September 06, 2007
I take issue with the federal government wanting to bail out homeowners who can't meet their mortgage payments. Five years ago, when I bought a house, I had the option of financing with an adjustable rate mortgage. I could have purchased a nicer, bigger house if I had used an ARM at 5%. Instead, I made the responsible choice with a fixed 30-year mortgage rate on a house that I could afford (at an already low fixed rate of 6%). As a first-time home buyer, it was not difficult to understand that the ARM would not be a good situation in the event that I kept the house more than 5 or 7 years. And not knowing my earnings or the housing market in the future, I thought it would be prudent to protect myself from the uncertainty.
However, those people who chose to buy houses and increased their debt-to-income ratio to something on the brink of unmanageable are entitled to being saved by the government. I've read several BusinessWeek articles about the subprime fiasco, and several homeowners interviewed said they "weren't aware" of the consequences of an adjustable-rate or interest-only mortgage. This is one of the most important financial decisions you will make in your lifetime. How could you fail to educate yourself on the details of the loan? It is not anyone's responsibility other than one's own to be informed.
There are some proponents of new government regulations regarding the issuance of subprime mortgages. As much as additional regulation sucks, I think this is probably needed, since neither side of the equation (mortgage companies, mortgagees) can be responsible for themselves. The government has to come in and hold everyone's hand like little babies who still need someone to tell them what to do. Many mortgagers will allow a homebuyer's debt-to-income ratio to be upwards of 40 to 50%. This doesn't mean it is a good decision, just because a salesperson told you that you can do it.
I agree with the author of this article. I made some investing mistakes during the 2000 stock market bubble. Can I get my reimbursement check from Uncle Sam?
Posted by megabeth at September 6, 2007 10:06 AM
Why is that every time someone makes the WRONG choices in life that they can expect to be bailed out by the government? Live below sea level and fail to have insurance? Don't worry about it, if you get flooded the government will bail you out. Take out a loan that NEVER pays back any principle and suddenly find out you can't even pay the interest when the economy turns south? No problem, we have your government check right here. Blow off high school, fail to go to college and fail to earn the skills necessary to earn a living wage? Hey, it's not your fault right? Here's a check for you too.
Why even bother doing the right things when all you get is taxed to death. Might as well give up and become part of the welfare state. Everybody is doing it right?
Posted by: shadowhelm at September 6, 2007 01:32 PM
I saw a news segment a few years ago about how people could afford a lot more house because of the ARM. I specifically remember seeing one guy who said, "I can afford a much bigger house than I could normally with this rate." All I remember thinking was "Enjoy it while you can".
I locked in at a comfortable 6.5% for 30 yrs.
Posted by: Howard at September 6, 2007 02:50 PM
I don't think you'd like living on welfare. Just try not to ever earn enough money to become eligible for the AMT.
Posted by: megabeth at September 6, 2007 03:56 PM
Let me start by saying that I'm a bit agnostic on just how bit of a problem the sub prime mortgage market will be. While big media has been pumping this as the end of the world as we know it, I've seen articles by other authorities (Ben Stein among them) who argue that sub primes represent a small portion (around 11%) of all mortgages and that while the default rate on those might have risen in the past year, it represents a change of less than .05%.
So, while the problem might not be as bad as perceived, government attempts to craft a solution to the problem presented. As you said, it only serves to take that risk out of the market and insulate people from the consequences of bad choices. I think in the long run that would only serve to drive housing prices higher as those homes which would become available on the market through default, remain in private hands.
Posted by: southtrek at September 7, 2007 08:48 AM
Ah yes, the old AMT. Right when you think you made it the government bitch slaps you. Can someone please tell me how the AMT is NOT socialism at its finest?
Posted by: shadowhelm at September 7, 2007 04:50 PM
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