Comments on Saving to Inve$t: Why you should be angry with the 2008 Housing Reli...

You all should be angry because the housing crisis...

2008-08-22T00:18:00.000-04:00

You all should be angry because the housing crisis was completely avoidable. Our fair-haired congress deregulated the banking industry knowing full well what could happen. When it did happen, they ignored it.

Deregulation is also responsible for our gas prices too.

Big holes are being torn into existing law so that what is illegal on citizen's level is just fine for these hit and run profiteers.

Check it out at
http://thepoliticalstray.com

This article was also republished at Seeking Aplha...

2008-08-06T12:42:00.000-04:00

This article was also republished at Seeking Aplha and had 27 comments, some which were quite interesting and people clearly feel strongly about this bill. Check it out at http://seekingalpha.com/article/87565-why-the-2008-housing-relief-bill-is-no-relief?ref=patrick.net#comment-224136

@ Tim - Thanks for your detailed comment. You make a good argument for placing more blame on the banks and they drove this crisis as well. However it takes a number of parties, one of which is the homeowner, to get to the state we are in today.

@ Thanks Shadox, I'll check out your article.

I agree that the Housing Bill is a horrible idea -...

2008-08-06T01:29:00.000-04:00

I agree that the Housing Bill is a horrible idea - but my main concern is that it essentially pays off the wrong people and creates the wrong incentives.

The responsible folk who sat out the housing bubble are being forced to pay for the folly of those who tried to get rich quick. I have my own post on the subject.

Yes, the people who took out the loans should have...

2008-08-01T03:18:00.000-04:00

Yes, the people who took out the loans should have known better. Yes, the mortgage brokers were greedy, and in some cases may have misled some of their customers. But the majority of the blame lies with the banks that made the loans. (I put less blame on the mortgage brokers, because their role in this is that of a sales department - they don't make the yes or no funding decision - that is done by the bank's underwriting departments.)

The banks are the entities that decided to lower downpayment requirements, relax credit score requirements, and take loans with low or no documentation. They had the responsibility to examine and say yes or no to every single loan application, and they chose to say yes to many that were clearly too risky from a historical perspective. Essentially none of the subprime loans of the past few years would have been made at any time previously - they would have all been viewed as way too risky by the banks' underwriting departments.

So what was different this time? Primarily two things: The banks got greedy, and saw their competitors getting more and more feees from doing more and more loans, so most of them couldn't resist doing more themselves (I'd call it the herd mentality, but it ended up being more like lemmings.) Second, they were now reselling more of the loans, as opposed to keeping them in their own portfolios, so they didn't care as much about the absolute risk of the loans they were underwriting and selling. Some Wall Street financial engineering geniuses bundled batches of these mortgages together and resold them to people who didn't really understand what they were buying. The purchasers (investors) were told since lots of loans were bundled together, the risk was minimized. Of course the people who told the investors this either clearly didn't understand that the risk was in no way diversified, or they just plain lied.

And the worst part is there is no real penalty to the banks who screwed up so badly by being greedy and stupid. As a result, something similar will happen again. After all, how long has it been since the S&L crisis, where hundreds of S&Ls made bad loans and the government (I.e. the taxpayers) had to step in and fix the situation. Not to mention the billions and billions of bad loans to South American countries in the eighties that had to be written off.

@ Robert D. I have seen many homeowners take loans...

2008-07-30T13:12:00.000-04:00

@ Robert D. I have seen many homeowners take loans 10 to 20 times their annual income. Because they get a teaser rate (via ARM mortgages) they buy the house. Yes they can complain they were fooled, but they need to take some responsibility for signing the mortgage. Did someone force them to do it? Not likely. Also, when folks get a house they keep spending on improvements and getting "HD-TV's", which adds to their (credit card) debts. Suddenly when their house goes down or they lose their job there debts become too much. Come on, do you really think people (adults) can claim ignorance as a reason for getting into their position. As I said, I agree some people were truly fooled or external circumstances caused their downfall. However a majority could have avoided their situation by being more careful upfront and knowing what they were getting into with what was probably the biggest purchase in thier life. Now they walk away from their houses because the house value is less than the loan value - what message is that sending to others and future generations - "Get into debt because you can just walk away from it one day when it gets too big".

