1.

Not Pleased
December 6th, 2007 at 10:01 am

I have to agree…I believe that Bernanke said at the beginning of this that it was not the government’s job to bail people out of poor decisions. I agree again.

2.

thisisbeth
December 6th, 2007 at 10:50 am

I don’t own a home. I don’t have a mortgage. But this “solution” makes me mad. It’s unfair to all the people who were responsible and didn’t take ARM loans–they’ll have to pay more money, hypothetically, because their original interest rate was higher. The people who were willing to take risks have to pay less–not because they won the bet on the risk.

If rates had stayed low, and the ARM people had paid less, I would be okay with that–they took the risk and won. But because rates went up, they lost, whined, and were rewarded the prize anyway.

That’s like taking the bet that the teacher won’t have a surprise exam on Tuesday, not taking studying, and then whining when there was a surprise exam when you totally didn’t expect it and demanding an A on the exam anyway.

3.

frank
December 6th, 2007 at 10:52 am

“Actually, you get to continue paying a higher fixed rate, while people who took out riskier loans are rewarded for their foolishness with longer terms on their lower rates”
While you made many salient points, you are most likely incorrect here. These people’s rates are most likely greater than (possibly equal to) your prime rate unless your rate was at 7 or 8%. Just a slight nitpick.

4.

Matt Wolfe
December 6th, 2007 at 11:58 am

I first read about this over at GenXFinance. They did a poll over there. It really irritated me when I heard about it a month ago and it irritates me even more now. I’m not a homeowner for one reason. I’ve been saving my butt off for a house that I can afford. I didn’t want to get myself in to a loan that was risky. I want to save and build my income so that I can get a safe, fixed rate, mortgage. It irritates me that all of the people who took on the risky loans are now getting bailed out for their stupid financial decisions.

5.

Randall
December 6th, 2007 at 12:47 pm

It steams me something awful too. The only saving grace, it might not happen.

They’ve tried this before (‘voluntary’ rate reductions or freezes) and SURPRISE, the lending companies didn’t want to freeze the rates. If this goes through, it DOES set a bad precedent about investors and stupidity.

The only reason I think that it WILL go through, is that there are so many stupid investors that to let them all tank, might disrupt the economy even worse.

6.

Clever Dude
December 6th, 2007 at 12:55 pm

Not sure how our interest-only ARM mortgage was a dumb idea and how it makes us morons. Obviously, your statements apply to people who didn’t do the math and got a home they just barely could afford. But for us, we did a a 5/1 ARM because we weren’t sure we wanted to own that home after 5 years and we went for an interest-only mortgage because we found better use for that $500 a month that would otherwise have gone towards our mortgage.

We still don’t know what we want to do in 2 years when the rates will change, but locking in a 30/40 year loan just didn’t make sense to us at the time, and it still doesn’t suit us. I make stupid decisions, but we did our math on this one and we didn’t just squeak into a loan we could barely afford.

I think the really bad loan types aren’t the basic 5/1 loans. I don’t have hard examples, but the loans they’re worried about are 1 or 2 year ARMs with some outrageous fine print, right?

7.

Nayef
December 6th, 2007 at 1:49 pm

This is just a plan to save face by Bush. Do you really think investors would allow this to happen if they didn’t have a way to avoid it?

I’m a cash investor in T-Bonds & subprime mortgages. 87% of the homeowners in my investment fund are in the rears so they won’t benefit from this so called freeze.

Remember people money never disappears it’s just transfered from (YOU) the common man to (US) the investment bankers of the world.

Most cash investors prefer to have clients default on loans. I can easily sale the properties off for a nice profit to clients from overseas or rent them out.

8.

Nick
December 6th, 2007 at 2:23 pm

Just to clarify (based on Clever Dude’s comment), not all ARM borrowers are total hopeless idiots. Some ARMs are far less volatile and even a good choice for people who can afford the payments now, plan to move or refinance in a few years, and could still afford the payments given a rate adjustment.

The dumb ARMers in this case are those who thought a 4.5% introductory rate that could double a few years later was a good idea. But I know that’s none of you guys, right?

9.

Rick
December 6th, 2007 at 2:38 pm

Great Post!

Last commenter is correct though. these sub prime mortgages were probably at 7+% as their low rate because of bad credit etc. But that doesn’t excuse the banks and the govt. They should still not get a bail out or freeze because they were:

stupid in the first place for having bad credit
and
making a stupid decision to go with a ARM.

Well….maybe they weren’t stupid because they knew our stupid govt would bail them out.

It is called PERSONAL RESPONSIBILITY PEOPLE. Don’t rely on other people (ie us, the govt) to bail you out!!!!!!!!!

10.

The Dividend Guy
December 6th, 2007 at 4:17 pm

Interesting post – I was wondering what the blog response to this was going to be.

