filed under Daily Dose
People are bigger jerks than they used to be
9:07AM ON
10/06/2008
BY
Dave Segal
Or are just more brazen about it. Tom has a great piece this week on the mortgage crisis and the underlying phenomena of which it is symptomatic — a crit of the role raw greed has played, and an analysis of the ‘personal responsibility’ phooey. This for instance:
Everyone knows that foreclosures are driving the economic crisis, but does everyone know that people falling behind in their payments isn’t the big story? According to HUD statistics, in 1986, about 5.5% of all mortgages were in arrears, and about one in 21 of those went into foreclosure. In the first quarter of this year, 6.35% of all mortgages were behind in their payments, but foreclosure proceedings had begun on one in six of those.
In the subprime markets, the delinquency rates are much higher (22% for variable rate mortgages), but the foreclosure rates are higher still (almost one in three). As late as 2002, the delinquency rates for this kind of mortgage were almost 15%, but only about one-sixth of the delinquent loans began foreclosures. (You can see a picture at whatcheer.net.)
October 6th, 2008 at 11:18AM
joe bernstein Says:
Predatory lenders and mortgage brokers with no conscience are a serious problem-granted.
Individual irresponsibility is also a problem-I know this doesn’t register with your socialist mentality,but why should someone who doesn’t give a thought to the financial burden they’re taking on merit any assistance from others?
The “advocates” including people from RI Housing drew too rosy a picture for many people who were interested in being homeowners,without really explaining the downside.
Aside from being a head in the clouds legislator,what responsibilities have you ever had where you would understand this issue first hand?I know you won’t answer,but I just like to ask.
The other ,larger problem was the speculative buying of homes with a view to “flipping” them,which was largely the province of Yuppies,not low wage minorities.Those disasters show up in and around Las Vegas and California.
A lot of people got their hands dirty on this including your hero,Bawney Fwank.
Did anyone ever hear of renting?We rented until we could afford to buy,and even then it was not easy with kids and other expenses.
How can someone making under $20,000 a year manage to drive a high end car,”own” an expensive home,and have every toy in the book(like giant plasma sets) and survive?I ran into people in this precise situation and they weren’t doing anything illegal on the side-they were just in debt over their heads.At some point the debt becomes unserviceable,and then-the shit hits the fan.Why is it any way justified to pick the pockets of responsible to finance foolish behavior?
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October 6th, 2008 at 11:35AM
Brendan Says:
Joe, personal responsibility is totally not in style anymore. Or haven’t you heard the news?
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October 6th, 2008 at 2:19PM
Marc Says:
What this statistic -doesn’t- show is how -far- in arrears houses at both periods were before they were put into foreclosure. I suspect that now that the savings rate is much lower than in years past, people who ‘fall behind’ are -much- less likely to be able to catch back up by tapping savings.
I suspect that the higher -foreclosure- rate of today is due to people being farther behind than they were, on average, than in the ’80s.
Also, remember that back then, you would mosey up the street to the bank, talk to the banker that held your deposit account -and- your mortgage and ask them to take it easy on you so you didn’t lose your savings, and they would be able to do that. Nowadays, that mortgage has been sliced-up and sold as mortgage-backed securities, there’s nobody to ask for leeway.
As for blaming predatory lenders… I’ll tell you a story…
Back in 2004, I was just finishing the start of my career, I was finally making over 40K, and housing prices in my neighborhood slumped a bit on some bad local news. I thought that maybe I’d buy a condo or a house. I went to the bank to get pre-approved. I was looking for a $120,000 condo or somesuch, just to save on taxes and pay into equity instead of my landlord’s.
So I walk into the bank, sit down with the banker, and tell her all my stats. She says ‘Wow, very good, you’ve obviously thought all of this out!’ Then she tippy-tapped at her computer and told me that I was approved for 100% financing for $400,000 if I needed it, and to go find something under that and get back to her.
