Bush Announces Five-Year Freeze on ARM Rates
I am so disgusted, I'm having a hard time even writing about this.I look at the situation this way: the reason for the housing bubble and the ridiculous run-up in house prices was mainly due to exotic mortgages like those found in the sub prime mortgage market. Sub prime loans were responsible for that starter home in California costing 1/2 a million dollars.
Allowing people with bad credit, low income, and high debt ratio's to buy a house may have seemed like a good deed at the time because it allowed more Americans to achieve the dream of home ownership, however, it really did the opposite.
These kinds of loans drove the price up and made homes basically unaffordable in some markets to those wanting to use conventional financing. The people who should not have bought the home, and gambled everything to do so, ruined the chances of home ownership for the people who really earned it.
The sub prime market was driven by greed. Greedy flippers wanting to make a profit after living in a home for a year or two, greedy mortgage brokers and Realtors earning their commission for doing next to nothing. greedy banks wanting to rake in massive profits, and greedy investors and hedge fund managers who bought this debt on wall street.
Now the government is stepping in where it does not belong, and is trying to bailout these sub prime borrowers who cannot afford the house in the first place and in doing so, is helping to keep house prices artificially high.
The Ponzi scheme collapsed, and the greedy should be punished and taught a lesson. Instead they are getting bailed out, which will cause them to repeat the bad behavior in the future. It is a shame that the government allowing this to occur without considering the moral hazard.
The only way for the housing market to recover is for prices to continue to fall back in line with the median income of the area. Only then, will demand increase, and the situation will improve. Falling house prices, although bad for some, are healthy for the housing market and the economy.
Mr Freeze is on the way... And its a very bitter cold.
1 comment:
"Allowing people with bad credit, low income, and high debt ratio's to buy a house may have seemed like a good deed at the time because it allowed more Americans to achieve the dream of home ownership, however, it really did the opposite."
Right! No amount of politician talk can obscure the basic truth that it's not credit in the first place enabling to buy a property, it's money. No money for a substantial downpayment, no luck. That's how the system successfully worked since the days of Adam Smith, and that's how it can work again today. What families with small incomes need isn't more credit, driving them even deeper into debt, but better wages. But ideological taboos prevented the Bush adminstratrion from acknoledging this, and so they enthusiastically applauded the shortsighted plans to build the "ownership society" on crecdit cards. Adam Smith could have told them that credit isn't really an Ersatz for money earned, but his kind of common sense has been extinct in the GOP for decades now.
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