Housing Weakness

[alaskaguy]

It is a difficult for me to relate to the weak housing market. I sold my house in Las Vegas, Nevada near the housing peak. Now I feel blessed in that the housing market in Nome is booming. We have a critical need for additional housing due to extreme job growth (gold mining). However, there are significant barriers for constructing homes. The barriers are geographical since we are 700 miles from the nearest connecting road system and construction practices are required that most builders are not familar with, above ground foundations.

Nevertheless, the weak housing market constitutes the biggest economic news story so I am not ignoring it.

There are a number of proposals that suggest how we should be addressing the problem. The conservative approach suggests that markets make better decisions than governments do, that the markets will punish, and then ultimately stabilize.

One action that is moving forward is Mortgage Reform And Anti-Predatory Lending Act of 2007. This legislation has been passed by the House and addresses lender abuses.

Link:
http://www.house.gov/apps/list/press/financialsvcs_dem/press102207.shtml

But a more pressing issue is whether the government should be doing anything for the millions of Americans that are being foreclosed. North Carolina Democratic Representative Brad Miller is sponsoring a bill that would allow bankruptcy judges to amend the terms of home mortgages.

Link:
Rep. Brad Miller (NC-13)

So who thinks that Miller's idea should be adopted? And what should government's role be in connection with the housing downturn?

 

[dmclone]

So we as taxpayers should help bail out people that got in over there head or were flipping? It's called personal responsibility. If they can't make the payments than they need to lose the house. How about moving to an apartment? I'm a lot more worried about the people who go hungry every night than some ***-clown that can't make his $3,000 month house payment. If we bail these people out it sends two messages.

#1 As a borrower you have no responsibility for your debts. All of these borrowers were given a one page truth in lending statement that told them exactly what their APR would be during the duration of the loan.

#2 As a mortgage company just go ahead and keep writing those risky loans because taxpayers will bail out the borrower.



To your question "what should government's role be in connection with the housing downturn?"

Nothing. The more they get involved the more things will be screwed up.

 

[Cyclonepride]

Noone's really clean on this one. The government allowed it, banks gave them out and people accepted. The Fed also left interest rates artificially low for too long. I'm not sure we should do anything about it though. It'll just cost a ton of money, and we'll prolong the inevitable in many cases. I think banks are waiting for the government to help bail them out of the situation, and if it doesn't, then they will be more likely to go ahead and restructure loans on their own to minimize their losses.

 

[brianhos]

The gov should have no part in this. Let's try to teach a little personal responsibility. I looked at new houses over the past few years, and decided it was not worth the additional expense. In that time, I could not believe how many of the realtors were trying to talk us into 0 or neg ammortization loans. They said we could afford to buy a 500k house.

Housing became the status symbol as no one lived below their means anymore, but now it is coming back to bite them. And coming back to bite the banks that sold these loans. I have no sympathy for the realtors, banks, or borrows that all willingly did this to themselves. The gov should just let it be, if all of a sudden the banks know the fed will not do anything, they will restructure the loans to keep people in. And if they cannot be kept in, they will have to sell the house for a loss and move on. The market has a way of evening these things out. If there are a huge amount of really nice houses going for cheap, people like me will swoop in and buy one. But not until the prices come back down to earth.

 

[alaskaguy]

I would support the legislation that Miller is sponsoring which would allow judges to amend the terms of home mortgages. As the law currently stands, the terms of a mortgage on a yacht or a vacation home can be adjusted during bankruptcy, but the primary residence is off-limits. This makes no sense to me.

 

[brianhos]

Why should we allow those terms to be changed? It is a contract between to parties, can we now go in front of a judge and ask that any contract we sign be invalidated if it no longer becomes convinient for us? Both parties agreed to the terms at the beginning, and either party that cannot live up to the terms is in breech of the contract.

 

[iceclone]

I would support the legislation that Miller is sponsoring which would allow judges to amend the terms of home mortgages. As the law currently stands, the terms of a mortgage on a yacht or a vacation home can be adjusted during bankruptcy, but the primary residence is off-limits. This makes no sense to me.

I think that is a common sense reform. If the terms are not changed for some of those contracts, then these people will simply be back in bankruptcy court as soon as they are allowed. However, some of Rep. Miller's comments do trouble me. From the link you provided:

"I think it should be the policy of this government to try to help middle class folks get into homes."