Now, I sat back with my calculator and did some quick math…
I made 40K/year, about $3300/month. Between Uncle Sam, the Commonwealth of Massachusetts, and my 401k contributions, I -actually- took home about $2,400/month. The bank just approved me for a loan that would cost me $2398/month at 6%, which is still a historically low interest rate. I asked her how she figured I could spend 99.1% of my income on my mortgage, and she said “Oh, don’t worry, it won’t cost that for a few years, the first few years we’ll go easy on you and your payments will be much lower, since you’ll only be paying off the interest on the ‘first’ mortgage. By the time you have to pay the full amount, you’ll be making more money.’
Needless to say, I kept renting, and still am. Who would get themselves into a half-million dollar deal where you’re literally -betting- your house and credit on making significantly more money in five years?!? What kind of bank is -betting- on their clients making twice as much money in five years as they are today?
One can’t point their finger solely at the lenders -or- the borrowers in this meltdown, it’s -both- of their faults for offering and participating in obviously improper loans.
The ‘victims’ of this whole mess aren’t the uninformed consumers who can’t understand how to calculate their mortgage or the lenders who passed the buck -long- ago, it’s the bond-holders, the people all over the world who bought ‘guaranteed’ bonds that suddenly stopped producing interest before maturity.
The problem is that they’re -not- going to buy bonds rooted in real-estate again, which means that now I’m -begging- the bank to give me a loan for less than the RI median home price even though my income is now well above the median, I have some money to put down, and I’m otherwise very solvent.
Fixing the housing market isn’t about propping up people who took out bad loans, or refurbing properties that have been gutted, it’s about people being stuck between a time when you could get 100% financing and the time it takes to save up 10% or 20% of what a house costs these days (hint: at today’s housing and income rates, I’d say it would take the average Rhode Islander about five years to save up $20,000, so we have a long way to go). The game changed under our feet overnight.
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October 6th, 2008 at 2:40PM
Brendan Says:
Yep, sounds similar to my situation. Even when you could get a bad loan I saw the deals for what they were and kept saving for a minimum of 10%. The problem was that 10% just kept getting bigger and bigger. Every gebrone and their brother kept telling us to go get a mortgage and buy a house - it’s so easy! I imagine sleeping in a van down by the river is “easy” too, it’s just not something I wanted to try on for size. So, yeah, we’re still renting after all these years. Now we’re watching the marginal hood we live in slip back towards what it was in late 90s when we moved in -less inhabited and sketchy. The only silver lining is our rent has never been raised because our landlord lives in the neighborhood and likes to keep good neighbors.
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October 7th, 2008 at 8:30AM
joe bernstein Says:
Marc-you nailed it about mortagages being sliced up into stock-like units and sold to-who?The new impersonality of banking,finance,and also indutry ownership is destructive.It almost makes the old “robber barons”seem palatable-people like Carnegie,Frick,etc,were widely seen as villains,bit they endowed their communities and actually had a material interest in what they owned.
What did Enron or Lehman Bros. ever endow for the common good?
I long ago got rid of my mortgage and switched to an equity loan at a fixed rate on my house.it is with alocal bank where I actually know the bankers.
I have one credit card.I could afford more,but why?I only use it to shop online and for the consumer protection it adds,plus they have a good rewards program(i.e. gas cards).I’ve had the same card since 1973.Exactly once in all that time did I have to send in a late payment-I was stuck overseas due to plane trouble-I just called them and they were nice enough to waive the late fee because I had a good payment record.
My house payment is low and I take care of taxes and insurance on my own.I’ve been in the house since 1984 and the balance is not very high-I could pay it off,but why not get a tax deduction?When I moved here,I lost money on my house in Illinois.Interests were sky-high,so we bought at a low price.When rates came down,we refinanced.
Going step by step without using “too good to be true”shortcuts is a good way to avoid problems.
WHY would someone I don’t even know offer me a great deal if they weren’t making a killing on it?
Some of the “advocates”got rich off their own communities-particularly at the expense of recent immigrants,who,even if legally here,are prone to rely on those from their country who are already well-established.A recipe for ripoffs.
Brendan-your self-control will pay off in the end.
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