Why is it that normal people are too intimidated to at a minimum understand the rate they are actually paying

Probably the same reasons why normal people (without whupping out their documents);
A) Don't remember the rates they are paying on their credit cards,
B) Don't remember the terms of their insurance policies,
C) Don't know the instruments invested in their 401(k)s,
D) Don't know their own marginal tax brackets,
E) Don't even know WHAT a marginal tax bracket is,
F) Don't know whether their employee-benefit life insurance is cash value or term,
G) Don't know the difference between cash value & term insurance,
H) Don't know the costs of insurance subtracted (openly or opaquely) from their paycheck,
I) Don't realize they ARE paying for such benefits eliminated from their paycheck

I honestly have no idea why people do not know these things, I know the answers to every one as does my father and each of my siblings. My father conveyed his rather risk averse philsophy to me, whether by osmosis or genetics I am not sure. Although since I am self employed many are not an issue. Also since I do not get a W2 the marginal tax rate may vary from quarter to quarter (or at least the anticipated one does)

It does amaze me but then so do the people who just walk in and buy a car without researching or comparing (assuming they are not Rock Star or Chief Executive who have more money than time)

So you are saying notes are simple (mine is in the bank vault and fixed so I have no need to refer to it, if I get a chance I will look) and people are just lazy idiots for not reading it? I understand there are 14 pages of disclosure but not to understand the basics makes no sense to me unless it is somehow made difficult. BTW I do not think Banks really are all that eager to give you disclosures even basic ones. As I posted on the other forum, a friend who is also self employed recently took out a couple of small business loans. With neither one was he given any type of disclosures beyond the intial application (which he was not even given a copy of until I insisted) until I requested them and then they had to go back to the underwriter to get the paperwork, there was not even a prepared disclosure I was amazed but then I must be naive. The managers atitude was, we just need the application, you are approved, great, here is your money or line or whatever! Scary. In one case there was a fee that was not disclosed (he did that one by himself, of course we got it waived but still).

I think the state bailout is a great idea, I also think you can negotiate with lenders as a group to get them to accept this rate so that the state is not paying the spread. It is probably less expensive than repossesing 4 houses on the same block which will never sell

I don't know of many markets that are that blighted (or in any way really facing the threat of that kind of complete abandonment.) Not even Cleveland ;~) (OK... maybe Rochester and/or Buffalo... but, shoot... even THERE there are investor/buyers at the right prices.)

Were you an adult invested in property in the early 90s? Believe me the banks were very happy to sell things at a loss to get them off their books in nice areas, I do not doubt they would have been willing to lower rates to avoid the process and often did. I am not suggesting a below market rate, simply a slightly eleveted state guaranteed rate, similar to what the same buyer would have qualified for from a legitimate lender when he took out the loan. Sort of equivalent to a HUD loan. If a fully qualified buyer would get 6% then they should get 6.5 to 7%

Why shouldn't he just go into the marketplace, find the lowest rate he can with the lowest closing costs (and he gets them guaranteed in writing) on a conforming conventional 30 year fixed mortgage?

Possible reasons;
A) He doesn't wish to overspend on interest unecessarily,
B) He doesn't see cash-based real estate investments as his best performing options,
C) He foresees potential business/career growth opportunity (buying in as a partner, spinning off a division, etc.)
D) He's unhappy or doubtful with some part of his existing structure, and wants to seek potential improvements in his portfolio...

I am definitely NOT saying that is WRONG... just that it, too, has its consequences

Of course you are saying it is wrong in the same way it would be wrong for someone who has a FICO score of 740 to accept a conventional fixed first mortgage at 10%. You are saying they are wasting money. I just do not understand how? Could you explain it in simplistic terms giving an example? What type of loan would he get instead, for what amount (500k house), at what rate, where would he park his other money instead? Is one stradegy riskier than the other? How do rates going up affect the analysis?

Also lets say instead he wanted to buy a 750k house which his 150k income would not support but it has the best school district/little league team/best community whatever and he recently got 250k inheritance from great uncle Dilbert so he can pay down so it has the same effect as the 500k house (lets assume houses are the same size so no extra taxes or other expenses).

In my example C did not apply, he was already earning his peak salary. I will agree that letting 20% of his equity sit in his house or 100k may be a waste but then so is PMI. As for D, I think anyone who was earning 100% return on his money from 1997 - 2000 in the stock market or a 300% return in the real estate market will always be disappointed with 5-10% a year that financial planners shoot for. BTW my brother used to be a financial planner, it always seemed to be based on some type of whole life policy, mutual funds and bonds

Hi Saphire,

It does amaze me but then so do the people who just walk in and buy a car without researching or comparing (assuming they are not Rock Star or Chief Executive who have more money than time)

Yup, me too...

So you are saying notes are simple (mine is in the bank vault and fixed so I have no need to refer to it, if I get a chance I will look) and people are just lazy idiots for not reading it?

Well... *I* wouldn't have added the "idiot" term. I think we as a general Western culture (with a small few cultural exceptions) tend to stigmatize the open conversation and consideration of money, which results in underdeveloped awareness by a (rather embarrassing) majority of our population.

I don't think our grand community is STUPID in general... but in the topic of money, we have generically perpetuated a culture of monetary ignorance.

I understand there are 14 pages of disclosure but not to understand the basics makes no sense to me unless it is somehow made difficult.

Swimming a single lap can be "impossible" to the person who's never been taught how to behave in water. The water isn't any more difficult for one person than another... it's the comfort of the accpeted learnings.

BTW I do not think Banks really are all that eager to give you disclosures even basic ones.

Banks are eager (as is any commercial venture) to do more business, more profitably, with more happy customers. They are also motivated to have deals that do not "blow up" or become expensive legal hassles. That's not to say that all banking businesspeople are angels... far from it. Every profession has it's distribution from good to bad.

Disclosures, however, cannot override our cultural troubles.

As I posted on the other forum, a friend who is also self employed recently took out a couple of small business loans. With neither one was he given any type of disclosures beyond the intial application (which he was not even given a copy of until I insisted) until I requested them and then they had to go back to the underwriter to get the paperwork, there was not even a prepared disclosure I was amazed but then I must be naive. The managers atitude was, we just need the application, you are approved, great, here is your money or line or whatever! Scary. In one case there was a fee that was not disclosed (he did that one by himself, of course we got it waived but still).

Good for you on the undisclosed fee. Business and commercial financing isn't overly regulated the way that consumer residential financing is. The government has basically said "if you're mature enough to drive your own business decisions, we'll let you take care of yourselves as adults, and don't come crying to us unless its to civil court for a contract dispute, or fraud."

I am not insensitive to the fact that non-entrepreneurial consumers aren't typically as financially mature... but I do believe that trying to patch that problem with reams of disclosures is definitely NOT solving the problem.

Were you an adult invested in property in the early 90s?

Adult, yes. Owning property, only my first at the end of the '90's... HOWEVER, in one of my prior careers I had traveled throughout the U.S. & Canada mostly working with Realty companies, so I had a neverending feed of the street-level market valuations mostly everywhere.

Believe me the banks were very happy to sell things at a loss to get them off their books in nice areas, I do not doubt they would have been willing to lower rates to avoid the process and often did.

Yes, and this is actually beginning to pick up steam right now, as well. Banks are very proactively calling on defaulting borrowers with sweetness & fawning to try to engage a conversation to restructure the terms of the existing loan to make it so that the borrower can survive the stretch, and the bank can avoid another dead note in foreclosure on their books, and an accumulation of slow-moving REO properties in their portfolios.

I am not suggesting a below market rate,

Uhh... well... yes you are, dear. If you are suggesting a normal market rate for these credit grades, the problem is that they can't afford what they qualify for today.

simply a slightly eleveted state guaranteed rate, similar to what the same buyer would have qualified for from a legitimate lender when he took out the loan. Sort of equivalent to a HUD loan. If a fully qualified buyer would get 6% then they should get 6.5 to 7%

If the fully qualified buyer could get 6%... why not just give them 6%? Why bump it another 50-100 basis points?

What am I missing in your idea?

Of course you are saying it is wrong in the same way it would be wrong for someone who has a FICO score of 740 to accept a conventional fixed first mortgage at 10%.

OK... but "wrong" implies some kind of personal judgment, which I do not imply. People choose to do things that costs them more money than otherwise ALL THE TIME... even in full awareness... and many times they do so for tradition reasons, or cultural reasons, or emotional reasons... and I've learned to just be OK with that.

You are saying they are wasting money. I just do not understand how? Could you explain it in simplistic terms giving an example?

OK... a very simple example... but recognize that there are SO MANY variables in a typical family financial portfolio, that this simplistic example can't be used as a cookie-cutter one-size-fits-all standard.

Borrower knows that average appreciation will be 3-8% annually... and thus, if he puts 20% cash into his real estate (which is the equivalent investment as buying treasury bonds,) he knows that in just 3-5+ years he will have become significantly over-invested in bondlike instruments as opposed to his optimum retirement portfolio allotment. Every year he further delays takes him further from his proper investment balance.

