" ?? no. you realize you got screwed by a huge mortgage and appraisal industry that will have zero problem calling you morning, noon and night to hound you for those payments and will foreclose your house in a heartbeat.
19i meant to say your original loan was $450k in the last paragraph. and just for a li'l perspective - some home values here in the bay area have dropped over 40% since last year.
20This is sort of like global warming in a way. Everyone is concerned about whose fault it is and how it happened and meanwhile we're all going to drown. Does it really matter that it might be predatory lending practices or poor buying decisions? We're facing inflation, unemployment and a dollar that can't buy a latte in France. Let's just fix this.
21Yesteryear - That pretty much sums it up as to how the people are get raked over in the home loan area. My argument is that the citizens of this country souldn't have to bail these people out because of bad predatory practices. Those people that fell into this trap need to file a class action suit against the companies that did this, and drive them out of business. It's not the government's job to bail you out when you fail, wether it's your fault or not.
22dave: i can see your point, and that is surely on the horizon (though many of these huge banks are already 'bankrupt') but while we are waiting for that case to go through the legal system neighborhoods all around you are emptying out and more and more people are showing up at food banks and shelters - we need to do something to help them now.
23UnDave, I feel like you hit the nail on the head- "It's not the government's job to bail you out when you fail, wether it's your fault or not."
We are so much about BLAME in this country. Oh, my parents were never home, so I am not a productive member of society, and it's their fault. Etc.
It completely sucks that people are having these issues with their homes. I feel so bad for them...but it's not the government's job to fix it. If this is an issue that you feel strongly about, go out and help those people who are in danger of foreclosing.
Also, being a compassionate conservative IS NOT having the government bail people out of every mess that they are in. It's giving to charity, donating your time, and being vocal about issues that matter.
24Yeah, charity is going to bail us out of a 300 billion dollar housing market failure. Excellent idea. Compassionate Conservatism is showing compassion by giving tax dollars to large corporations to bail them out. I think that's been fairly obvious these past seven years so please spare us the "government shouldn't bail people out" line. They bail out a lot of people. They just happen to be incredibly wealthy.
25Well we could always just raise taxes on the people who actually ARE doing the right things and then bankrupt them too...
26Guys we have to remember that this is NOT happening all over the country. In fact, in louisiana we are still in a relative real estate boom. So while it may be really bad in the Bay Area, DC area, etc. it's not a nation-wide blanketed thing.
I just wanted to add some perspective to it because sometimes we get so tied up in what's going on locally that we forget to look at the big picture.
27Racci - Compassionate conservatism is giving money to the charities that you are interested in donating to, and not paying taxes to the government so they can decide what/who they want to help. The government doesn't help the people I want them to, so I pay what little I can to help them myself. I don't expect the government to bail everybody out, but I take the time and money to help others because I don't expect the government to. Does that make sense?
28I'd just like to add that the housing market has been on a bubble for about 10 years, and needed a major re-adjustment.
29I don't think that I need to spare you the "government shouldn't bail people out" line. That's what I believe. There have been many people who have gone through hard times and bailed themselves out. Just because this is now an issue that is more common does not mean that these people should suddenly bailed out.
30Tiff, it always sounds more harsh when written. People have gone through hard times, this is true. But those people have always been the poor and middle class while the struggling people's taxes go to help subsidies major corporate interests. That just doesn't sound fair to me nor does it sound like a conservative platform to spend billions of tax payer money to help big oil, the financial industries or other private enterprises. I say if the government does bail out its citizens then it should bail out no one.
31I of course meant "does not bail out its citizens".
32We can both agree on that- I don't think that corporations should be bailed out either.
33Sorry. That' all I meant.
34No problem!
35Racci- I agree that my taxes shouldn't go to bail out corporations either.
36I agree too, Racci.
37Rac, is that your name, and is it Italian? I speak a little Italian, and I'm trying to brush up, but I always have trouble with the pronunciation of c's and cc's. are they hard c's or soft? how do you say raciccarone?
If it is not Italian, then I will just be a silly rambler.
38i always pronounce it in my head as racth-chicka-roni
but thats probably butchering it... sorry rac!
39I was always pronouncing it "rice-a-roni." Is that wrong?
40Yes. I am Italian. And Russian. And some other genetic crap thrown in for good measure. But mostly I am an American. It is pronounced (CHICK-uh-rhone). It means "guide" in Italian. My family were poor incestuous peasants from the Southeastern portion of Italy who migrated to America and then ran liquor through the sewer systems from Canada until they were "partnered" with Al Capone. Needless to say, we were then squeezed out of the business. There is a park in the Bronx named after my family "Ciccarone Playground" where I understand crack is regularly bought and sold.
Thank you for your time. Refreshments will be served in the lobby.
41because I am a nerd, I googled your playground! it looks like they renovated it.
thanks for the pronunciation and history lesson!
42Wow, this thread really got sidetracked.
43are you surprised?
44hmmm, this is a blog site for women, and it doesn't stay on topic... Any correlations?
45No. It was just so ... complete. One minute I was screaming about government subsidies and then giving a lecture on my geneology. This site ... it makes you do things ... say things you didn't think you were capable of. Dear God.
46undave: one more comment like that and i am going to menstruate all over you.
47yesteryear! GROSS!
48i know. i'm disgusting. look at me. are you surprised??
49Woooowwwwwwwwww. Yesteryear, you are the most disgusting commentor since William F. Buckley.
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