"For most American families, the deed to a home is the membership card in the middle class."

I think this type of thinking is part of the underlying reason for the whole mess. Many of the people that are now in trouble should not have attemted home ownership in the first place, but because of attitudes such as I quoted above, they make the bad decision of doing it anyway.

 

[alaskaguy]

I think that is a common sense reform. If the terms are not changed for some of those contracts, then these people will simply be back in bankruptcy court as soon as they are allowed. However, some of Rep. Miller's comments do trouble me. From the link you provided:

"I think it should be the policy of this government to try to help middle class folks get into homes."

"For most American families, the deed to a home is the membership card in the middle class."

I think this type of thinking is part of the underlying reason for the whole mess. Many of the people that are now in trouble should not have attemted home ownership in the first place, but because of attitudes such as I quoted above, they make the bad decision of doing it anyway.

It is my personal opinion that the government does too much to help people get into homes. I'm far from convinced that widespread home ownership is that worthy of a goal. If the government wanted to do the right thing though they would scrap the mortgage interest deduction. Its one of the largest tax breaks and simply has no merit.

 

[alaskaguy]

Why should we allow those terms to be changed? It is a contract between to parties, can we now go in front of a judge and ask that any contract we sign be invalidated if it no longer becomes convinient for us? Both parties agreed to the terms at the beginning, and either party that cannot live up to the terms is in breech of the contract.

It sounds like you are an advocate of debtors prisons.

 

[brianhos]

It sounds like you are an advocate of debtors prisons.

No, but if they signed the contract to buy that house, they need to live by the terms, and if they cannot, it goes to the rightful owner of the house, which is the bank. Remember, until you receive that certified letter that says "Paid in Full" in big red letters, it is not your house, you are just doing a rent to own program from your bank. If I rent to own a bigscreen and I cannot/don't make the payments, should I go to the government and complain that I was not smart enough to make the right choices, and they should just give me the big screen? No, I should lose the tv.

Lets try a new thing in this country, personal responsibility.

 

[alaskaguy]

No, but if they signed the contract to buy that house, they need to live by the terms, and if they cannot, it goes to the rightful owner of the house, which is the bank. Remember, until you receive that certified letter that says "Paid in Full" in big red letters, it is not your house, you are just doing a rent to own program from your bank. If I rent to own a bigscreen and I cannot/don't make the payments, should I go to the government and complain that I was not smart enough to make the right choices, and they should just give me the big screen? No, I should lose the tv.

Lets try a new thing in this country, personal responsibility.

This topic is considerably more complex than just bringing up personal responsibility.

Unforeseen stuff happens regardless of personal responsibility. As an example I will disclose a bit of my personal history. I owned a profitable corporation for a number of years. However, the situation changed when better capitalized competition entered the market place. The competition was intense and reversed my corporation's operating results. The corporation had significant long term liabilities (building leases, leased trucks, commercial loans, etc.). Although my company was incorporated, I had personally guaranteed the larger debts. The personal guarantees were required by the vendors I was dealing with.

Although personal and corporate bankruptcy were averted, the threat of declaring bankruptcy was the only significant leverage I had in negotiating with my creditors.

My debts were so large that I could not have paid them off, regardless of whether I lived to a ripe old age and commanded a seven figure income. I worked seven days a week and wracked my brain to try to bring about a corporate turnaround. However, I was competing against a company that had no shortage of capital (a company owned by Berkshire Hathaway).

So should I have been required to meet all the terms of my financial obligations even though it was an impossiblity to do so? So what should have happened to me? Should I have been required to surrender every asset I owned?

 

[ahaselhu]

Too many people are trying to live at or above their means. In my opinion, that is simply poor planning. People need to live below their means to give them a safety net if something unexpected were to happen.

I've never been a business owner, and I'm not familiar with personal guarantees, so I can't comment on your situation. But I would guess the circumstances you are talking about are more the exception than the rule. I would wager that, more often, this is a result of people who purchase houses at the top (or over the top) of their price range, and then lose their job, have unexpected expenses, etc., and have no (or insufficient) room for error in their mortgage payments.