If he pays the higher interest costs for a 30 year fixed, knowing with incredibly accurate probabilities that he is going to need to re-seperate accumulated equity and re-balance his family's portfolio to safely and efficiently reach their best goals, he will have overpaid for his loans at minimum, and may have likely lost out on stronger opportunities in appropriate growth vehicles elsewhere.

What type of loan would he get instead, for what amount (500k house), at what rate, where would he park his other money instead? Is one stradegy riskier than the other? How do rates going up affect the analysis?

These are all EXCELLENT questions. They are answerable... but there are SO MANY ALTERNATIVE answers, and they all require custom fit to the particular individual's stage in life, career, family, and what his timing & goals are for his chosen outcomes.

As for rtes going up... remember;
Savers/Investors LOVE IT when rates rise... HATE IT when rates drop.
Borrowers HATE IT when rates rise... LOVE IT when rates drop.
LEVERAGED INVESTORS (when debt is strategically balanced with appreciating assets) sleep like a baby either way.

Also lets say instead he wanted to buy a 750k house which his 150k income would not support but it has the best school district/little league team/best community whatever and he recently got 250k inheritance from great uncle Dilbert so he can pay down so it has the same effect as the 500k house (lets assume houses are the same size so no extra taxes or other expenses).

See? More variables... LOL! In this case he must consider the lifestyle benefits he's considering CONSUMING by alloting a larger portion of his otherwise employable asset-base into bond-like instruments (unleveraged non-rental real estate) rather than making a different, less consumptive choice, and keeping more of his horses pulling his retirement investment wagon.

You see... neither way is "wrong." We all have to make these (frankly difficult) decisions throughout our lives... and many (most) of us in our culture are doing so with an emotional money handicap.

I applaud that you have a strong grip on your financial details. I may invite you to stretch your vision just a wee bit as to how you integrate all the pieces together ;~)

In my example C did not apply, he was already earning his peak salary.

You had said "peak salary"... which is often the "straw on camel's back" that pushes someone to desire to break to another level. I didn't know your hypothetical man was without any desire to improve.

I will agree that letting 20% of his equity sit in his house or 100k may be a waste but then so is PMI.

You don't have to bury 20% cash to avoid the non-deductible problem of PMI. There are alternative ways to optimize your leverage in fully deductible methods.

As for D, I think anyone who was earning 100% return on his money from 1997 - 2000 in the stock market or a 300% return in the real estate market will always be disappointed with 5-10% a year that financial planners shoot for.

Anyone earning 100% returns on their self-managed investments would be I-N-S-A-N-E to give ANY of their working capital to a mortgage bank!!!!

BTW my brother used to be a financial planner, it always seemed to be based on some type of whole life policy, mutual funds and bonds

Some still use some of those as well... but whole life is rapidly going away in terms of new planning. Mutuals (both stock and bond varieties,) equity-indexed vehicles (both taxable, tax-deferred, and tax-free,) and real estate assets, are the primary "vanilla" cornerstones of most plans these days... but as with the above examples, there are seemingly unending variations and unique strategies & structures to get people to where they want to end up, with the least risk, net expense, and market loss along the way.

Hope you had a wonderful Easter Sunday!

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

While this is all very interesting, I have a much simpler point of view.

3 years ago DH and I bought a house. It's in the NY metro area and it's 2 hours from the city (and yes, for the last 18 months I commuted there to work). Our house is fairly modest, though we DID get lucky finding a house that was larger than the others we were looking at, but still it's 1900 sf, 3 bedrooms 2 baths, hardly a mansion.

Would I have liked a larger house? Sure I would have. Would I have liked to purchase a house much closer to the city so that I have more and higher salary opportunities without killing myself? You betcha. BUT when it came time to evaluate our options for purchasing a house, I put on the big girl panties and made some tough decisions to stay within our budget, regardless of what "they" told us we could afford, regardless of the fact that we were going to be adding my salary to our income in a year or two... because I knew our taxes would just keep going up and the cost of maintaining a house is not exactly zero.

My taxes are high enough as it is, thanks. Now I'm supposed to subsidize people who weren't mature enough to have the tough talk with themselves about how they aren't entitled to what they want just because they want it? Sorry, but no. They are part of the reason that we couldn't afford to buy a house closer to the city in the first place. If subprime loans make up 20% of the mortgage market then that would have been 20% of buyers who were not competing for the same houses and driving up the prices so quickly that people who ARE financially responsible can't afford them. Now you want me to bail these people out? Sorry but I have a tough time with that.

kwlisa said it well. Why should the rest of us who took personal responsibility for our financial picture reward bad behavior for those who didn't by bailing them out?

I read a stat today that said only 9% of subprime loans made from 1998 to 2006 were for first time home buyers. The vast majority of subprime funds went to *refinancing* existing homeowners. Also known as "tapping my inflated home equity ATM to buy the latest flat-screen, SUV, whatever else the neighbor has that I deserve".

I have sympathy for those who were defrauded by predatory lenders. But a universal bailout by taxpayers is ridiculous.

KGWLisa's post hits close to home. 3 years ago we decided to move closer to DH's work and to a much better school district to avoid tuition. We worked up a budget and decided how much of our monthly income we wanted to devote to housing. We moved from a 2800 sf farmhouse that we put our heart and soul into to an 1800 sf bungalow. We've since decided that we are less-than-enamored with a smaller house (I thought I could adapt, I couldn't) and aren't that fond of the town, either. So we've been looking to move again. We looked at a house that both of us loved...everything we wanted; good schools, great commute, nice neighborhood and a house that was functional as well as beautiful. It was also at the top of what "they" said we could afford. When it came down to it...Could we "afford" it? Yes, but at this time in my life, I'm not willing to give up our kids' activities, vacations, date night or reduce our retirement savings. We all have to make decisions. We could have bought that house and had to make major sacrifices and scraped by every month OR gone into debt because we were unwilling to make the neccesary changes to how we live. It's all about choices. We chose to be responsible and exercise fiscal restraint. I'm not feeling all warm and fuzzy about bailing out that chose NOT to.

"I suspect I (once again) was unclear...."

Actually, Dave you were quite clear. It must be that I'm not making myself clear. I understand completely that the subprime borrowers couldn't afford standard 30-year loans because the only interest rates they could qualify for had interest rates far above the market average. That would mean unaffordable house payments. So they took out exotic subprime 2/28 loans with teaser payments for the first few years to get house payments low enough to be affordable -- for a while.

Some of them, I'm sure, knew they were taking a gamble on house prices rising, meaning that they would have had sufficient equity in th house to refinance when their teaser rates ran out or even, for some who were outright speculators, flip the houses for a profit. They gambled and lost.

Others really didn't understand what they were getting into or maybe didn't pay enough attention, but went ahead anyway because they were already in a finacial crisis and needed to get some money from refinancing their houses to pay off medical and/or CC bills.

Then there's the category that was downright defrauded by unscrupulous lenders.

But whatever the backgroung reasons, the question still remains -- is it better to let things take their course and let all these houses go into foreclosure? Or can an argument be made that the economic and social costs of the ensuing fallout wuld be so great to many communities and some states that local government intervention (such as the underwriting programs some states have enacted) is a sound policy decision?

I understand that some states are already seeing their tax revenues decline because of falling property values. Massive subprime foreclosures would be bound to have a very negative impact on values and drop these revenues even further. And don't forget that even the homeowners like you and I who diligently make our mortgage payments will also see our property values fall and our net worths decrease.

That's something we all need to think about.

Hi FF,

Glad to hear I was clear enough, and I think you are as well...

A few perspective comments;

I understand that some states are already seeing their tax revenues decline because of falling property values.

Is this really a bad thing? Many (most?) states saw an artificial INCREASE in tax revenues from easy-credit driven artificial market valuation increases... so much flood of easy money that buyers who had more money than sense (pun, pun) were bidding real estate far above it's otherwise stable range... and the local governments were happily feeding at the trough by raising their tax revenues without an concern or logic... gulping the easy money along with everyone else.

Massive subprime foreclosures would be bound to have a very negative impact on values and drop these revenues even further.

Doesn't it make sense to have the governments "dry out" from their drunken bachanal bender as well? It's NOT like they were pressed to become more efficient (sorry, oxymoron alert) during the easy-money salad days. Perhaps it's time to put on the pressure to pare back government to common-sense reasonable levels where they more naturally belong?

And don't forget that even the homeowners like you and I who diligently make our mortgage payments will also see our property values fall and our net worths decrease.

True... but anyone who owns assets sees their net worth naturally fluctuate with the markets... that's nothing to lose sleep over. markets rally, waiver, pull back, and rally again. Prudence manages the costs-of-carry (you design your financial life to survive the bills) and let the appreciating assets appreciate on their own cognizance.

That's something we all need to think about.

Yep... agreed. Good to think this through...

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

I'm missing something here.

