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Assisting the Foolish, Punishing the Responsible
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RMG
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PostPosted: Wed Apr 11, 2007 2:16 pm GMT    Post subject: Assisting the Foolish, Punishing the Responsible Reply with quote

http://www.boston.com/business/articles/2007/04/11/plan_will_aid_those_facing_loss_of_homes/
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admin
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Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Wed Apr 11, 2007 2:52 pm GMT    Post subject: Reply with quote

In addition to the points made in your subject as to the negative effects of bailing out overextended borrowers, such a bailout would also prolong the necessary correction. A correction which brings housing prices back in line with their historical relationship to incomes and rents is sorely needed in order to restore some level of competitiveness to Massachusetts. Enforcing lending agreements may be painful for those borrowers who overextended, but subsidizing them will bring the pain to everyone and for a greater period of time as it will slow down the natural market forces which are already working to correct local imbalances.

I also find the thought of privatizing profits while socializing risk distasteful. There was certainly a large speculative element to the housing boom of the last several years, and profit does not come without risk. Those who stand to reap the reward should be the same as those who take the risk, otherwise the state serves to encourage irresponsible and fraudulent behavior. (This isn't to say that everyone facing foreclosure participated in this behavior, just that this is the general effect.)

There is a form letter at http://patrick.net/housing/contrib/nobailout.html which could serve as a starting point for those wishing to contact state legislatures on this subject. It could probably be customized a bit to reflect the situation in Massachusetts better, as the state's competitiveness is being acutely affected by high housing prices, which are finally beginning the process of self correction. I don't have time at the moment to look up who the appropriate people would be to contact regarding the panel's proposal in the Globe article, but if somebody else knows, please post here.

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RMG
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PostPosted: Wed Apr 11, 2007 3:19 pm GMT    Post subject: Reply with quote

Thank you for the comprehensive assessment and economic facts in regard to this potentially harmful bailout. Your points are exactly my points. I thought my subject title and link to the article posted at Boston Bubble was all I could muster at the time, as I was very, very angry.

Can you imagine if this bailout keeps these artificially high home prices, which is causing all this financial pain for millions, to stayt where they are and perhaps go right back up?

...that may very well be the fate for a country, and this region in particular, that couldn't afford these prices anyway. What an absolute nightmare scenario for responsible, middle class americans.
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showgunx



Joined: 14 Jul 2005
Posts: 60

PostPosted: Wed Apr 11, 2007 3:49 pm GMT    Post subject: I am not worry Reply with quote

I think the bail out action will kill itself as the situation of housing crashes get worse, how much fire can you kill off with just a drop of water? The stupid and greedy politicans who support the bail out idea are mainly looking for popularity, not the general good of the commonwealth. I have no respects for these A-holes. I bet they will shut their months once they see the market is helpless in the next 2 years. Wink
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comma
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PostPosted: Wed Apr 11, 2007 5:18 pm GMT    Post subject: Reply with quote

People on here seem to suggest that there is no responsibility to their community, neighbors, etc. Although it is easy to say that this was caused solely by greedy leeches who wanted to buy a house they could not afford, the truth is that there are myriad reasons why people are falling behind right now. Some expected to get higher salaries, some may have had misfortune, some were living on a fixed income and are now pushed out by property taxes, some were duped by non-regulated mortgage brokers, and lazy lenders, and yes, some where hoping for a free lunch. However, it is morally irresponsible to say that because there were free loaders we should turn our backs on everyone else. Furthermore, a major "market correction" would have the effect of lowering property values for everyone. So, as a result, if you are looking to buy it may be good for you, but if anyone you know owns a house they have just suffered a major loss of assets. This also has major negatives for the state as well. Yes, Mass's housing market is too high. However, as a Mass resident we all have a duty to ensure that the govt does what is best for the state, and a "market correction" may not necessarily be what is best.
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admin
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PostPosted: Wed Apr 11, 2007 5:49 pm GMT    Post subject: Reply with quote

Quote:
People on here seem to suggest that there is no responsibility to their community, neighbors, etc.


I don't think you can equate the desire to not want to support other people's financial mistakes with a lack of concern for community. It is a false dichotomy to say that the only options are subsidizing housing that is beyond the borrowers' means and doing nothing at all. Just as an example, adjusting state bankruptcy laws to better allow these borrowers to make a fresh start could be just as helpful to them in the long run. Why isn't that under consideration? Is it because that would only help the community, neighbors, etc. and not the 50 lenders who were on the panel? It seems to me that propping up faltering mortgages does a lot more to help the lenders than the actual borrowers.

Quote:
So, as a result, if you are looking to buy it may be good for you, but if anyone you know owns a house they have just suffered a major loss of assets. This also has major negatives for the state as well.


