Over the last few months i have heard numerous news stories on the radio, TV and internet about the increasing number of foreclosures. Yes it is sad that people are losing their homes. Should the government step in and do something about this...... i'm really not convinced. Now I have NEVER EVER bought a house. But i would imagine there is a fair amount of paperwork that needs to be signed. I'm sure that mortgage companies are not allowed to keep the monthly mortgage payments a secret in that paperwork. I'm positive that a prospective buyer needs to read through the papers before they sign them. But somehow people are "shocked" at their rate increases! Enough already!! If you did not read the paper work before you bought the house, that's your fault, not the mortgage company's. If you were so enamored with buying a home that you didn't care about the rate increases, then again, your blame on the mortgage is unfounded. Should the government bail you out? No!
I do feel for those how have hit, for lack of a better expression, a run of bad luck. Lost your job, haven't been able to find a new one etc. That is sad, but i still don't think the government should be the one to bail you out. Sell your house before the bank takes it back, and rent something smaller until you can get back on your feet again.
Our culture -- both Canada and the United States -- is so fixated on the material. We want stuff. We want land. We want to own. None of those are necessarily bad things. Goodness knows i would love to buy our own place. But sometimes those dreams just aren't realistic and we need to deal with that rather than spending outside of our means. And perhaps, finding a roommate can help with the housing costs. This lust after the material needs to stop and we need to stop looking to the government to fulfill our every desire or bail us out when we screw up.
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Well I agree to a point - but the problem is that banks have been irresponsible. The cost of borrowing has increased because banks simply passed off bad debt on each other in a hope that they would not be the ones carrying the can. This was ok when things were going well. All banks have overstretched themselves and as a consequence banks stopped lending each other money.
In an effort to meet demand and grow banks borrowed huge sums of money from each other, they then passed off mortgages for up 125% the value of homes. Banks cannot repay the loans which they owe and as a consequence it is the small home owners who suffer. A sub-prime mortgage is one were the bank lends the money knowing that the person will probably default, but they do not care because it means that they have an asset which can be traded off and they can borrow more money. Consequently individual loans were not used as leverage it was the entire mortgage portfolio of the bank. This means that small pieces of the bad debt is distributed among all the banking sectors like a cancer and has led to the situation we are now in of banks calling in loans on each other. When that happens the banks call in the loans on the ordinary person.
Rightly in our society banking is an industry in which the government gives special protection to the ordinary person. The problem in the credit crunch is that banks have been irresponsible, yet it is the ordinary person who pays the price. I never knew, nor was I ever told when I took out a mortgage that my rate (my first mortgage was 4.5%, my second was 3.9% and the last mortgage I took out in 2003 was 3.1%) that I was merely leverage for the bank to grow and increase its share price. I did not know that my discounted rate was merely a device for the bank to get richer and that they didn’t care if I sank or swam.
The banks are to blame and not the average person on the street. I really feel sorry for those who have been badly let down by bankers who just wanted to make a fast buck. I do not know how we sort it out, but I think it is a tad harsh to blame ordinary people who maybe didn’t foresee a 2% hike in mortgage rates because of incompetent bankers. The banking industry needs to be held to account!
Anon:
First, while you understand the securitization of mortgages, your assessment that small homeowners have their mortgages called is erroneous. Default is the only legal way a bank may call a mortgage.
Second, there is nothing wrong with expanding assets by making loans, the problem is making loans that will not repay. Banks do care if loans go bad because regulators seize banks and investigate officers for impropriety.
Third, not foreseeing a 2% increase in an ARM is irresponsible. Mortgage documents must bear on the face what payments will be.
Finally, I agree that banks are responsible for not doing their duty to vet applicants. However, the borrower agrees to repay as a responsible member of the community. It is your money and my money that is being loaned to these people. Asking me for money knowing you cannot repay is immoral.