If I get this right, some folks think if we don't step in and somehow magically fund the bad loans we'll be looking at a housing collapse and all kinds of bad things will happen to the unfortunate people who took loans they can't afford.

Ummm... Ok.

How about this? Let's spend hundreds of millions (billions?) of dollars to make sure rich bond holders don't have any of the capital they invested in shoddy loans at risk. We'll pay out the cash to make sure investors in China and the Middle East get their money back. Of course protaying the story from that angle doesn't sell newsprint or help "save the common man".

Maybe when we're done we can go help prop up some internet stocks with taxpayer money.

It seems to me the real winners in the bailout scenario aren't those who took loans they can't pay, but those who loaned them the money. Sure, they can get some (most) of it back by selling the house, but if the market collapse is truly at the cusp isn't their ability to recoup the money in question?

Of course, someone can suggest a windfall profit tax later and blame Bush for just making the rich richer after the dust has settled.

bentruler

Certainly, the banks and the bondholders (not all of whom are "rich") will suffer fom the subprime meltdown. So will the economy in general. But you make it sound like the bondholders would be the only ones to benefit from corrective action, which doesn't make a lot of sense to me.

Here's a provocative article from Money online. While it's not favorable to the so-called "bailout" programs, it seems that more than 30 states and some nonprofits have either started such programs or are considering them. So it appears that this thread is very timely.

Any comments?

Here is a link that might be useful: Bailouts may not save subprime homes

The goal is not always to "save" the home for the person who bought beyond their means, but to get them out of the house without foreclosure, which often lowers property values for the entire neighborhood.

I put the max amount of spin possible in that direction because most articles you see have the max spin in the opposite. I have yet to see a major news atricle that mentions the lenders could loose money. I predict if the spin placed on stories was from that angle, you'd see support vanish in a flash.

Not nearly everyone (and I'd say most) people who are going to get burned here willingly played with fire. I actually read my mortgage note when I signed it. 90% of it is boilerplate crap. The important parts CAN (and do) fit on two pages, 3 if you have an ARM. They aren't hard to understand.

We don't need government regulation to solve these lending problems, we need the lenders to actually loose money. They'll learn that lesson real quick like I predict. But if you make it safe to make bad loans, what reason is there to tighten lending standards?

If private not-for-profits want to bail out people, the more power to them. If people want to open their checkbooks and help out, great. Just don't open my checkbook for me.

To be honest, this is reminding me a little too much of 1987-1990. Prices peaked, people bought some within their means, some within their means if everything went well and some on speculation. The only difference is we have not had the percipitating event yet and interest rates are starting out much lower.

I have no idea what it will be but I feel it coming. While I knew a lot less about finance then I do remember the Thrift loan debacle. It did not have a positive effect on housing prices that started declining after the 87 crash. It is the economy as a whole that suffered. Very well qualified people were out of work. I remember meeting one person who had never kept a job more than 10 months because every company he worked for was downsizing after he was hired from 1987 on (he is a multimillion now after finding his niche). Anyone who works with non staples may see his company or income decline as the economy contracts. The only one who will benefit from that are discounters like Walmart. Remember the department store bancruptcies of the mid 1990s. Yes you can argue that inefficient markets needed to be cleaned out but I for one do not want to experience it again. While I would love for the house I have my eye on to be affordable (it currently is not) and the spread is such that if I sold my house for half of what I think it is worth and bought the next house for half its asking price I could afford it. However I am also in an industry that is a non staple industry and I remember people even in the mid 90s not having the disposable income to afford our services. So while I think that house is affordable with a big price decline, my income may decrease as well.

And don't forget that even the homeowners like you and I who diligently make our mortgage payments will also see our property values fall and our net worths decrease.

True... but anyone who owns assets sees their net worth naturally fluctuate with the markets... that's nothing to lose sleep over. markets rally, waiver, pull back, and rally again. Prudence manages the costs-of-carry (you design your financial life to survive the bills) and let the appreciating assets appreciate on their own cognizance

Yes if you have all the time and money in the world then you can wait until the market recoups to retire, relocate for a new job, get married and move to where your intended lives and let say has an established business (so he cannot move), trade up to a new house after you had triplets! Or some other reasonable life change that would have been possible had housing values not dropped like a stone after houses in your area went into foreclosure

I feel that a percentage (unknown percent!) of buyers were actually defrauded and if anyone deserves help, they do. But buyers who went along with liar loans, and lenders who were irresponsible enough to lend to them, do NOT deserve a penny.

No one was even talking about a bailout until bankers and investors, who knew the risk they were taking, lost money, then suddenly they want the government to step in. Where were they when there was a call for stricter regulation of the lending industry? They sure didn't want the government to step in THEN!

Also, many homebuilders were doing these risky loans. I remember two years ago two large builders were investigated and one was fined but it didn't stop. Below is a link to one of the latest cases. I'd just have to throw up if any of these industry people, or dishonest borrowers, benefitted from a federal bailout of any kind.

Here is a link that might be useful: Mortgage fraud investigation

I didn't hear the whole story but on NPR this morning they were talking about Fannie Mae and another large company testifying at Congress about their plans to....help?....
The story is probably on the NPR website.

As for comments like fathen's et al. I have felt the same about big builders over building for a long time. You can't sell a "used" house here. There is no appreciation here. Big builders new homes are everywhere - total glut. Could see the problem coming several years ago but the cities just keep giving out permits and saying yes to development - now what - they all go into loan default, bankruptcy etc. and of course the finanacial trickle down is huge. But no one complains about this. Instead the complaints are about the families who sign up for these loans, hoping beyond hope and basically just accepting the gamble that their rates won't skyrocket to get their kids in a house in a neighborhood. So we shouldn't bail these families out but we should all take the fall for big builders and urban sprawl?

Interesting decision from the Supreme Court yesterday which held that the states CANNOT impose their own regulations on the mortgage banks because bank regulation can only be done at the federal level. The case was brought by Wachovia's subprime subsidiary, which wanted to set up in Michigan, but wouldn't agree to submit to stricter Michigan lending standards. This is a great blow to those states who want to tighten regulation because of the the subprime forclosure crisis.So there will be pressure on Congress to clamp down on the mortgage lending industry.

We all know that the savings and loan crisis led to a massive government bailout passed by Congress during GWH Bush's administration, which bailout we are still paying for. Now there's talk of Congress stepping into the subprime mess, and I have a suspicion that, if that happens, it will benefit the industry much more than the affected families and communities.

It's also interesting to note that the Ohio "bailout" program we've mentioned is a response to the crisis by the state which leads the nation in foreclosure rates. The situation is particularly dire in the Cleveland area.

http://www.tbo.com/news/money/MGBEDRGFO0F.html

Here is a link that might be useful: Subprime borrowers get break on loan

The way I see it, some of you are incredibly greedy people.

You state that a few foreclosures in your 'community' will lower the property values of your home. So what? Are you upset that your modest home that went from $100K 6 years ago up to $500K will return back to a reasonable price of say $120K (or whatever the market will bare) ?

Why must I as someone who showed prudence and recognized a clear real-estate bubble and completely avoided the market since late 2003 now reach into my pocket to help prop up your inflated property values? Do you need new granite countertops this year, and require a high appraisal for your home eqity loan?

By expecting the government to bail people out, you are introducing the huge moral hazard of 'rewarding irresponsibility' on both the part of the dead beat borrower and the sub-prime lender. The borrowers knew they could never make the payments once the interest rates adjusted. The banks knew this too. Of course, they all wanted those beautiful origination fees for their loans.

In fact, this bail out will allow the banks that should be suffering some huge losses for their poor risk assement, keep their money they made through very 'questionable' means during the bubble. All the irresponsible people and crooks win, the tax payer and prudent home buyers (those waiting for lower prices, living within their means, etc) suffer.

Have you ever considered that if the home prices deflated a bit from their current unmaintainable highs that some well deserving buyers with good credit and the ability to afford the home (at it's new lower price) will get to move in?

No, I don't think you people really care for the neighborhood, what you care for are your 'home values'. Stop equating the two, they're not the same thing.

And, that's my rant.

You're right. Your post is a rant.

I'm not sure who the "you" is that you seem to be addressing, but did it ever occur to you that a lot of these foreclosures are happening in areas which didn't experience a price boom? Ohio, for example, had the highest foreclosure rate in the nation at the end '06, yet price appreciation there has been modest at best. More recent firgures show that the Detroit metro area, where I happen to live (mortgage free, so I have no personal axe to grind), now has the highest foreclosure rate for major metro markets-- one filing for every 51 households. I can personally testify that there was no price boom here.

Anyway, for a look at some details of the Maryland program, which was enacted last year, check out the link below. It's pretty much what I expected these state programs would be. Participants are screened for thir ability to repay the new, fixed-rate loan. The state has the clout to stop the subprime mortage owners from enforcing the typical prepayment restrictions found in these loans, freeing the homeowners to refinance. The state bundles the loans so that they can be sold as bonds, the money being used to pay for the program. The state pays off the bonds with money it earns from the loans.