How is that bad for the state? A higher asset price doesn't do you much good until you sell, and I would guess that those who sell their primary residence are generally going to be trading up, in which case lower prices would help them trade up even more so.

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john p



Joined: 10 Mar 2006
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PostPosted: Wed Apr 11, 2007 6:13 pm GMT    Post subject: Reply with quote

I lived in an absolute rathole apartment to my mid-thirties so that I could come up with a down payment and get my fundamentals in line with buying a house. I waited in the long line and for those that didn't want to wait; you'll have to back up and stand in line like everyone else. If you didn't deserve what you had in the first place maybe you're not entitled to it and have to build it on your own like everyone else that plays by the rules.
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comma
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PostPosted: Wed Apr 11, 2007 6:25 pm GMT    Post subject: Reply with quote

I agree with you that a change in Bankruptcy Laws might be beneficial. To be honest the recent federal change to the Bankruptcy Laws has made it tougher for people caught in this crisis. Furthermore, foreclosure laws should be changed as well. Today in Mass you have more rights as a tenant being evicted than you do as a home-"owner" being foreclosed upon. That seems ilogical to me, if you are being foreclosed upon you should be able to challenge that foreclosure in court. Regardless, a loss of "assets", aka equity, is a fairly big deal. Equity lines of credit have been used to fund the economy by helping familys pay for college, home repairs, and other immediate needs. Furthermore, since home equity is often an elderly individuals only major asset, any downward spiral in the value of that asset leaves elders in a severly worse position than before, with little ability to work and make up the difference. If you the cost of your house is cheaper, but you are now paying for your parents to live, has the situation improved? A downward loss of assets also severly effects some neighborhoods over others. Often the poorest neighborhoods are hit hardest. Some of our former mill towns who have made great strides in recent years will be severly effected by a drop in assets out of the community. Questionable areas like Lawrence, Brockton, Springfield, and Lynn could be severly hurt by a drop in home prices because of the inability for residents to tap into their equity. Have you forgotten that in the early 90's Lawrence was known as "arson city" for the number of houses burnt down because of the real estate dip in prices. These acts have pyschological effects on whole areas, and neighboring towns. You are also assuming that people "trade up" when they sell. Many elderly individuals are taking out reverse mortgages not to "trade up," but rather to remain in their homes. Other, younger, empty nesters are trading down because they don't need the room. My only point is this, housing is too high here, the govt has to look at all of the options on the table: bankruptcy laws, foreclosure laws, mortgage broker regulation, ensuring predatory lending is stopped before it occurs, possible changes to loan terms for some people being foreclosed upon, and some normal market correction. But to say "market correction" is the sole answer is a cop out. Sorry for the rant, and I really do appreciate the site.
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Wed Apr 11, 2007 6:48 pm GMT    Post subject: Reply with quote

I say let 'em hang.

If you are not smart enough to get a second opinion from an outside lawyer or another learned individual not directly benefiting from the largest purchase you're likely to make, then you're a fool. If you don't do your due diligence, then you should have to suffer for it.

Part of it, I blame on our drive-thru culture where we gotta have it now, no money down, 100% financed, drive it off the lot today ... what can I do to make this deal work sort of society. No sense of patience and no foresight beyond the next year or two.

That said, it's never a bright idea to throw good money after bad. Besides, bankruptcy and foreclosure is only a 7-year delay ... hardly insurmountable considering it takes 6 years for a ticket to fall off car insurance in this state.
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garyk
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PostPosted: Wed Apr 11, 2007 6:57 pm GMT    Post subject: Reply with quote

I too read the Globe's article with horror. First thing I did was email the governor and my state representatives. I encourage everyone to do the same.

However, I say the state should help people facing foreclosure. Just that the state should not help them stay in their homes that they can not afford. Let the state help them make the transition to housing they can afford. If that's a tax break for moving expenses, or similar, that is ok.

Also, given that some people in this situation are truely responsible, and were duped by predetory lendors, the state should assist in individuals keeping their credit history clean from this mess. I am not sure how much control the state has over credit ratings, etc, but its a better approach.

Let the government help move things back to where they should be, and quickly. Not prolong the misdeeds of the past.

Given how much concern there is over the prices of housing in the state, and how that is affecting population, jobs and competitiveness, it is crazy for the government to adopt policies that will keep prices artificially inflated.
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admin
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PostPosted: Wed Apr 11, 2007 7:06 pm GMT    Post subject: Reply with quote

Quote:
To be honest the recent federal change to the Bankruptcy Laws has made it tougher for people caught in this crisis.