I did also mention that institutions and the brokers representing them should be fined heavily. But don't see that anywhere in the housing bill. When things get better, all these brokers will be back peddling the same false dreams to make money for themselves.

The housing bill was needed to show the government/treasury was doing something. However I think it was more political than substantial. Only time will cleanse the economic system of the excess from the last few years.

@ SB - See my above point. Interest rates were low and loan standards lax, and yet they did not qualify for the 30yr loan. So that's how they got suckered into an ARM and are now paying the price.

@ Bill - Agree with you and you make a good point. If the process is bad the systems won't help/work.

@ Robert. You said it. I think they will sell the homes, just not to the people who need them.

[I agree as these rehabilitated people will be sol...

2008-07-29T16:56:00.000-04:00

[I agree as these rehabilitated people will be sold to astute property investors for a substantial discount and not to people that really need the housing. The "states" are basically playing "flip that house"]

You may be right. Or, maybe they won't be able to sell them at all. Typically, these community-reinvestment arms try to target first-time homebuyers, so they can sell homes to them that nobody else wants to buy.

http://foreclosureresolutioncenter.com/blog/2008/07/19/avoid-foreclosure/government-to-help-homeowners-stop-foreclosure-wink-wink/

Requiring ALL credit card transactions be reported...

2008-07-29T13:54:00.000-04:00

Requiring ALL credit card transactions be reported to the IRS is counterproductive for the government.

If they suspect a merchant of underreporting income, they can simply ask for their credit card receipts, or issue an administrative summons to the card processor if needed.

Historically, the IRS has had poorly designed and implemented computer systems.

It's often difficult for an auditor to get more than the most recently filed tax return from their current system.

Which is why the audit notice requests you bring back returns to the audit, even if those tax years are not part of the audit (make sure to "forget" to do that)

Cramming more data into those systems won't help improve their already dismal reliability.

You're quite correct Robert. Blaming the borrower ...

2008-07-29T11:13:00.000-04:00

You're quite correct Robert. Blaming the borrower is off base. The moment the industry got away from requiring 20 percent down on home purchases, was the moment we crossed the Rubicon.
That coupled with artificially low interest rates (thanks to Greenspan, et. al.) which fueled borrowing, which in turn led to extremely overpriced property, which will hopefully fall and fall the next 24 months to normal levels.

This post is off on the facts and shifts blame. S...

2008-07-29T07:21:00.000-04:00

This post is off on the facts and shifts blame. Sure some homeowners should have known better, but most of the foreclosures are refinances, thus, they owed the home until they were put into an adjustable rate mortgage with abusive terms. Homeowners trusted their mortgage brokers who were paid up front -- and paid more for putting them into that ARM with prepayment penalties. The housing bill is a disappointment to be sure, but simply blaming the borrowers is irresponsible and incorrect. See my post on the bill -- http://foreclosurebuzz.org/2008/07/07/housing-bill-rescues-banks-more-than-borrowers/

Robert Doggett
www.foreclosurebuzz.org

Curt, you could be right. Espically given the budg...

2008-07-28T17:15:00.000-04:00

Curt, you could be right. Espically given the budget forecasts (see my post on this)

Matt -Thanks for the kind words. Its those kind of comments that keep me going. Smart moves with waiting to buy and not falling for the gimmicks. I think towards the end of the year will be a good time to buy. When the next administration comes in, a lot of uncertainty and poor management by the current administration will be removed. This should give people confidence to buy houses and you should see house prices appreciate.

Great article and info, I am in the market for my ...

2008-07-28T12:40:00.000-04:00

Great article and info, I am in the market for my first house purchase in the next 6-12 months and have waited the past years as I saw tons of people jumping into the market on houses they couldnt afford. I didnt let the "easy money" loan speeches talk me into buying when I wasnt ready, thankfully. I hope house prices come down more (not good for most people and the economy, I realize) but around me they are way to high still.

I have been following your blog the past few weeks and really enjoy it...keep up the good posts!

Sounds like the time to out of dollar bases assets...

2008-07-28T10:15:00.000-04:00

Sounds like the time to out of dollar bases assets and get some Gold and Silver.