If all goes well and the loans are repayed, the program will run without using any tax revenues. Of course, that's a big "if," and it will take some time to see how things go. But this risk has to be balanced against the risk that the loss of state revenue lost because of massive foreclosures would be even greater, to say nothing of the other economic damage the most heavily hit areas will suffer.

Here is a link that might be useful: Subprime Bailouts: How They Work

Looking at this from a New Jersey perspective, which is proposing similar legislation, and 'did' have 300% price increases in some areas over the past 6 years, I see this as another smack to the regular guy who lived within their means and showed financial restraint and responsibility. Borrowers got into loans they knew they couldn't repay. There was NO surprise there at all. They were gambling on the long shot, and, as what usually happens the long shot didn't pay off. The banks/mortgage brokers/etc looked the other way when it came to assess their credit worthiness. They also knew the borrower couldn't possibly pay it off and would ultimately face foreclosure. Now that this 'is' a declining real-estate market these banks are now lobbying to be bailed out along side the irresponsible borrowers, and they're both being joined by those who want to maintain the inflated value of their prescious home.

Essentially what I'm saying these people should have 'never' been given a loan with their then current financial picture, but, the banks were also acting irresponsibly and wanted the immediate benefits of the origination fees of the loan. Now that the whole thing has become a mess, they want the government to buy the bad debt from them. Essentially they want to have their cake and eat it too.

The real-estate market needs to correct properly. Once these bad loans are foreclosed upon, the over inflated bubble prices will come down, and people with savings (i.e. the traditional 20% downpayment) and who can afford the payments with a traditional fixed rate loand will be able to move buy a home. As it is right now the average income earner(s) in NJ can not afford the average price of a home under taditional mortgage.

This is the problem with bubbles. Values increase way beyond what an asset is worth. Bubbles ultimately deflate, and since bubbles are leveraged by credit, there tends to be a lot of fall out. Also, those caught up in the bubble don't want to see their 'easy money paper profits' vanish. Little do they realize said asset was never worth that much in the first place.

In all reality this is really a bail out for the banks though which are now facing huge losses (and also have a huge lobbying voice).

Here's a short list of supporters of a bail out, which reads like a who's-who list in the mbs market

1 Goldman Sachs
2 Citigroup Inc
3 JP Morgan Chase & Co
4 Credit Suisse First Boston
5 Morgan Stanley

Then you should take it up with the NJ legislature.

But please don't generalize what you perceive as going on in your state to everywhere else. Foreclosure rates are very high in the Midwest, which experienced no bubble. What homeowners have to worry about here isn't maintaining "the inflated value of their prescious home," but the real possibility that the market for our modest-priced houses will collapse.

In your inventory of culprits who created the bubble, you forgot to add the ridiculous overbuilding by the home construction industry. Ironically, the one thing that held housing prices back in Michigan during the past five years has been the enormous amount of residential construction in a state with a troubled economy, which never made any sense to me. That overbuilding has left us with a tremendous inventory of unsold new houses to compete with the forecloures and the houses of folks who just want or need to move.

In all of this... do we really want to DO ANYTHING that prohibits the market return of pricing to levels that otherwise sane (and lesser-incomed) buyers can afford?

Yes... there is pain in the potential of a price "collapse" (if that is really the best description,) but there was also unheralded pain in those who could NOT buy a home (or responsibly chose to not to) at the inflated levels they rose to.

Even in Detroit... a discounting of the current market by 20-40% would make a HUGE leap in affordability to many of the regular folks.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

If as you asert the midwest didn't experienced only modest price appreciation, in an troubled economy, would not a price drop be a blessing?

1) Homes are now more affordable
2) Property taxes should be lower (as the appraised value should be lower)

Believe me, the last thing you want in a 'troubled economy' are inflated home prices. If home values 'collapse' as you assert because of a few subprime banks going bust as they're high risk loans going bad, then I seriously argue that the value of those homes should never have been that high to begin with. If you think home prices become to 'cheap' then why not buy a couple extra houses after the collapse?

Also, along that train of thought. If you're worried about home prices collapsing in your area, then they not use your own money to help out some guy in foreclosure? You tell me to 'take it up with the NJ ligislature, yet, you insist upon asking the federal government (and thus the country as a whole, which includes me) to help out with your local perceived problem? I honestly don't want anyone's hand in my pocket, I assure you that I have kept my hand out of yours.

As for the home construction industry. Sure, they were a part of the bubble. And, yes they are what kept prices down. By adding more housing inventory it creates more supply in the supply demand equation. So, beleive me, if they have unsold homes, then they too are hurting -- and rightfully so, they shouldn't have built so much when clearly their new supply was outstripping depand. So many of those new homes sold were 2nd or 3rd homes to speculators. I don't believe they should be bailed out either.

When you say 'That overbuilding has left us with a tremendous inventory of unsold new houses to compete with the forecloures and the houses of folks who just want or need to move'. What exactly do you want to happen? Would you feel better of those that need to sell their homes got some 'fair market price' determined by some politician? So, although the house would now only fetch for arument sake $100K on the open market, the homeowner should be given $200K so that it is more equal to some other part of the country?

Ultimately you're proposing price controls, and, that is a whole other debate in itself. Sure, price controls bring some immediate 'perceived' benefit. However, through out history, price controls have done nothing but distort the economy, led to misallocation of resources, and in the long run led to financial ruin.

As I see it there is a huge difference between someone who bought as a speculator or with the hope that he could afford it and someone with who is hardworking and with a reasonable interest rate (say between 7-8%) can pay off this house and avoid and overall waterfall collapse. Why not follow the Maryland plan? It sounds reasonable and if it works, will not cost anyone anything. The state may even make money

As for reductions in value reducing property taxes, think again. The states will simply change the percentage of assesment. So while your former 200k house may now be worth 100k on their books, instead of being taxed at 1% of assesed value, you will now be taxed at 2%. Most homeowners cannot figure that aspect out so the county or state gets away with it all the time

Hi Saphire,

Why not follow the Maryland plan? It sounds reasonable and if it works, will not cost anyone anything.

It's costing every responsible buyer who's patiently waited and actually done the right thing.

The state may even make money

That'll NEVER happen. If there were profits to be made, Wall Street will beat the government to the punch every day.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

dave --

"Even in Detroit... a discounting of the current market by 20-40% would make a HUGE leap in affordability to many of the regular folks."

Well, it would certainly make a big difference to the people who own the houses -- most of them regular, working folks -- if their houses lost that much value.

FYI, the median value of a home in the Detroit market area is currently $118,000, and the median mortgage payment is only 12% of the median income, one of the lowest percentages in the country. Most families who live here can afford to buy a home and we have historically had a very high percentage of homeowners and still do.

A huge drop like you're talking about wouldn't, by itself, make houses affordable to very low income families because most who fall into that category don't have steady employment and wouldn't qualify for loans. The income group that would greatly benefit would be those with enough means to snap up the available properties. That doesn't stike me as a helpful development.

mr nuts--

Where have I advocated federal government intervention? Where have I asked the government to do anything? I suggested you take it up with the NJ legislature because they're the ones with the power to pass the bailout proposal you so detest.

I'm basically a pragmatist. I'm actually not sure where I come out on all this -- mostly because I don't know if the programs will make all that much difference. They may well be nothing but band-aids, but make it look like the governement is doing something. But I must say that I don't care much for the extreme reactions coming from many posters -- such as silly accusation about price controls.

Like it or not, it looks to me like more and more of these programs will be enacted. Even Freddie Mac wants to get into the act. It's fine to take a position against them, but it appears to me that a lot of the posters on here who are so outraged by the very idea either have no factual grasp of how the plans work or prefer to push the facts aside because of ideological bias. That hardly makes me want to run and join them.

Saphire:

I don't believe it's entirely accurate to say that the Maryland plan 'won't cost anything'. Just because the funds are not being raised through direct taxation doesn't mean it doesn't cost anything. The state will be issuing bonds for this. The state will have to pay interest on these bonds. The state will be going into debt. The taxpayer is responsible for the debts of the state. I like to think of government debt as merely taxes that will have to be collected in the future.

I am also highly skeptical that those people who needed to get into interest only ARMS and/or other exotic types of mortgages are going to be suddenly credit worthy and be able to pay off the new loan product.

Ultimately though, I still believe it's no so much a bail out for the over-extended housing speculator, it's a bail out for the banks that lent them the money.

As far as your taxes on property taxes goes, yes, you are absolutely correct. The government can pretty much do whatever it wants. If your assessed value goes down, they can raise the rate, absoltely true, and im my opnion it's a crock. Nonetheless, lower property values does put downward pressure on the property taxes. Consider that during this housing bubble most local governments dramatically increased their assessments (and thus property taxes). They also wanted to profit on the housing bubble. Probably part of the reason they want a bail out, so that they can keep the property values high, and thus assessments high.

