In the coverage of the housing bubble deflation, journalists continue to use an expression that defies reality. From today’s Bloomberg story:
As many as half of the 450,000 subprime borrowers whose mortgage payments increase in the next three months may lose their homes because they can’t sell, refinance or qualify for help from the U.S. government.
No one can take joy at the family turmoil that is about to become real after these years of marketplace fantasy. But it’s a huge stretch to make a case that most of these borrowers — many of whom put no money down, or signed up for loans on which they paid only the interest for several years, or used what equity they did have as a piggy bank to spend on other things — own the property at all. Legally, yes. In reality? No.
Why aren’t the news organizations focusing at least some of their fire on that part of the scandal? And where were the stories telling this truth while the bubble was in its final inflationary burst?
Calling it home ownership when someone has zero equity (or less) is absurd. Some of these people are not victims in the slightest, except of their own greed or foolishness, or both.
on Sep 21st, 2007 at 1:54 pm
There is a phrase this is called – “predatory lending”. To hear you criticizing the victims kinda disappoints me Dan. You actually think people want to take out a loan that never leads to them “owning” their property in the first place?
The lenders were those with the greed. And lent money in deals knowing well and good that it would lead only to fruitful interest payments for themselves – and nothing – nothing for the buyer.
I know I’m on the losing end of the argument here – and liable to get slamed. After all – these people made their own choices. Why didn’t they read the terms of their mortgages? Did they just not understand, or were willfully ignorant? I come from a poor background and I didn’t fall for one of these crazy mortgages – I have a fixed rate.
But still Dan, even if I didn’t make this mistake, I recognize how easy it is for someone from my background to fall for promises like these lenders were making.
on Sep 21st, 2007 at 3:58 pm
Right, Karl, there was some predatory lending. I’m all for going after the sleazeballs who engaged in things like forging documents, etc., or who lied outright to borrowers. There are undoubtedly many of them.
I’m furious at the way the mortgage industry, top to bottom, engineered this bubble in ways guaranteed to cause such woe. But the fact that the game came to an end does not — in the slightest — make me want to let people off the hook for some incredibly bad decisions.
Of course, the Fed’s rate cut is going to bail out the people at the top of the housing food chain, and leave the ones at the bottom just as screwed as they were. That’s scandalous, too, rewarding the financial engineers for their recklessness.
But — yes, I’m saying exactly that I’m not feeling much sorrow for the people who signed for loans that they *had to at least suspect* were going to be risky at best — loans that would make sense only if property prices continued to rise indefinitely and consistently. Maybe, shedding all common sense, they bought a line of bull from the media (and probably their neighbors and definitely the mortgage industry) that prices would never stop rising. But they were willing participants in making this mess, not passive bystanders or victims in any standard sense.
What are you suggesting that society do about this? Give people taxpayer subsidies to pay down loans they never should have qualified for in the first place? Just outrageous.
A lot of these folks are victims of their own greed and/or willingness to believe the impossible. They have my sympathy if they’re forced to leave the houses they never really owned, because that’s a disruptive situation for anyone. But they don’t qualify as victims in my book.
Meanwhile, the media will continue get this story wrong, which was a point that got lost in the original post. Nobody cares, apparently, that you can’t logically own something when you have a negative equity and no plausible way of paying down the principal. But never mind. The meme is being well-established — victimhood for a new class of people who, by any rational standard, don’t deserve it.
on Sep 21st, 2007 at 7:32 pm
“What are you suggesting that society do about this? Give people taxpayer subsidies to pay down loans they never should have qualified for in the first place? Just outrageous.”
Didn’t suggest anything of the sort.
Oh – and I worked my way from homelessness and straight up poverty without a single handout.
Just a reminder.
I believe in hand ups, not hand outs.
“Meanwhile, the media will continue get this story wrong, which was a point that got lost in the original post. Nobody cares, apparently, that you can’t logically own something when you have a negative equity and no plausible way of paying down the principal. ”
Isn’t that the entire American credit industry?
“The meme is being well-established — victimhood for a new class of people who, by any rational standard, don’t deserve it.”
Wow.
Ya know – I really wouldn’t worry so much about handouts because the same people that always get bailed out – will get bailed out. While the press and everyone else cries crocodile tears.
Kinda like Katrina.
on Sep 21st, 2007 at 9:13 pm
Karl, then what are you suggesting? What should we do about the “homeowners” who are losing what they never qualified for in the first place?
But it’s not the entire credit industry. Definitely a part of it, and that part does not deserve a bailout any more than the people who lied on their loan applications.
The system is absolutely rigged against the people in the middle and lower middle class. No question. Let’s change the tax system. Let’s make opportunities more level. But let’s not encourage speculation from top to bottom. That’s not going to work.
on Sep 22nd, 2007 at 8:55 pm
“Karl, then what are you suggesting? What should we do about the “homeowners” who are losing what they never qualified for in the first place?”
I honestly don’t know what a solution or set of solutions would be. In the end, we’re in agreement that it’s best to “not encourage speculation from top to bottom. That’s not going to work.”
I do know that I personally benefited from the more permissive credit of the past few years when I bought my house. I didn’t have enough money to put down. Had to get PMI (which is just about paid off). But got a decent interest rate due to a good credit score, that I locked in at a fixed rate, to avoid this kinda tragedy.
All along I’ve watched people who *did* have equity in their houses get crazy terms on home equity loans and second/third mortgages – and its *these* people who I see most threatened right now as their interest rates climb. Then again – it was *these* folks who *I* think were greedy. They had an idea of what they were getting into.
Not the poor or working poor person just getting by who was sold a loan too good to be true, who thought for a moment that things were actually going to go their way for once.
on Sep 22nd, 2007 at 9:58 pm
This is the continent size elephant, hidden to all those, so blindly competitive they do not sense the true nature of humanity.
No one is to blame. Given perspective from space the elephant would be a needle in the haystack.
I recall the elderly gentleman with pristine credit and a perfect match for the Cadillac dealer. Soon after an officer found him lost and unable to get home. The only recently diagnosed Alzheimer’s patient had run a business less than a year earlier.
Billion dollar industries flourish on the few synapses tangled within scores of millions of brains.
Check out literacy levels, and were it possible emotional development. Courage to say no? And sadly, the short reaches from circling horses where a babies candy ring is rarely held onto.
on Sep 23rd, 2007 at 8:05 am
Karl, you did the right thing. More power to you.
I also feel sorry for the “poor or working poor person who was sold a loan too good to be true” — but not enough, barring outright fraud by the lender — to absolve that person of some responsibility for his or her actions.
on Sep 24th, 2007 at 9:23 am
I don’t want to absolve them for their own actions either – if they understood what they were signing up for.
But like the large number of folks that still believe that Iraq is involved in 9/11, our media, our information infrastructure – failed these people – who were sold a dream – a set of false promises – that both you and I know better about.
While I don’t think about bailing out anyone – it makes me madder and madder that people are no better informed about their world.
If people were warned that the market would change, that interest rates would go back up, that credit would tighten, though mass media, across the Web, in such a way that that the message got through – while the bubble was growing, not while it was bursting – it’s news to me.
All the while there are more and more “flip your house” shows being produced.