Foreclosures Hitting Middle-Class Families Hardest
Tue, 09/04/2007 - 2:00pm
My wife and I went looking to buy our first house this year. The news about the shaky housing market didn't completely put us off the idea, but it made me a little nervous. Those nerves were apparently justified: new figures are out about the foreclosures in North Texas, and the news is bad for owners of low-priced and mid-priced homes.
As we went looking for houses, our realtor would tell us with regularity that, among lower- and mid-priced properties, the foreclosures were really beginning to skyrocket in North Texas. The Dallas Morning News says that my realtor wasn't making things up, and that as foreclosures have spiked, houses in those price ranges have made up the majority of those taken back by the bank in our area. I imagine this isn't a statistical phenomenon unique to North Texas.
I think that all of the economic happy funtime spin you often hear from Republicans about the economy these days can't stand up to the evidence presented by the real estate market. Many people were talked into buying loan products they couldn't afford, and I don't hear people talking much about what happens over the next few years when all of the adjustable rate mortgages — and not just the first wave — come due for their required increases.
I don't know much about the particulars of the savings and loan crisis in the eighties, but I've heard that comparison made more than once. It all seems like things will get worse before they get better. Congress and the Bush Administration will likely spar about how to handle what will eventually amount to a crisis with national implications, if it doesn't already.
The bottom line is that working families in pursuit of the American Dream are the ones largely being punished by an industry run rampant for want of good oversight. The real estate downturn is a big problem, with far-reaching consequences for many of us that are difficult to see at this early stage.
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Shady mortgage brokers
By John McClelland
Wed, 09/05/2007 - 9:44am
I can attest to that. I inquired a couple years ago just for shits & giggles about a mortgage and a broker was willing to give one to me even though I had a bankruptcy one year prior. She said "oh yes, we will give you one a day out of bankruptcy" !! The catch was that they offered a 2/28 ARM (2 yrs fixed, 28 adjustable) and the pitch made was "well after 2 years your credit will be better and you will be able to refinance at a prime rate fixed mortgage." Sounds reasonable, but mostly not realistic at all in most people's cases. So everyone who were sold on these ARMs are now screwed because they aren't able to refinance.
I also attribute it to the Bush administration in part. George Bush stood there in 2002 and wanted everyone to be a home owner. Sounds quaint and a cool idea for an economy boost. But there was nothing to back up the statement from the government. He let the free market back him up with the 2/28 ARM, rather than putting more money into FHA programs (which is what I am lucky to be getting for my new home). And now the shit is hitting the fan.
So, you called a lender...
By McBlogger
Wed, 09/05/2007 - 9:51am
and they offered you a loan despite your checkered credit history? Did you ever, even for a second, consider that the people you are demonizing didn't make the rules? They were only offering you financing according to the terms they were getting from their wholesale relationships.
There is an element of personal responsibility in all this. You obviously walked away from the loan while someone else may have taken it and actually fixed their credit during the fixed term of the loan. That was your choice. But don't call a broker 'shady' for offering a product that had guidelines that would accept your credit profile.
Finally, the overwhelming majority of subprime borrowers will be able to refinance. Mostly because they did what their LO told them and fixed their credit.
Responsibility is shared
By George Nassar
Fri, 09/07/2007 - 5:46pm
Let's be frank, though. Of course there is an element of personal responsibility -- and there is also an element of predatory lending. That's not "demonizing." There's nothing inherently wrong with the profit motives, or of corporations as the primary means of large-scale application of the profit motive. But when a broker offers a product that they wouldn't have dreamed of offering a decade ago for the purposes of making customers out of people who wouldn't have ever been considered good credit risks a decade ago (and I'm not referring to 2/28 ARMs; I have option ARMs in particular in mind, which if I could honestly come up with one case where they were a good idea I'd be shocked) and making a profit off of them for as long as their actuary says on average they will continue to pay until they default on the loan, that's overreaching on the profit motive.
On one hand you have a company making more money on a loan -- because it's a bigger risk, so they deserve more money for it, right? -- so in the end they break even with the greater profits vs. a greater rate of default, in particular with the booming debt recovery market. And on the other side of that equation you have a greatly increased number of people losing their homes. Doesn't strike me as a fair shake.
Actually, there are a number of cases in which...
By McBlogger
Sat, 09/08/2007 - 2:11am
an option ARM is a good idea. For one, a newly minted doctor with income that is likely to rapidly increase. Personally, I think of those products as financial weapons of mass destruction. However, there are some cases where they make sense. It was abused when investors began expanding the guidelines to wage earners, etc. who had no reason to buy more home than they could realistically afford.
Lastly, again, beating up on TPOs doesn't do any good. For one thing, they are only able to offer what the secondary market will purchase. That has nothing to do with predatory lending. That being said, there are some TPO's who went too far. I wouldn't call it predatory lending, however I would say they did not exercise proper judgment in obtaining financing for someone who was clearly not capable of handing extraneous situations. In other words, just because it meets guidelines doesn't necessarily mean the borrower deserves the loan.
Before all of you freak out, keep in mind that most of the subprime loans out there will be refinanced into FHA or A- conforming where most of them should have been in the first place.
Well... not quite...
By McBlogger
Wed, 09/05/2007 - 9:44am
ANYTIME there is an economic dislocation, you are going to see an upswing in foreclosures of lower to mid-priced homes. Why? BECAUSE THAT IS THE VAST MAJORITY OF HOUSING IN THE US. The corollary to that is that the market in those homes is also one of the first to recover because that's what most buyers can afford. What you've got is anecdotal evidence leading to a conclusion. What you should be looking at is why the middle class is being squeezed. Tell you what, take a look at real wages from 1970-2007. It's illuminating.
Actually, those at the lowest and highest ends are the ones being hit disproportionately hard in this downtown. They either can't get financing at all, or can only get it at inflated rates. Whatever your feelings about subprime lending, it did help people buy homes. However, stagnant real wages did more to ruin the lives of homeowners than an amortization schedule.
As for regulation, come on. The financial services industry, which encompasses mortgage lending, is VERY well regulated. The problem isn't the lack of rules, it's the non-existent enforcement. For example, TSLD, the state agency that regulates mortgage brokers and loan officers in Texas, is a fantastic agency but they don't have the money to they need to effectively regulate.
The Lege, Congress and even the Fed can create all the regulations and laws they'd like. If they don't budget for enforcement, it'll all be worthless.
Finally, don't get depressed about the housing market. You'll probably be able to get a better home than you would have 12 months ago.
Enforcement
By Josh Berthume
Wed, 09/05/2007 - 10:45am
I concede that enforcement is often the problem rather than a dearth of rules and regulations. When I say "oversight" and / or "regulations," I guess I'm generalizing the rules and the enforcement into a single category.