Frenzy:
Yes, you are correct I do detest the very thought of bail out. It has rewarded irresponsible lenders and borrowers, and it's a punishment to reponsible people who lived within their means. It's a huge moral hazard that will ultimately encourage such bubble-mentality-irrespnosble-behavior again in the future. This country has to stop rewarding people for acting like greedy irresponsible children. BTW: I'm more outraged at the banks and less so at the borrowers. The banks are not stupid. They made a lot of money during the bubble, and knew these subprime loans were highly risky. Part of me honestly believes they've been couting on a bail out since the very begining and thus never showed any prudence in their lending standards.

As far as these bail out programs go. Yes, in terms of preventing foreclosure, these will be nothing but band aids. However, the banks will no longer be saddled with the bad debt, it will be the government. I reiterate again, it's a bail out for the banks not the real estate speculator.

I agree with your 3rd paragraph addressed to me. Yup, like it or not these programs will be enacted. It won't be the first time the government has done something stupid and immoral, and it won't be the last. However, I do take issue with your phrases 'no factual grasp' or 'push facts aside'. Just because some do not agree with you does not mean we've 'pushed facts aside'.

If you truely believe this is the case, then please fill us in on all the facts that we've missed.

"The state will have to pay interest on these bonds."

But it also collects interest from the mortgagors. I believe that the hope and intention is that what the state collects on interest from the borrowers will be sufficient to pay the interest on the bonds.

I also put a lot of blame on the mortgage brokers for steering naive people into these loans. Their behavior shaded from unsrupulous at best down to outright fraudulent. But they made a lot of money doing it.

Too bad this "profession" doesn't attempt to regulate itelf. That's when you get government oversight, which the diehard free marketeers detest so much. It also leaves someone to pick up the pieces and guess who that is?

"If you truely believe this is the case, then please fill us in on all the facts that we've missed."

Ironic that you say this. I've posted a number of informational links to help people be more informed about what's going on. But hardly anyone (except Saphire) wants to discuss the facts because, I guess, people prefer to indulge themselves by ranting.

100!

That was really all I was going to add... until I read the last post.

FF,
I also put a lot of blame on the mortgage brokers for steering naive people into these loans.

Why no mention of the retail bankers?

Their behavior shaded from unsrupulous at best down to outright fraudulent.

Oh c'mon... "unsrupulous (sic) at best"???

You stain yourself beyond any credibility when you are so blatantly biased and beyond objectivity.

There's good and bad in all fields (even attorneys, so say some,) and there are plenty of high quality financial professionals (brokers and bankers alike) that have been guiding and advising their clients with a fiduciary perspective (if not mandate) all along.

Once again; 100!!! ;~)

Dave Donhoff
Strategic Equity & Mortgage Planner

I didn't mean all mortgage brokers are "unscupulous at best." Many of them are fine people.

I really meant the subgroup of brokers who steered their clients into subprime loans they couldn't afford. But I see on rereading my post that I wasn't crystal-clear on that point. My apologies.

And I certainly didn't mean to let the retail bankers off the hook. There's a lot of blame to go around.

Frenzy:

Posting 1 link is hardly what I call 'posting a number of informational links to help people...'

Nonetheless, you are correct. The government would be collecting interest on these mortgages, and I will even assume the government is smart enough to charge a higher rate on the mortgage than what they give on the bonds issued. However, I think it's highly optimistic to assume that those in the 'high risk' category of default are going to by and large make all their payments on time now merely because the government is offering them mortgages (even at a lower rate than their ARM's). The one 'informational link' you posted even predicts that 60% of these new mortgages will end up in default. Also, if you truely believe that this is a money making oportunity, then why hasn't any bank offered to create such a program and cary the cost of their program (and I'm not talking about these drop in the hat donations made by big banks, I'm talking about actually funding the program like the government is doing)? The whole point that these people pay higher interest rates is because there is a high risk associated with them, banks won't go near them unless they have sufficient reward to do so. The government 'is' going to lose money on this because they are not getting the proper reward for this risk.

But, regardless of all this, it's not a bailout for the person being foreclosed upon. It is a bail out for the banking industry, which yet again created a mess. These people that get refinanced into the government loan 'will' be in foreclosure again.

At any rate, most of the 'facts' you present have a to do with what might happen if property values decline. Well guess what, I assert that property values should not have been this high in the first place. Exotic loans such as what we've been discussing allowed for more buyers to come to the table then there should have been. These exotic loans put the whole real estate market awash in easy credit. This did lead to an incredibly fast appreciation in real estate. However, as with any credit driven bubble, the more inflated it becomes, and the longer it lasts, the more pronounced will be the effects when all this unwinds. It is unwinding now, and property prices are going to decline.

All this government intervention is to cushion the landing is throwing good money (a lot of it) after bad.

I also assert that if property values decrease across the board, then is it really a problem? If your house goes down in price by 50%, but, so does your neighbor, or so does your cousin's on the other end of the country, then if you need to reloate, then are you really losing if you sell at a loss? You'll be buying cheaper.

What the problem is now, is people see on paper that low and be hold their house is worth (make up some number) $750K, and, the idea of it returning to say $300-$400K is just annoying to them -- understood. But, if the market is only willing to pay that, then, that's what it's worth.

I still don't agree that a declining property value leads to a declining neighborhood. Although the recipricol is definitely true (a declining neighborhood will lead to pronounced decline in property values). As far as foreclosed homes being 'blight' on a community go, do not laws exist already about such houses? Someone 'does' own them when they're foreclosed (i.e. the bank). The local government could enforce their existing laws about maintenance for such abandonded buildings and get the banks to maintain them.

However, I don't even think such doomsday scenario will come to pass. If house prices could actually return to what their really worth (a hell of a lot less than they are now), you will certainly see a whole new pool of buyers -- and this time well qualified buyers who have ambitions to own a home, not be a part of a real-estate speculation/gamble.

Government intervention on the other hand is going to definitely stagnate the real estate market (artificially keeping the home prices high, but, with no buyers is going to lead to nearly zero turn over).

At all in all, yes, I'm giving a lot of my opinion here, and I've always admited it. I do however form my opinions on a lot of fact and and information. I do see you have a very strong opinion on this as well, and, most of it different than mine. I do insist however, I have seen no additional fact that you've brought to the table.

The essence is we're arguing for either should the government intervene and bail out the sub-primes. I say no, you say yes. I believe the bail out will cost society far more in the long run. From what I see, you're concerned about property values, and believe that the world is doomed if property values decline. I believe if government bails out, then it continues to set the precident to the people (and prevailing mind set) that "you don't need to be self responsible, the government will always make sure you don't have to face the consequences of very bad decisions". In the long run, that continuous mind set is FAR costlier to a nation.

Have a great weekend everyone.

I still don't agree that a declining property value leads to a declining neighborhood. Although the recipricol is definitely true (a declining neighborhood will lead to pronounced decline in property values). As far as foreclosed homes being 'blight' on a community go, do not laws exist already about such houses? Someone 'does' own them when they're foreclosed (i.e. the bank). The local government could enforce their existing laws about maintenance for such abandonded buildings and get the banks to maintain them.

However, I don't even think such doomsday scenario will come to pass. If house prices could actually return to what their really worth (a hell of a lot less than they are now), you will certainly see a whole new pool of buyers -- and this time well qualified buyers who have ambitions to own a home, not be a part of a real-estate speculation/gamble

Did you ever see footage of the South Bronx? Off the top of my head I can think of a bunch of other places that have been abandoned and are decrepit and you have to feel sorry for anyone who is stuck there.

One interesting by product of the boom. In my area marginal neighborhoods actually got much better. Especially areas that were on the decline picked up. Mainly because people that might have bought in better areas could not afford them

As for the price decline of which you speak and all these wonderful new buyers. MAny of them still will not be able to afford the market, where were they in 1990 after the last real estate boom? No one was buying then except speculators who had time and money to wait! So what about the nice couple who scrimped and saved so they could buy a house LAST YEAR, to live in, not as a speculation? Suddenly the 200k, 450k, 850k, pick a number, they invested is gone! Worse what happens if the economy does fall apart in the next year? Lets say through no fault of his own he loses his job because his job is in a luxury sector that no one can afford? Since this is what he is trained in he cannot get another one since no one is hiring. Note by luxury I include advertising, cars, non emergency medical care (fewer people will have insurance), organic farming, computer hardware and software which companies will decide not to upgrade because they cannot afford it and a whole bunch of other fields that depend on companies and consumers having money to spend in a discretionary manner

Now he has to sell that house at 50% off? Or face foreclosure?

Sure, it may all work out but I have seen a real estate decline firsthand and it is not pretty. Were you a wage earning adult in 1987? If not you have not experienced this decline

nuts

I have to say that I've grown weary of your mistements about what links I've posted, what facts I've stated and what positions I hold. You seem to enjoy arguement for it's own sake. I don't, so I'll leave it at that.

frenzy:

You made a couple of statements where you insinuated I did not want to discuss the facts, and did not see the big picture:

'Like it or not, it looks to me like more and more of these programs will be enacted. Even Freddie Mac wants to get into the act. It's fine to take a position against them, but it appears to me that a lot of the posters on here who are so outraged by the very idea either have no factual grasp of how the plans work or prefer to push the facts aside because of ideological bias. That hardly makes me want to run and join them'

I merely requested that you tell me what facts you were referring to. As it stands that statement is a 'slight of hand' method of dismissing whatever I (and others who don't agree with you) have said .

