The proposed bail-out of the sub-prime market is an attempt to postpone reality past the Bush term of office. (Picture from the Real Estate Bloggers.)
There will be a lot of talk from Democrats approving this about "home affordability" but it will be a lie.
An affordable home should be what it has always been:
A 30-year note in which one-fourth of your take-home income goes to pay off the mortgage.
Everything else is speculation.
We have subsidized housing so that you can’t afford a home on this basis. That’s the scandal. Allowing people to buy homes with no money down, or with teaser rates, or with balloon notes, or with negative amortization (the principal goes up even as you make payments) is nonsense. These kinds of loans make homes less affordable, not more. They drive up the prices of all homes, forcing more-and-more buyers into the trap of bogus loans.
Housing prices need to fall until they are below this level. They need to overshoot the target so that the inevitable bounce-back achieves parity with what people can afford.
There was a graphic in the local paper yesterday which showed lenders
know this whole bubble was a scam. It showed where foreclosures are
happening. They’re happening in poorer neighborhoods where buyers were
deliberately given loans they couldn’t afford to buy homes they
couldn’t afford, bidding up the prices of nearby homes so those buyers
couldn’t afford them either.
You can’t end this scam by allowing victims to stay in homes they can’t
afford for another year or two. You can only postpone the inevitable
that way.
Even if this plan goes into effect, prices are going to fall anyway.
Making bad loans good doesn’t give you new capital to make new loans.
Credit policies have to tighten, and they should tightened all the way
— if the buyer has to pay over a quarter of their take-home pay, or
take something other than a 30-year fixed-rate note to make the nut —
don’t make the loan.
No one, anywhere in the world, is going to buy the Big Shitpile U.S. brokers built during this decade. They’re going to be leery of any U.S. bond, and they should be.
So with no new capital coming in from abroad and with loan policies having to tighten, what’s going to happen to housing prices?
They are going to fall, and this should be celebrated, not condemned.
All the speculation of the last decade has to be wrung out of the
system until homes become affordable again.
Honestly it’s not that difficult. But no one in the financial press has
written this, any of this. No one in the industry has admitted this.
It’s crazy. It’s insane.
It will take at least four years to end the insanity. If you’re in the
market for a home during that time, hold out for a sane price, or at
least sane terms for yourself. Don’t assume any price appreciation for
at least a half-decade, probably more. This is just what happened
during the last housing bust, in the 1970s, and it needs to happen
again so homes become affordable again.
That must be the goal. Affordable housing. Housing priced based on the
income available to carry the note, and no higher. Anything that props
up the speculation is wrong. Any move which re-inflates the market is
wrong.
If you’re stuck in a home that’s falling in value, so your own mortgage
is now "underwater" (you owe more than the house is worth) I’m sorry.
You got caught in the scam. You can leave the keys in the door and
screw your credit, or you can take your medicine like a big boy (or
girl) and stay in that house until the loan is paid off, until you earn
enough equity through steady mortgage payments that you’re no longer
underwater.
It will happen. It will take time but it will happen. Be patient.
Americans need to be patient, and send the people who scammed them to
jail — the mortgage bankers, the financial journalists, the Fed
governors, the Wall Street sharpies who built the Big Shitpile — all
of them need to be excised from the market and made to pay.
Otherwise we won’t learn the lesson, and we’ll just do it all over again.
‘Be patient’ !!!!!!
You are talking to the generation of instant gratification! They can’t hear that message.
Your message is for the previous generation.
The new generation doesn’t work for thirty years to pay off a debt. They go bankrupt, write it off and start again with a clean sheet.
The older generation used to save up to buy furniture, washing machine, tv, etc. No way will they do that nowadays. They want everything NOW, and worry about paying for it later. It is too easy to just walk away from your debts today, (at least in the UK) with little penalty to worry about.
The consequences of this difference in attitude will be interesting.
‘Be patient’ !!!!!!
You are talking to the generation of instant gratification! They can’t hear that message.
Your message is for the previous generation.
The new generation doesn’t work for thirty years to pay off a debt. They go bankrupt, write it off and start again with a clean sheet.
The older generation used to save up to buy furniture, washing machine, tv, etc. No way will they do that nowadays. They want everything NOW, and worry about paying for it later. It is too easy to just walk away from your debts today, (at least in the UK) with little penalty to worry about.
The consequences of this difference in attitude will be interesting.
I’m not sure what the hold-up is… maybe they have re-thought their stance on how this is going to actually make the company any money. Or perhaps their lawyers pointed out the liability of providing agents a platform to stick their feet in their mouth. Whatever it is, it’s hardly something I’d claim as being “Well done”.
http://www.jebshouse.com
I’m not sure what the hold-up is… maybe they have re-thought their stance on how this is going to actually make the company any money. Or perhaps their lawyers pointed out the liability of providing agents a platform to stick their feet in their mouth. Whatever it is, it’s hardly something I’d claim as being “Well done”.
http://www.jebshouse.com