I was wondering if anybody else remembered this. If I remember correctly (and it's possible that I don't), the law was changed to make mortgage debt survive bankruptcy, and very conveniently this change occurred at around the same time that the creative financing started to explode into the mainstream. I suspect that the lenders knew where the looser lending could head and preemptively lobbied to have the bankruptcy laws changed while the market was hot and foreclosures were not on the collective consciousness.

Quote:
My only point is this, housing is too high here, the govt has to look at all of the options on the table: bankruptcy laws, foreclosure laws, mortgage broker regulation, ensuring predatory lending is stopped before it occurs, possible changes to loan terms for some people being foreclosed upon, and some normal market correction.


I am not saying that a market correction is the sole thing to consider here. All the items that you listed sound worth exploring. What I would like to see taken off the table is the suggestion from the Globe article that "the state could offer smaller sums for borrowers to pay down a portion of their debt" as well as loan subsidization paid for by the state. Those options would present a moral hazard and are also particularly beneficial to the lenders rather than just the borrowers because they 1) subsidize the lenders' revenue and 2) keep the borrowers on the hook longer than options like bankruptcy (at least the old fashioned kind). I would much prefer the options which solely benefit the individuals and communities, especially since the lenders had the foresight to lobby for bankruptcy law changes as they were ramping up the types of loans which are causing problems now.

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Phil O. Math
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PostPosted: Wed Apr 11, 2007 10:58 pm GMT    Post subject: NO to bailout Reply with quote

By no means should more of our tax dollars be spent to help people remain in a suboptimal housing option. Renting is cheaper than owning right now so, if anythng, we should help people with moving expenses or that all-important first and last month's rent.

The government is already sponsoring homeownership via the deductibility of mortgage and home equity loan interest - when will it end?

The unaffordability of housing right now is of great detriment to the state and MY tax dollars should NOT be spent to support housing unaffordability.
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mbr
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PostPosted: Thu Apr 12, 2007 4:47 am GMT    Post subject: Mortgage Bailout Reply with quote

I did a very simple cost/benefit analysis of buy vs rent - no fancy NPV or anything like that, I just calculated given my current rent payment, and given a certain property price with 10% down and standard points/closing costs, how long it would take to truly break even - that is to say, selling the condo for the price I paid. Remember, you have to recoup the closing costs, points, realtor fees to resell, etc. even just a $150,000 mortgage @ 5.75% fixed would take me 5-6 years just to get to break even, depending on condo fees, taxes, etc. I do have fairly reasonable rent, but even so, it makes me think twice about what to do. Meantime my total housing payment is considerably higher than my rent. And as the mortage goes up, the break even point pushes out fast. With a $250,000 mortgage, I wouldn't break even until 2025 (!) unless I was able to pay down the mortgage substantially along the way - which would be hard when the payment is already $$$$.

Now I'm a single guy with different needs than a family who would really benefit from home ownership...but it would take a heck of alot of intrinsic value to make me want to buy anything major right now.

It's a very sad state of affairs to see so many people pushed into loans they could not afford. I think blame is shared by all parties, the lenders, the borrowers, and the government for not setting stricter standards for mortgage lending.

However, what galls me the most is that what will likely happen is everyone involved in this boom that made so much money will keep it, perhaps being made to feel a little guilty is all...whereas the taxpayers will have to put up the money (that we don't have) to bail people out. Now I know there are honest people in lending and real estate - I'm not trying to lump everyone together as bad. But they most certainly did encourage people to buy - the line we've all been fed for years is it's always better to buy, build equity, "why rent"...well that was when prices were consistently going up.
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PermanentRenter
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PostPosted: Thu Apr 12, 2007 12:35 pm GMT    Post subject: Reply with quote

Speaking as someone who has largely been priced out of the NE housing market, in no small part due to prices being bid up by people using these irresponsible loans, I think it's pretty insulting to now be asked to bail these people out (the players on either side of the transaction). Not only do I feel like I've been denied the opportunity to own a home for the forseeable future (at least one that I can buy with responsible financing and within 50 miles of my workplace), but now I'm being asked to pony up money to help keep prices high and seal my own fate. Furthermore, if this mess manages to tank the economy, I could be adversely affected through layoffs, etc., even though I don't own one dime of real estate. Perhaps I'm being irrational, but I feel thoroughly screwed and not really in a charitable giving mood.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Apr 12, 2007 1:31 pm GMT    Post subject: Reply with quote

You're not irrational. Sometimes the emotions do the talking when you're in shock at the absurdity of something. It takes two to tango.

In a society, people need to know the rules of leadership and the rules of followership. You can't let people play "Mickey the Dunce" and get away with playing a victim the same way you can't grant people a license to practice in your society without asking them to take a more responsible leadership role.

It is an insult to those who play by the rules to have to bail out those that overextended.

Isn't this what we have PMI for? I wonder if the insurance companies are behind some of this?
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