You later replied, but, again did not provide said facts I was currious about:

'Ironic that you say this. I've posted a number of informational links to help people be more informed about what's going on. But hardly anyone (except Saphire) wants to discuss the facts because, I guess, people prefer to indulge themselves by ranting.'

To which I found even more entertaining as apparently the only other person who is dicussing the facts is Saphire, one of the few people who shares your point of view. Again, this is a method of dismissing everything I and others have brought up as irrelevant, without actually presenting evidence yourself. I simply chose to persist to call you out on this, to see if you would actually provide your evidence or not.

I am not trying to argue for arguments' sake, I'm actualy trying to give you the opportunity to debate and qualify your points with valid facts that are not blanket dissmissals of everyone who doesn't agree with you.

Sorry if you feel insulted for being challenged on this, however, I could not let you get a way with this weak debate tactic. Your tactic is an insult to everyone who 'has' thought about this bail out but come to a different conclusion.

Saphire:
I would like to reply to you, and will do so soon. You have a lot of items that need to be responded to, and I don't have time at the momment. I will do so tonight.

I need to say a few things to give the perspective of someone who will VERY much be hurt by a bail out.

I am one of those people who is living well below his means (ie, not using the credit I can easily get) because of many reasons.

1. I don't need to live an indulgent lifestyle (I would like to, but its idiotic).
2. I am saving to have children, and I want me (not the government) to support them, so that I can always take a moral high ground when I angrily demand tax reductions.
3. I make certain I ALWAYS have outs.
4. I never want to depend on ANYONE to save me.
5. I want to be able to buy the houses that people are living in now (well above their means) when they come down to rational prices again. (Perhaps you call me a speculator, because I'm patient. I consider myself to be an investor)

Let us think about what a house is. It is a rotting box on a piece of rented land. You live in it, and it keeps you warm and sheltered, but you have to pay to maintain its ability to do that, and you have to pay the government a yearly fee (indexed to the value of the rotting box) for that privilege.

Now, given that, how come people consider a house, to be an investment? A house does not become a money earner the longer you own it. A house does not become better at its job with age. A house is just a place to live, and should cost the exact same amount of your money now, as it did in the past (index to inflation of course). The funny thing about that is that it HAS cost the same amount of a person's earning potential over the last 100 years or more, if you disregard the bubbles...

Now, given that there is no inherent money earning value (I guess you could rent it perhaps?) to a house, what does that mean? It means that house values WILL rise and drop based on the economic situation. What has happened with such lending vehicles as the stated loan, and other such 'exotic' lending methods, is that suddenly there was an inflated amount of credit based money available, to a much larger population of people.

People used this credit to buy houses. This dramatically drove up the prices of houses, and also created a market for builders to cash in on the available credit by increasing the supply. Over the last few years, some places saw people buying houses that required 110% of their monthly income to carry. BUT... They still bought it. They still drove up the price of houses, and in doing so, all these "hard working" individuals out there that actually bought what they believed they could afford, ALSO over paid for their houses.

If most of these people had been patient like me, they'd probably be sitting on a pile of investments in things that actually EARN money. For instance, they could have invested in the banks, or these building companies. This way, they're still buying into the housing market (which apparently you HAVE to be in or youre a fool), they just don't have to keep their money flowing into it for the next 30 years. They could have also taken the opportunity to upgrade their lifestyles by RENTING a nice place.

Side Note:
Funny thing, when a number of new homes get built and apartment dwellers now buy... Wow... Rental prices seem to be dropping, and rental availabilities are increasing. (This actually is a nice thing for those "soon to be homeless" hardworking people.)

It is not a right to buy a house. It is not a right to have happiness. It is only a right to pursue happiness. If you made a bad investment, even if you were duped (be it legally so), it is still your decision to live with. If you will lose money on your house, because it is not worth what you paid for it, and will still be paying for it over the next 30 years, that is your own problem to face. It seems that everyone was too smart to make the mistake of not buying a house. The guy working at subway sandwiches, whose girlfriend is in college, can outbid a married couple of engineers because the engineers are following sensible and conventional borrowing ideals. IsnÂt this a disaster waiting to happen?

Let me ask those of you who seem to argue in favour of a state/federally backed lending company. Are you a home owner or a renter? You see, those of us who recognized inflated prices, have stayed away from this poisonous market. I'm really not interested in sinking my life savings into a rotting box that will lose its value once the market corrects.

Mind you. I would LOVE to own a house. I'm a very handy, hands on person, and renting makes me go crazy to some degree, cause I can't CHANGE anything to suit my particular fancy. I'm stuck with what is available to rent. Thankfully, that availability is consistently increasing, and the prices are dropping. I've even advised most of my friends to not buy (or sell while the market is hot), but they think I'm crazy and that house values will always go up.

For the person who said they experienced the price decline in the late 1980's. If you knew it was happening, you should have sold your house during the boom, so that you could move to a nicer area when the prices dropped again. Knowing that something like this is going to happen should have put you in a position that you were better prepared to deal with the backlash. Not leave you angry at those of us who will eventually buy the houses when the market corrects. Oh, and that's right. When nobody is buying houses, thatÂs when I'll be buying them. I'm not rich, and I really don't think that I'm evil, but it seems to be portrayed that anyone who doesn't enslave themselves to debt, and actually tries to make money through investments, is not good for the economy, and inherently evil. Strange though, IÂve never heard a compelling argument AGAINST decreasing the cost of living, but, IÂm all ears.

Someone will probably come back and say that I support slavery, as I've seen that logic come out, but lets think about it. I'm totally AGAINST slavery. I think that all the fools that have bought in this market and want to keep the market alive through government intervention are in favour of slavery, simply a different form of it. They wish to enslave everyone to the debt which THEY have foolishly taken upon themselves to carry. As a result, I would STILL live in an apartment because I wasnÂt foolish enough to buy a house at inflated rates, and will not receive any benefit from this government intervention, but the taxman will still make me (well, more likely my children) pay for it.

There is NO TIME ever, that the government has been able to capitalize on a market, that was not otherwise being utilized by someone in the private sector. There is a reason that the government would have to 'bail out' the 'hardworking overextended' people that have so often come up, and the same reason why it will simply mean more taxes eventually. It is because these borrowers cannot afford to pay the bills. Plain and simple. They cannot afford to pay the bills, and they must as a result be forced to sell at a loss, or foreclose.

No matter which way you slice it, the only way that a bail out is NOT simply putting a pile of money in to the hands of bankers, is if the lenders were forced to GIVE the houses to the home "owners". That would however be the end of the USA as we know it.

Now, if for instance, this horrible 50% decrease in house values happens. Guess what I do? I buy a house. If theyÂre actually ÂcheapÂ, IÂd probably buy a few. In fact, I probably end up renting the houses to the same hardworking people that couldnÂt afford to buy them and lost out... Probably for far less than they were paying the bank to "own them." Is it bad that I would prefer that these hardworking give the 6 or 7% ROI, directly to me, instead of the banks?

No, I have no sympathy for people living outside their means. They need to grow up. They will still work, they will still buy food, they will still buy beer, they will still pay to live somewhere, they will still live in the USA. They will simply NOT own their house anymore, and they will NOT be rich from what they thought was a foolproof Âinvestment. ThatÂs IT. The only people who really suffer in that case are the bad lenders, and bad debtors. I say GOOD!

Oh, and one other argument that drove me a little nuts was about Âthe neighbourhood will have abandoned houses full of rats and squatters. What world are you living on? If those houses empty out, *I* will be living next door to you, instead of someone who canÂt AFFORD the house. IsnÂt that actually BETTER for the community?

In summation, what I am saying here, is that houses are currently inflated in MANY places. These prices need to be corrected. Until that happens, no one can really afford to live in them, as the cost of living is made huge, and the government glut will reap the benefit more than anyone else. Government intervention is a veiled way of having them take yet another freedom away from you, me, and far worse, our children. Let us as individuals grow up and truely think about what we should be allowed to afford. I bet that many of these 'hardworking individuals' who are going to lose their homes, have only recently realized that buying a 42" plasma screen television was probably not a wise desicion considering their current debt-equity load. They are going to have to pay the piper eventually, and delaying it is the worst thing to do.

Saphire:

Did you ever see footage of the South Bronx? Off the top of my head I can think of a bunch of other places that have been abandoned and are decrepit and you have to feel sorry for anyone who is stuck there.

The south bronx did not go to the metaphorical hell because of declining property values. It had gone to that metaphorical hell and then the property values declined.

Why did it go to said metaphorical hell in the first place? That is a whole other topic of discussion.

