Thursday, December 06, 2007

Truly scary

Evidently, Congress and the White House are working together to bring "moral hazard" to new heights...er...depths. How so? Well, they're planning to prevent the underwriters of adjustable rate mortgages from adjusting the rates for a period of five years.

While certainly the holders of these mortgages will appreciate the lower payments, the "sob stories" say something different. One example; a 73 year old woman loses her home because of an ARM mortgage foreclosure. Say what? Bankers are issuing adjustable mortgages to people on (presumably) fixed incomes?

In other words, the very examples used to demonstrate the problem of ARM mortgages make very clear that the main problem is that lendors and borrowers are forgetting basic principles our fathers and grandfathers knew about debt; mininum down payments, being able to pay the "worst case" with one's current income (or less), and so on. The bailout simply tells lendors and borrowers that these principles don't matter, 'cause Uncle Sam will come and save the day.

Be prepared for another mortgage crisis in about ten years as a result, and get ready for Uncle Sam to pick your pocket to save the bacon of those who issued foolish mortgages.

4 comments:

pentamom said...

It's also just taking money right out of the pockets of people who were contractually promised the return on the investment of those interest rates. Arguments aside about whether any of those people "deserve" more money than they have or not, they're legally and morally entitled to it by the agreements they entered into -- if you buy into a mortgage that's supposed to start returning you 9% after two years, then you are supposed to get 9% after two years unless it is literally impossible for that to be met (i.e., foreclosure.)

It's a Catch-22, though, which is another reason why the whole setup was so horribly misguided int he first place. If they implement this plan, people will have economic injustice done to them and suffer in various ways. If they don't, a whole other set of really nasty economic realities kick in, and not just affecting the people who made the bad bargains in the first place.

pentamom said...

You know, if people simply understood the principle behind "past history does not guarantee future returns" instead of thinking of it as lawyerese that somebody is forced to mutter at the end of a commercial, this whole thing could have been avoided. People were simply told that they could refinance before the adjustment kicked in, because of course the market would just keep going up and up and lenders would fall all over themselves to offer refinancing to their now fabulously valuable homes. If any of these people had simply asked themselves, "But what if it doesn't go up?" they would have immediately seen it was not a good idea.

pentamom said...

Okay, a simply in every sentence is simply too much. Sorry!

Bike Bubba said...

That's simply abominable, dear sister. :^) Well said.