Saturday, December 1, 2007

I'd almost consider running to answer this question...

So, it's like this...

First, the video is only 27 seconds long, so feel free to watch.

Now, let me tackle the answer.

Jamie, there isn't a quick and easy answer to the question, but it looks like you think there should be from your video. But, let's look at the causes, and let's see if we can find some possible solutions.


  • The fed, trying to keep the economy rolling after the terror attacks of 9/11 kept rates low. Those low rates made a lot of people think about taking advantage of them to buy homes... lower rate, better payments.
  • Consumers decided to take advantage of that opportunity to not only buy houses, but to tap the equity in their homes while refinancing, since they could cash out, and keep the same payment.
  • Many of those consumers got greedy and wanted to get more than they really should have. Instead of getting another 30 year fixed when they refi'd, they chose to go after something wilder and instead of 5.25% for 30 years, they got an interest only ARM for 2.5%... and then bought a bass boat and a new Tahoe.
  • Buyers got the same kind of greedy. About the same time they figured out that they could get a $400,000 house with a real loan, they found out they could get a $600,000 home with a mortgage that they had no business being in. But, they wanted it and didn't care.
  • Other buyers also got greedy, but in a different way. They found out that they could get out of their apartment, and into a house without spending any money. They could buy a house with 100% financing. They didn't care about the terms... it was less than their rent.
  • Some mortgage brokers got greedy, too. They put people into whatever worked for the moment without regard to the future ability to repay. As soon as the loan closed, it was sold... so who cares.
  • Some agents got greedy as well. They actually suggested that buyers get something wild just to get a bigger commission.
  • Back to the fed... They raised rates in order to cool inflationary issues. Those "exotic mortgages" started to get pretty exotic...


  • Personal responsibility.

Do you really think that any of the above things should be fixed by the government? I mean really.

  • The fed was doing the right thing to respond to the financial needs of the country. Technicians may argue about whether it was too much, too little, too early or too late... but it was the right strategy.
  • Nothing wrong with refinancing for a better rate. Nothing wrong with taking out a little cash to make the house better.
  • When people start paying off credit cards things get a little gray. As we move into Tahoes, bass boats, and vacations, we are leaving gray and heading towards dark. Doing with an exotic mortgage product is just plain stupid.
  • Buying too much house because you just want to... and can find a mortgage product that will let you... just plain stupid.
  • As much as I like first time buyers, and want EVERYONE to own a home, some people just aren't ready. Not understanding what you are committing yourself to is... not responsible. (I won't say stupid, because first time buyers NEED a break, and they need the guidance of responsible professionals).
  • I think that loan originators that don't care about the future of those that they pawn off crappy, unsuitable products upon are crossing an ethical line. it isn't going from bad to good, either.
  • Agents... same thing.
  • Again, the fed did what they needed to do for the situation. Same arguments as the first point.

So, there is the answer to your question.

Now, on to your point that you didn't ask a question about...

Why has your neighbor's home been on the market for six months?

The price is wrong for the market, marketing, or condition. It isn't the same real estate climate as two years ago. The house needs to be priced where it belongs, not where they buyer hopes it will be. Perhaps they can't afford to sell it at the price it should be at. If so, maybe it is because they were covered above.

The short answer is that as President, I won't do much to "fix" this problem. I will, however, tell people that the government is not their Mommy, and they need to be responsible for their own actions. If there is a surgical way to make the actions of greedy mortgage originators and real estate agents illegal, I'll pursue it. But, as is often the case, broad legislation usually hurts more people than it helps.

Is that my whole minute?


Anonymous said...

Thanks for trying to answer my question. I agree with 90% of your rationale, but I believe that the government has some responsibility to protect uninformed consumers from entering into loans for which they are not qualified. By not overseeing the mortgage loan industry over the last 5 years, the Bush administration failed the people. The government does have a history of regulating creditors, e.g. TIL, FCBA and FDCPA. If the government can legislate to expand the rights of the consumer, it should also be able to apply policies that protect the consumer from exceeding their buying potential. I know this seems to violate individuals' rights, but clearly if people are allowed to overspend, they will. And if lenders are allowed to irresponsibly lend, they will. A purchase with the magnitude of a $400,000 home should not be as easy as signing on the dotted line. You can't buy 2 tons of ammonium nitrate without a license. You can't kill endangered animals for a reason. You can't drive a car without a license for a reason. I feel that just as you put your trust in your stock broker's hands to make money for you, you should also be able to trust your mortgage company to tell you that you can't afford a $600,000 home when you can't. It's simple math, however when the mortgage companies care more about sealing the big deal than making the appropriate deal, it's all over.

Lane Bailey said...

The rules that were exploited in the RARE instances of fraud are the same rules that were in place during the Clinton Administration, so trying to peg it to Bush is a dog that doesn't hunt. Further, you can't legislate responsibility of honesty. The biggest problem during the sub-prime mess has been No-doc loans, and loans tied to volatile indexes. Doing NO research when buying a house is neither smart nor responsible. When you get a $400,000 house for $2000/mo. you have to question how... or you don't care or don't want to know.

Now, as to the rest of your point...

You can't kill people by buying too much house... but you can with ammonium nitrate and a car. I don't just trust a stock broker... I investigate them and their performance... and then I monitor them, and their performance. If one tells me that he can get me a 47% return, I am going to be looking at that very hard.

What we do agree on is that it isn't the government's place to step in and break the existing contract unless they can prove force or fraud.