One interesting by product of the boom. In my area marginal neighborhoods actually got much better. Especially areas that were on the decline picked up. Mainly because people that might have bought in better areas could not afford them

I agree, that some areas improved because good people who couldn't aford the good areas moved into the not so good areas. I still wouldn't say that because the price increases in an area the quality of the neighborhood improves. Good people will still not move to parts Irvington NJ, and their prices have increased as well. There has to be a fundamental sign of positive change in order for people to move to a once unsafe neighborhood. Rising home prices isn't enough on it's own.

Again though, the fear that 'perhaps' this neighborhood will return to it's former self post-bubble is not a reason to ask for billions in loan subsidies. If people care for their neighborhood, the price of your house shouldn't affect that.

As for the price decline of which you speak and all these wonderful new buyers. MAny of them still will not be able to afford the market, where were they in 1990 after the last real estate boom? No one was buying then except speculators who had time and money to wait! So what about the nice couple who scrimped and saved so they could buy a house LAST YEAR, to live in, not as a speculation? Suddenly the 200k, 450k, 850k, pick a number, they invested is gone! Worse what happens if the economy does fall apart in the next year? Lets say through no fault of his own he loses his job because his job is in a luxury sector that no one can afford? Since this is what he is trained in he cannot get another one since no one is hiring. Note by luxury I include advertising, cars, non emergency medical care (fewer people will have insurance), organic farming, computer hardware and software which companies will decide not to upgrade because they cannot afford it and a whole bunch of other fields that depend on companies and consumers having money to spend in a discretionary manner

From what I can tell this seems to be an argument based on 'karma'. I'm sure there are good people out there who bought a house at the height market, but, the karma that good people have doesn't entitle them to a guaranteed increase in property value. Nor does it guarantee them a job that as you say they may 'lose through no fault of his own'. I would argue that if our friend with the good karma had analized his finances better, he wouldn't have gotten into this predicament. Why would you buy a house for every last penny you have, and then knowing that you're 1 paycheck away from losing it? It's tragic for our good karma'd friend to have it happen to him, but, it's not up to us through the tax system to subsidize him? If you really feel bad for this good fellow, then why not organize a community collection, ask the well to do neighbors if they would like to contribute to a fund to help this guy out? A volunteer effort could be a very positive thing.

Now he has to sell that house at 50% off? Or face foreclosure?

Again, a property going up in value when you purchase it is not a guarantee? Perhaps they should write on deed transfers 'Not FDIC insured, Investment may lose value' as they have written on any securities investment out there that is sold through your banks.

Sure, it may all work out but I have seen a real estate decline firsthand and it is not pretty. Were you a wage earning adult in 1987? If not you have not experienced this decline

Does it matter what age I am? Does it matter if I were wage earner in 1987 or not? If I was not, does this mean I don't deserve an opinion on this current bubble and proposed bail out?

For the record I know many who did just fine in the decline of the late 80's and early 90's. They had bought their homes in the late 70's, some even in the early 80's, they didn't have much of a mortgage because they bought at a lower price. Weather the price of homes went up or down from there didn't mean squat to them. In fact, I know other people who bought their first homes and the same people from the previous sentence who picked up extra property between the years of 1990 to 1994. The lower prices definitely helped them. Even funnier was that people at that time were telling them 'Real Estate is going nowhere but down'.

I do not see how the government proping up the prices of homes via a tax payer subsidized new mortgage is going to help the long term market? You will have the situation where homes are too expensive for buyers to be interested, but, the owners (weather banks or the same subsidized people) don't care to sell as they want some pre-conceived price for it.

If you're afraid of seeing no buyers, ask the government to artificially inflate the prices -- you will definitely have no buyers at all.

I promise you, I personally will be in the market for a home when I see that they are affordable, and there is actual value in owning one vs renting. If you believe it will take the buyers a while to come, then I suggest you prepare your finances to weather the storm -- sell now while the market is still heated if you think property prices are going to decline further. If you think they've gone too low for now good reason, then buy. If you care for your good neighbor who's facing the financial problems, see who in the community wants to help out, and do so. Asking the cooercive forces of government to do so is just morally wrong.

And it is cooercive. If the government is going offer 1% of it's budget for this, I am not able to opt out by paying 1% less in income taxes.

People who are afraid of declining property values really should not have bought at the height of the bubble (2003-2005). It seems all the proponents of the bail out are asking for some form of 'investment insurance'.

I think a major problem is people have adopted the mindset that has come from the mantra of the National Association of Realtors 'Real Estate is always a good investment and never goes down in value'. Furthermore, it seems when people are analyzing the cost of a declining real-estate market to society, they're figuring loss from the highs to be losses.

i.e. Someone who bought their home in say 1992 for $100K, who's home at one point become $800K in 2005 has now returned to a value of $600K. You can't claim that the cost to society for this example is $200K. The change in appraised value of an asset is not a cost to society. Nor are people getting foreclosed upon. To those people, it is a cost to that 1 person and the bank who lent them the money. Society hasn't had to pay anything additional to this. And... it is not a 'cost' to government for lack of property tax revenue -- it is a 'reduction in revenue' to which the government should adjust it's budget (yes, wishful thinking).

Thinking that a bailout should be implemented to preserve property values is really quite absured. If I buy a hideous picasso and it fails to appreciate in value, should I request that the government create favorable loans so that investors everywhere have easy access to credit for the stated purpose of purchasing picasso's? The mere fact that you can live in a house does not give it some special 'asset class' status that deserves said priveledge. The distressed homeowner could always go back to renting -- which is likely the most prudent choice if they are unable to sustain their current lifestyle.

At any rate, if you truely feel concerned for your neighbor and neighborhood, then please, I implore you to get your community to voluntarily contribute to a fund to help those in your coommunity out. I do however request however that you not ask the government to get involved, as then you are getting people to involuntarily contribute.

mrfnuts
- soon to be your homeowning neighbor if property prices continue their downward trend.

Another informatinal link for those who are actually tracking the market.

The NAR Index of Pending Sales had been predicted to rise .5% in March, but it actually fell 4.9%. The industry had thought the 1% rise in February might be a sign that the housing market had bottomed out, but apparently, the "experts" hadn't taken into account the fallout from the subprime foreclosures, which is much worse than expected. It is blamed in the article for most of the drop in sales in March.

Like it or not, you can bet that bad data like this will increase the pressure for government bailouts.

Hi FF,

There will ALWAYS be pressure for saviour handouts from the foolish, this isn't anyone's argument I believe.

The buzz on this thread is about the ill-advised nature of such bailouts. They punish the wrong behaviours, and reward the wrong behaviours.

I'm impressed by the ambient wisdom!

Cheers,
Dave

phreylan

'Rental prices seem to be dropping, and rental availabilities are increasing. (This actually is a nice thing for those 'soon to be homeless' hardworking people.)'

1. Uh, rental rates are rising (check out the link below. Think about supply and demand. The number of people buying houses has decreased sharply because, like you, they're sitting out the market, waiting to see if home prices will drop further. In the meanwhile, most of them are renting. That means the demand is not only increasing, but increaisng at an above normal rate. The supply isn't rising as quickly because most renters live in apartments and the supply of them is increasing at a slower rate. Even the condos and houses that have moved into the rental market because owners can't sell them isn't enough to meet thje demand.

2. All this will actually increase the number of homeless. You do realize that the former owners whose houses have been repossessed must find somewhere to live? And that many of their houses sit vacant because no one will buy them? That both increases the number of potential renters, thus forcing rents upward, and decreases the number of people living in any kind of housing. Hence, more homeless.

'For instance, they could have invested in the banks, or these building companies. This way, they're still buying into the housing market (which apparently you HAVE to be in or youre a fool),'

Hmmm. I don't think I'd care to put my money into housing right now. After outperforming the broad market for years, the financial sector is currently underperforming it. Many mortgage companies have already folded their tents ('blood in the streets' as Dave has said) and the foreclosure crises is bound to mean more blood spilled. All those defaults mean that someone will be left holding the bag, you know. And the stocks of the big builders have dropped 40% since peaking in 2005.

The sharp rise in the equities market we've seen in April is no doubt due in part to the fact that real estate investors are pulling out of housing and putting their money into equities.

"The buzz on this thread is about the ill-advised nature of such bailouts."

My real point is that "ill-advised" or not, they're coming.

I strongly suspect that the "collective wisdom" on here isn't going to prove any more accurate on this issue than it did last year when so many posters on this site vehemently denied that the housing bubble was about to burst. I particularly remember the comment repeated by many that housing prices can't go down because "they're not making any more land, you know." Maybe not, but the builders sure were building a lot more houses and the lenders sure were making a lot more "funny" loans!

Whatever happened to all those optimists, anyway? I just don't see them posting here anymore.

In the past, housing prices have always recovered from a bust, sometimes quickly, sometimes not. But this time, we have the unnique factor of foreclosure rates not seen since the Depression, due in large part to the subprime collapse. So no one really knows what will happen this time. INHO, a severe decline in prices, if it actually happens, would be most likely to benefit a relatively small segment of society -- those with the means to buy up houses at depressed prices. Not exactly the best scenario for mortgage brokers, I would think.