As someone who has purchased and financed 3 homes in the past, I can tell you that the various stipulations and conditions of the mortgage loan are clearly enumerated and spelled-out (by law!) on the good faith estimate and then again on the final loan documents. Accordingly, this recent government action amounts to nothing more than a colossal "do over," a get-out-of-jail free card--a redistributionist exercise of unprecedented proportions. Marx would be so proud!
Sorry if I wasnt clear - it is not that the bank calls in the loan, it is that due to their incompetent mismanagement people are required to pay more than was reasonably expected. The foundation of the credit crunch is the banks lived for today and did not care about tomorrow. The net result is the little guy loses. Ok so they should have read the documents, but that is not the real point. Banks have grossly mismangaed and yet they only take a hit in share price.
I think the government should step in. Not to give financial aid but to make the banks live up to their obligation and negligence. People should be allowed to renegotiate their mortgages. Much of the problem could be offset by people being allowed to add a few years to their mortgage period. This would reduce payments and would allow the banks to retain the loan.
The fact remains that banks did not care if people could pay the loan back or not - thats the central issue. The knew they were secure. Ok so they did not give out insane loans outside banking regulation, but they pushed it to the limit.
It is central to the neo-liberal vision that people are granted owner occupier status - I am therefore surprised (given other blog posts) that you are not in favor of people keeping their homes? I agree government finance or the nationalisation of banks is not an option, but as a government I would want to keep people in their houses, it increases wealth and increases the chances of conservatism to survive in office. Home owners tend to vote Republican, so lets start working for the home owner - goodness knows Obama is getting enough publicity with his European tour (and given the endorsment of his Iraq withdrawal by the Iraqi PM) the Iraq advantage is fast vanishing.
Perhaps McCain should start to fight for the lower middle class - start by fighting for their homes and their gas.
Drill here, drill now. McCain is the only candidate wanting to secure our energy independence and security. Like many on the Left, Obama actually wants gas prices to go higher! "I would have preferred a gradual adjustment (to higher prices)." Now that's real leadership for ya! (LINK: http://www.youtube.com/watch?v=Gehaf7_TBAs)
http://www.americansolutions.com/actioncenter/petitions/?Guid=54ec6e43-75a8-445b-aa7b-346a1e096659
Hey, kudos to one of the anons. At least you (and about 5 others on the planet) know how to correctly employ the term "liberal"--in the classical sense of the word.
thanks fellow anon
We never said that we were in favour of people losing their homes. It is a tragic event however it happens. I just don't think that it is appropriate for home owners to be bailed out by the government.
The reality is that Banks do not want bad loans. Bad loans means loss of revenue. too many of those and a bank will fold. So to purely blame the bank for being profit oriented to the point that they didn't care whether people could pay them back or not is an unfounded position.
If there are regulations that are required then the gov't should put those in -- i.e. allow to renegotiate mortgages etc, then fine. And i'm sure that is happening as well. But at the end of the day, it isn't prudent to place all of the blame on the shoulders of the lenders. People who take out the morgages need to take responsibility for the money they owe.
By the way.... republican and conservatism do not necessarily go hand in hand. We are politically conservative, but that does not necessarily line up with republicanism.
The problem is that banks do not care if they have "bad loans" thats the problem. Negligent banking practise has led to this problem. In a mortgage situation the bank is the one with all the cards. If you have a mortgage, legally speaking, the bank own your house. You merely have an equitable interest.
So when it all hits the fan the bank call in their legal interest. The banks lent money simply not caring if the person could pay it back. Thats why the bank is to blame. Okay so the government should not intervene to fiscally bail out the people, but it must intervene to hold the banks accountable for their negligent investment. Surely thats only right and proper? blame should rest with the people who causedthe problem i.e. the banks
By hitting the fan I mean that the person is forced to default on the loan because the bank have raised interest rates to pay for their negligence in the finacial markets meaning that the ordinary person can not pay their monthly repayments. The bank foreclose the mortgage and take the house.
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