It was great to see Clever Dude’s comment – some people I am sure did know what they were doing when they signed on for these things. The trouble is is that I think Clever Dude is a real small minority. I suspect ( but can’t backup) that most lenders didn’t even understand ARMs they way he does.

Thanks for the post.

The Dividend Guy

11.

Jason
December 6th, 2007 at 5:26 pm

AMEN. I lean left on most social issue, but this is just crazy. I’m banging my head agaist the wall!!! I viewed the silver lining of a Republican President as a chance for some fiscal responsibility. Apparently once you go to Washington that part of your brain is removed..whether you are a Democrat or Republican. Let the market work. All this does is postpone the pain and change the rules. I got a fixed rate because it made sense for me. I have freinds who got ARMs because it made sense for them. The common factors: we all read our loan docs, knew what we were signing and took personal responsibility. You know that at the end of the day the banks are going to get some sort of right off and all the suckers, myself included, that are trudging along paying our mortgages are going to get stuck holding the Bag again. We will reinforce stupid behavior by consumers, banks will get a free pass and idiots like me will pay more taxes.

12.

Mrs. Micah
December 6th, 2007 at 5:31 pm

Yeah, it is pretty sad when the responsible people get the shorter end of the stick. But on the plus side, at least you’re not having to worry about foreclosure. Sleeping at night is always a good thing.

13.

Andrew
December 6th, 2007 at 5:39 pm

I am not from the US so I don’t know the situation but I wonder what would happen to the US economy if these borrowers, I presume there are a hell of a lot of them, were allowed to default?

It may be the case that supporting them ends up being better for everyone else in the long term.

14.

the baglady
December 6th, 2007 at 8:49 pm

Hey Punny,

I wrote an article on this issue today, too. It really pissed me off and I thought the plan was extremely stupid. It was funny when the President announced the wrong phone number in his speech and then had to be corrected later.

15.

the baglady
December 6th, 2007 at 9:54 pm

I’m wondering if the previous comment was an advertisement for loanresolve.

16.

editec
December 6th, 2007 at 11:54 pm

There’s a whole host of people who end up screwed when they change the rules like this..

Obviously all of us who did not lock into ARMS recently and paid the extra fright for a fixed mortgage.

The investors who purchased those bonds based on ARMS (of course they knew there was risk, right? I’m not SO sympathetic for them)

The futures players of those bonds who sold short are truly getting screwed though.

Think about it, they give liquidity to the bond market right? They’re there to take the risk and so we HAVE a bond market.

Now if you were a futures trader, would YOU ever again trust that system?

Oh yeah, this is a mess to be sure.

The reverberations of the market adjusting to this action will be extreme.

The market remembers things like this.

The WORLD MARKET for capital remembers, folks.

And we are a DEBTOR NATION.

tick tock!

They are desperately trying to avert financial melt down, folks.

The fractional banking system can only take so much abuse and the FED kept the rates artificially low too long, and the banking system of checks and balances that might have prevented this was abandoned when REAGAN changed the banking laws.

Remember the Saving and Loan swindle?

This is way worse.

17.

Fiscal Musings
December 7th, 2007 at 3:19 pm

I can’t imagine that any form of government intervention in this matter will actually help the situation. The market just needs to work the way it does. However you look at it, foolishness should not be rewarded.

18.

Reggie, another kid with good credit
December 7th, 2007 at 11:30 pm

I just came across your blog and I think I’ll be ’subscribing’ shortly.

As far as the sub-prime mess – although I hate “W” – I’m torn on this issue.

On the one hand, those who didn’t read their loan agreements are ignorant and should be punished for said ignorance.

On the other hand, if a large percentage on sub-prime loans go bad, the ripple effect could be (if it isn’t already) very bad for the whole economy.

19.

Mortgaeg Broker
December 17th, 2007 at 9:22 pm

The mortgage mess was (in my opinion) driven by greedy Wall Street investors. Being on the inside of the mortgage business for over ten years, I’ve seen these investors only buy mortgages that they could sell. With that said, they demanded that ‘we simply get them mortgages so they could sell them’.

These investors would and still do, sell packages of mortgages to their investors and would make millions of dollars of profit per sale. They are the primary reason for the mess that we’re now in.

The second problem (again, in my opinion) is that people witnessed large profits being made in real estate. So, ‘I can buy this house no matter what the interest rate/terms are and in a few years the property will sharply increase in value. I would say that a lot of defaults/foreclosures are real estate investors.

Thirdly, greedy and sometimes stupid mortgage loan officers, underwriters, lenders and borrowers. I heard ‘I’ll be making far more money next year than this year so I can afford more house. I’m STILL hearing this. People simply want MORE than they can afford. It’s the American Way?

Underwirters get paid on a commission scale. The more they signed off on the more money they made. Lenders were selling EVERYTHING they closed to Wall Street investors so why not lower the underwriting guidelines, close more loans and cash in?

