Jonathan over at My Money Blog commented on this Wall Street Journal article about Detroit neighborhoods getting hit with foreclosures.
He snickered a little at the article, and after reading it myself I was doing pretty much the same thing. Homeowners are caving in under rising payments on their adjustable, subprime mortgages, and cannot sell because they've stripped the equity, the job market is souring, and they're upside-down on their mortgage/HELOC debt.
Yet several of the homeowners feel victimized as their evictions approach. “There's going to be no people left in Detroit if they [lenders] keep doing this to them [homeowners],” one homeowner in a particularly hard-hit neighborhood said. She has it wrong, though; the homeowners did it to themselves because they tried to borrow their way to prosperity.
It's true that tapping home equity is a big temptation, especially with the lenders planting happy pictures of upgrades, high-end appliances, renovations, and landscaping into borrowers' heads. It's also true that historically-low interest rates encouraged untold amounts of speculation and lending stupidity. It's also quite true that lenders will make a buck wherever they can and will get the best terms for themselves that they can, meaning that they will slip in fees, jack up the interest rate, and shift interest rate risk to the borrower if at all possible. All three of these things happened in the housing market in this Detroit neighborhood.
(I think the losses that the lenders are going to take on these loans is downplayed in the article. Gutting a house with a big Dumpster in the front can't be good for the lenders' business.)
But let's focus on the borrowers again. What were they thinking? Were they thinking? Some of them admitted that the lenders “took them for a ride” and that they “knew better than to be stupid like that” but they signed up for more debt anyway. Putting on a middle-class appearance that was part of the history of the neighborhood in better times drew them in, even as Big Auto was tightening its belt (nah, it was trying to stop the bleeding). Now that things are sagging, some of the most reckless borrowers are needing to pay the fiddler, and their credit cards are declined. So the fiddler and her band repossess the Navigator along with taking back the house. (They just stop feeding the koi.)
But isn't this how things are supposed to happen? Isn't this how things should happen? Why shouldn't present-oriented people who mortgage their future face the consequences? At some point people have to be responsible for the decisions they make. Denying the responsibility or shifting the blame doesn't change this.
You're right it doesn't work. And probably they shouldn't be bailed out completely.
But its good to be compassionate, as self-inflicted pain still hurts. I hope that the people being evicted have places to move to – no one, particularly children should be homeless in a civilised society.
Sure one can feel sorry for the people, but why blame lenders? They are not in charity business. I wonder if the people as well as the author of the article were the lenders would they be as compassionate? I do feel sorry for people in bad situation, but blaming others is not going to help them to get out.
Is it always somebody else's fault – banks, mortgage companies, credit card companies? Why not blame one's own spending habits? If you cannot afford a house – don't buy it, buy a co-op or a condo or wait until the real estate market comes down and save money in the meantime. Real estate prices don't always go up.
If you cannot afford a new kitchen with state-of-the-art stainless steel appliances and granite, get cheaper cabinets, assemble and install them yourself or, better yet, wait until you have the money. Are casinos at fault when people loose money gambling?
Agreed! Some people just need to change how they spend their money. I was reading an article today on MSN about auto repossessions, where people are just overextending, failing to pay their bills, and having their cars towed away. By the end of the article, it was recommending how to get a "good" car loan. If someone has their car repossessed, is it really a good idea to encourage them to take out ANOTHER loan? Save up, pay cash, and ride the bus in the meantime!
Borrowing money you don't have isn't going to get you anywhere unless you're using it as an investment strategy (or saving it all would be impractical, such as with a mortgage).
The people who really are getting shafted here are the ones who played by the rules and didn't get more mortgage than they could afford. Now they're stuck in neighborhoods with lots of vacant houses — so much for their homes' value. So much for their personal safety, too..
You forgot to mention the picture from the paper, it showed one of the "victims" in front of her house and car – a Licoln Navigator – so obviously they are making bad debt decisions throughout their lives.
While these people should be held responsible for the decisions that they made. It is clear that poor regulation with sub prime mortgages has hurt current homeowners and potential homeowners. Lending money to people who could not afford the future payments fueled the rise in home prices and shut out people who wanted to buy a home with traditional financing. Bundling these loans to investors as bonds makes it almost impossible to adjust the terms and condtions of an individual loan to help households who are currently struggling but have the potential to recover. This increases the number of foreclosures that hurt neighboorhoods, hurt home values and hurt the overall economy. While I believe that ultimately the real estate market will come back to the proper balance, I believe that the government needed to do more to avoid the pain that is cause by drastic fluctuations.
I agree too that the homeowners are responsible for getting themselves in bad financial situations but financial institutions are great at playing with people's emotions. People are pretty sensitive to the feeling of ownership and that's what all these institutions exploit.
I'm still in my starter home, which is located two blocks from a seedy low-rent apartment complex riddled with public welfare sponges and criminals.
Why am I still in this home? Because, as much as I hate the location, I'm not willing to move my family to a more expensive neighborhood until I'm absolutely certain that we'll be able to make our payments. I'm estimating two more years before we're ready. Meanwhile, I just paid cash for my wife's used car because I understand that no one ever built wealth by saddling himself with debt.
I don't feel sorry for these people. They lack discipline. They put materialism ahead of everything – including the security of their families. I'm just irritated that I'll have to bail these losers out yet again.
I have little sympathy for these grasshopper's who fail to plan for future hardships (referring to Aesop's "The Ant and the Grasshopper")… but, I think it's despicable that our economy will suffer enormously because owner's/buyer's were so stupid, and lender's were free to lend irresponsibly. As property values fall through the floor, foreclosures ramp up (with banks scrambling to dump properties for whatever they can), and the subsequent damage to consumer spending/confidence sends shockwaves throughout the economy — then, we'll see how sorry we all are for the poor decisions of people who borrow recklessly, and an industry where it is not only permitted, but was/is actively encouraged.
I think a major contributing factor to all of these problems is our society's tendency to overprotect those who experience "misfortune" (in this case, it is probably that the government will offer some kind of buy out for lender's, buyer's/owner's, and/or a combination of both). I think a lot of this maladaptive "help" isn't altruistic, but just the grim reality of living in a consumerist/service based economy where the country's longevity relies upon free access to disposable income. Our country is addicted to spending, and will "erase" all gut checks to the reckless, dangerous borrowing that these people partake in.
If any really want to think about what a grim picture it is, liken the housing market (and underlying soft spots in our financial prosperity that it highlights) to our country as a whole. Our own government is borrowing away our future, making grossly unrealistic assumptions about the likelihood of future prosperity/growth… deregulating itself into economic meltdown (it just passes laws to repeal any checks or balances that once demanded accountability/due diligence from those in office).
To some, these issues are mutually exclusive. However, I think the subprime implosion (and waves of foreclosures to come) are merely symptoms of a terminal disease. Unless things change drastically, our rose-colored optimism will provide little relief when the stark realities come crashing in. At some time in the future (probably soon), the U.S. (and global economy) is going to notice fatigue, hair loss, and extreme weight loss of such a degree that there won't be any denying that for the past 50 years, we've merely been the healthiest patient in the cancer ward.
This whole thing sounds exactly like what B Hussein is doing with our national budget.