 

[Cyclonepride]

Has anyone noticed that all these mortgage companies, who spent the last five years advertising junk loans, are now acting as if they will rescue people from them? One of them even changed their slogan to "people are smart". I guess they hope that everyone has a short memory.

 

[TykeClone]

Although personal and corporate bankruptcy were averted, the threat of declaring bankruptcy was the only significant leverage I had in negotiating with my creditors.

If you owe a "little" money - the bank owns you. If you own a "lot" of money - you own the bank.

Most of the time, creditors would rather work out with a customer rather than foreclose on them because there is more to be made in that circumstance.

 

[Cyclonepride]

If you owe a "little" money - the bank owns you. If you own a "lot" of money - you own the bank.

Most of the time, creditors would rather work out with a customer rather than foreclose on them because there is more to be made in that circumstance.

Yep, all the more reason to not help out. The banks do not want to be holding a whole bunch of foreclosed houses, especially in this market.

 

[alaskaguy]

Too many people are trying to live at or above their means. In my opinion, that is simply poor planning. People need to live below their means to give them a safety net if something unexpected were to happen.

I've never been a business owner, and I'm not familiar with personal guarantees, so I can't comment on your situation. But I would guess the circumstances you are talking about are more the exception than the rule. I would wager that, more often, this is a result of people who purchase houses at the top (or over the top) of their price range, and then lose their job, have unexpected expenses, etc., and have no (or insufficient) room for error in their mortgage payments.

About half of personal bankruptcy filings appear to be caused by medical expenses. And a majority of the medical bankruptcy filiers had medical insurance at the onset of the illness.

Link:
MarketWatch: Illness And Injury As Contributors To Bankruptcy -- Himmelstein et al., 10.1377/hlthaff.w5.63 -- Health Affairs

 

[brianhos]

This topic is considerably more complex than just bringing up personal responsibility.

Unforeseen stuff happens regardless of personal responsibility. As an example I will disclose a bit of my personal history. I owned a profitable corporation for a number of years. However, the situation changed when better capitalized competition entered the market place. The competition was intense and reversed my corporation's operating results. The corporation had significant long term liabilities (building leases, leased trucks, commercial loans, etc.). Although my company was incorporated, I had personally guaranteed the larger debts. The personal guarantees were required by the vendors I was dealing with.

Although personal and corporate bankruptcy were averted, the threat of declaring bankruptcy was the only significant leverage I had in negotiating with my creditors.

My debts were so large that I could not have paid them off, regardless of whether I lived to a ripe old age and commanded a seven figure income. I worked seven days a week and wracked my brain to try to bring about a corporate turnaround. However, I was competing against a company that had no shortage of capital (a company owned by Berkshire Hathaway).

So should I have been required to meet all the terms of my financial obligations even though it was an impossiblity to do so? So what should have happened to me? Should I have been required to surrender every asset I owned?

Umm well, yeah. You assumed the responsobility and risk by leveraging your personal accounts against the business. I feel bad for you, but how is this the governments fault? Should they be responsible for bailing you out?

That is all I am saying, if you can go and renegotiate your loans, great more power to you, but the government should not be blanket negotiating all less than perfect home loans.

 

[Wesley]

Some people are now saying that the ARMS and other low entry mortgages will take till 2011 to work themselves out.

 

[alaskaguy]

Umm well, yeah. You assumed the responsobility and risk by leveraging your personal accounts against the business. I feel bad for you, but how is this the governments fault? Should they be responsible for bailing you out?

That is all I am saying, if you can go and renegotiate your loans, great more power to you, but the government should not be blanket negotiating all less than perfect home loans.

My point was that you can't have a portion of the population that has debts where there is essentially zero possibility that they can be repaid in accordance with the loan terms. The terms of the obligations either need to be restructured or the lenders need to accept partial payoffs. A bankruptcy facilitates the aforementioned process when lenders just don't get it.

I haven't suggested that the government bail anyone or even me out. I have simply suggested that the bankruptcy judges should have the same flexibility to restructure home loans that they have for other indebtedness.

 

[dmclone]

So should I have been required to meet all the terms of my financial obligations even though it was an impossiblity to do so? So what should have happened to me? Should I have been required to surrender every asset I owned?

IMO-Yes

You took that risk.