After being in the mortgage business for over ten years I have concluded that people with bad credit almost never change. I would say that 95% with bad credit this year had bad credit 2, 5, 10, etc years ago. There’s a certain percentage of the population that will ALWAYS have bad credit and they have to have a mortgage. They will always pay more for shitty credit and the future is going to be worse.

In conclusion, get your credit score above 720 and keep it there.

- Ron
North Carolina

20.

cjop
January 1st, 2008 at 10:01 pm

It has far less to do with bailing out “stupid” home buyers and more to do with Wall Street greed and an economy that has been nothing but bogus since Bush took control. “Look! The economy is recovering. The tax breaks I gave the rich are working!” The only problem with it is that the house of cards is coming down a year too early. Just like Iraq, Bush was hoping to be out of office before his total incompetence came shining through. Where were the watchdogs making sure the mortgage industry was behaving and not recklessly lending money to anyone walking in the door? “What? Watchdogs. Government is the problem.” The so called bailout reminds be of NOL after Katrina. We will appear to be doing something. Meanwhile Rome burns. Heck of a job Bushie. Read the Creditslips.org to see who the real people are that are caught with loans that never should have been made in the first place. See who really will be helped by Bush’s plan. It’s not who you think so you can get off your high, I made it on my own, horse.

21.

Dan
January 23rd, 2008 at 7:30 pm

Nick,

You’re ramblings are idiotic and your type of thinking is part of the reason why the economy is the way it is today. You complete generic bashing of all those in an adjustable rate mortgage makes me sick and wonder how you can look at yourself in the mirror. How can you make the blanket comments and assumptions that you do? You dont know any of us or who we are but I guess your qualified to throw the first stone eh? Let me guess, you’re a trust fund baby right?

The government should have been paying attention to all the subprime hooplah going on but was too busy otherwise trying to control oil prices. You want to blame someone for the subprime fiasco why not start with the president and all the mortgage firns and brokers who got rich screwing the people with the allure of an initial low rate and not truly disclosing the potential hazzards of an adjustable rate mortgage or over inflated home values.

Those of us not born with a silver spoon in our mouths simply wanted part in the American dream, to own a home. If you can’t say something nice, then just shut up.

22.

Lin Ennis
February 22nd, 2008 at 1:16 pm

Thanks for adding a little humor to a totally infuriating situation.

When will rewarding the stupid stop? Our little town is contemplating putting in 76 streetlights on a small strip of highway because three jay-walkers were killed by cars in a two-year period. I’m not saying they should have paid for their offense with their lives, but have they not heard of flashlights or reflective clothing–or waiting till traffic passes?

I’m sick of rewarding stupid people, protecting stupid people and bailing out idiots. Gawd, I hope I’m not becoming a Republican!

–One more person PAYING a mortgage, and paying it off early to save tens of thousands of dollars in interest

23.

Brandon Buck
July 20th, 2008 at 3:43 pm

Lin Ennis makes a good point. People should be responsible and sensible about purchases and how much they can afford. It’s funny that the very people (Dan and those like him) looking to assign blame on the government, greedy lenders, investors and quite literally ANYONE but themselves are in fact acting just as irresponsibly and being just as greedy. Example: Government should have been monitoring the lending industry, lenders should have disclosed more about my rates and my home was overvalued.

Truth: Government should be building roads and protecting our borders. YOU should be reading EVERYTHING before you sign and if you don’t understand something ASK someone or Google it. You should also buy within the confines of your income and should budget for a surplus. (that means you should have enough money set aside for at least a few months lost income)

Also, the “American Dream” is just that…. a dream. The American reality is that you must educate yourself and work hard to get what you want from life. There are no guarantees.

Remember, our Constitution only ensures us the rights to life, liberty and the PURSUIT of happiness.

Oh and one last thing…. WAAAAA! my government didn’t make the mean bad lenders sell me a BIG house for next to nothing!!!!! WAAAAA!

Let’s get back to taking personal responsibilty for our own actions and inactions!

24.

hmmm
November 11th, 2008 at 2:06 am

response to clever dude..

technically and ARM doesnt help you become a home owner. after the 3 to 5 years is up, you have only paid interest on the house, and nothing to the principal.. so unless your house has appreciated drastically in 3 to 5 years, (and in the case of the past year when values have dropped) you are now sitting in a house you dont have any equity in, and cant sell unless you want to sell it for less than what your loan is for.. basically that ARM you have qualifies you as a renter rather than an owner… if appearing as an owner is what makes you happy than enjoy.. you just rented for the last 3 to 5, except when things broke and the grass grew long, you had to fix it or pay for it, rather than a landlord.. might have cost you more to be an “owner.” might as well have rented a house, and let the landlord worry about upkeep for 5 years.. interest only for 5 years can range from 30-60 thousand dollars paid depending on how much house you “bought.” would be nice to own a bit of the house for that kinda money.. sorry i can see how first time owners could be fooled into this, but my 80 something grandmother even kept telling me to make sure my loan wasnt an ARM when we were buying..