FF:

I think Phreylan was using sarcasm with his comment:

'For instance, they could have invested in the banks, or these building companies. This way, they're still buying into the housing market (which apparently you HAVE to be in or youre a fool),'

The choice of the word 'apparently' and the emphasis on 'HAVE' give me that impression.

So, I think we're all in agreement that we don't want to be invested in real estate right now. I personally have been avoiding it since early 2003 when I started noticing everyone and their aunt buying homes as 'investments' but with no experience or any knowledge of what they were doing. Then further making claims like 'Real estate never goes down in the long run' or 'this time it's different real estate can't go down in value'.

For the record, I was once a property owner, but sold around that time and went back to renting. Of course, I did not predict that this bubble would expand so far. Although I did well in a short time, I could have done even better if I held into 2004 or 2005. I however, didn't think my property was worth what I was offered for it (for myriad reasons that would fill up this posting if I went into details).

So, in short, I definitely want to comment (even though you weren't addressing me) that I was NOT one of the optimists making comments like 'prices can't go down'.

I also agree with you that bailouts 'ill-adviced or not, are coming'. It wouldn't be the first time the government has persued a bad policy in order to cater to the banks for making bad decisions, and/or fools for being irresponsible, uhm... fools...

As far as rental markets go, there's factors that can make them both go up or down. There is certainly a lot more apartments available now then there were before, and the vacancy rate is astonishingly high (in my area). Rents haven't appreciated since 1999. For good measure and to hedge my bets, I am going to renegotiate my lease for 2 more years so I can keep my rate fixed. Possibly by that time the market crash will be in full swing and I will find the purchase prices of houses reasonable again so that I can enter the market.

Hi FF,

INHO, a severe decline in prices, if it actually happens, would be most likely to benefit a relatively small segment of society -- those with the means to buy up houses at depressed prices.

Why do you think only a relatively small segment of society would have the means to buy homes at more reasonable prices? Isn't that rather backwards thinking... really?

I mean... as prices come DOWN, the home quality itself isn't coming down. The people who wanted the 3 bed, 2 bath rambler but couldn't qualify at $300,000 may indeed qualify at $250,000 just fine (and love the place no less.)

Are you saying you believe that it's likely our entire economy, nationwide, will become so depressed that there won't be a buyer for just about every seller at a buyer's acceptable price? (This is POSSIBLE, I will grant you... happened in Detroit, I know... but seriously... are you proposing this as your positional fear?)

I PROPOSE that there will be close to a perfect set-off. Every home foreclosed will be bought, at some reasonable price, by a buyer prepared at that price level.

Not exactly the best scenario for mortgage brokers, I would think.

Why would you think that? (Serious question.)
(UNLESS I am correct in my framing of your "complete depression" position.)

Am I accurate in my reading of your position?

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Some one asked why normal people (without whupping out their documents);
B) Don't remember the terms of their insurance policies,
My first homeowner's policy, I read cover to cover. There were several instances where the language was so muddy that I couldn't understand it at all. (And I've edited securities law treatises, so I'm used to muddy language). So I took it to the insurance agent. When I pointed out how it didn't make sense, he agreed it didn't. But he couldn't explain it to me either.
C) Don't know the instruments invested in their 401(k)s,
I've tried and tried to find out what was in some of the funds in my 401k (the 'life cycle funds'). Even when I thought I'd gotten it (the 401k representative visited the office and gave me some ticker symbols to use on Yahoo Finance) it turned out I was given the wrong info.

Plus, I once called trying to find out what the fees are. They said 'there are no fees.' Bull. Of course there are fees. There are always bloody fees. They're just so thoroughly hidden that you'll never, ever find them in any document. At least in that 401k plan.
D) Don't know their own marginal tax brackets,
Given that this isn't on one's pay stub, and given that when you file your taxes, there are so many things to add and subtract, I'd be surprised to learn that anyone knows their tax bracket. The tax code is so complicated that no one understands it, not even the IRS.
F) Don't know whether their employee-benefit life insurance is cash value or term,
Again, if I ever got any documents on this, I'd pass out in a dead faint.
H) Don't know the costs of insurance subtracted (openly or opaquely) from their paycheck,
Due to the recent sale of my company, our paychecks have been royally screwed up for the last month. I actually had to create a spreadsheet to figure out how they'd messed up. Again, since there's no disclosure of what percentage each item is, and they routinely combine things like medicare and SS, and--just for fun--they disclose insurance costs on a monthly basis, but pay biweekly, it's really, really difficult to determine what's correct.

As far as 'everyone should always know what they're signing,' I've been to 2 doctors' offices now where there's a electronic signature pad (like the ones at the checkout counter at the grocery) and they tell you to sign it. "This is for the HIPAA disclosure,' and 'this is for the insurance.' You have absolutely no way of knowing if you're signing what they say you're signing, or if there's anything 'unusual' in there. I have no idea how this is legal, but there it is. There;s no use saying 'see another doctor' because there's only so many that the insurance will allow you to see (and I won't even get into figuring out health insurance rules).

Bottom line: things are routinely hidden from people--consumers--to prevent them knowing exactly how they're spending their money or what they're signing their names to. They're hidden by using tiny text, complicated language, abstruse math, impenetrable phone trees, and rules that can be changed on a whim (but only by the business). Most business dealings people engage in nowadays are skating on the edge of adhesion contracts. The laws that exist for disclosure are routinely sidestepped thru the use of the aforementioned tactics. What good is disclosure if the part about the fees you'll have to pay are hidden in a footnote on page 57 in 6-pt type?

And don't talk about 'competition.' What help is that when all the companies in an industry do things the same way? (Anyone sign up for cell phone service without an early termination penalty--even if their service stinks? Didn't think so.)

I hope some day Americans learn to push back and demand that the businesses they deal with actually serve them, fairly, disclosing all terms and conditions upfront and in simple language.

"Are you saying you believe that it's likely our entire economy, nationwide, will become so depressed that there won't be a buyer for just about every seller at a buyer's acceptable price?"

No. Why not read what I actually said? "A severe decline in prices, if it actually happens, would be most likely to benefit a relatively small segment of society -- those with the means to buy up houses at depressed prices." That's hardly the same thing, is it? And this time, I don't know how I could have made myself any clearer.

I have no idea whether or not there will be a severe decline in housing, although I do believe that the subprime crisis makes it more likely there will be than if subprime loans hadn't represented such a large segment of the mortgage market during the last few years. I'm a bit more uneasy than I was. But unlike you, I don't happen to possess a crystal ball, so I'm not making any predictions on how severe the housing bust will ultimately prove to be.

But if it did turn out to be sever, then the rest of the economy would take a huge hit, and lower-income people would bear the brunt of it, as they always do in periods of recession and depression. They would be no more (and probably less) able to afford to buy a house than they are now. People with means would find such bargains very attractive and snap them up. That's what they did in the foreclosures and tax sales so common during the Great Depression. Such buyers are more likely to use cash than mortgages, hence my comment about the mortgage brokers. They and realtors would both see a big drop in business. Indeed, many brokers and RE agents are already leaving their respective fields.

Of course, the economy is far different now than it was then and might have enough resilience to absorb the housing bust withou too much damge. Economists are saying that the decline we're seeing now is costing the US economy about 1% in growth rate.

Your faith that things will all work out is noted.

Hi FF,

"A severe decline in prices, if it actually happens, would be most likely to benefit a relatively small segment of society -- those with the means to buy up houses at depressed prices."

OK... then assuming this to be true, why not stay objectively truthful and balance the statement that'

"A severe decline in prices, if it actually happens, would be most likely to hurt a relatively small segment of society -- those without the means to make their payments while waiting out the depressed prices." ???

After all... this is what we are actually observing. The SubPrime "easy credit" allowed a LOT more people the priviliege of becoming owners, and the markets are actually showing that a HUGE majority of them are making their payments on time... their loans are performing just fine.

Small trades to small.... we can't flap about in great angst if we're seeing only small pockets of trouble, can we?

The small minority that are defaulting are a larger number than would normally be defaulting... but net/net, SubPrime lending has in fact increased homeownership in an apparently sustainable way for a great deal of previously underserved.

I am, indeed, seeing continuing economic justification for confidence overall.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

I'm too skeptical to buy that. I heard a lot of glad talk from a lot of people on here last year when the future of the housing market was a hot topic and almost all of those folks have disappeared from the board.

Basically, we'll have to wait to see how bad it really is. Some "experts" are now saying that subprime situation is going to get much worse and take down the rest of the economy with it. I certainly don't subscribe to that gloomy view because I'm not a catastrophist by nature. But I also recognize the nature of being overly optimistic when it comes to economic forecasts. They don't call it "the gloomy science" for nothing.

Being "objectively truthful" doesn't demand that I substitute my opinion for yours, you know. I think it's extremely unlikely that a severe decline in prices would effect "only a relatively small segment of society." That is not the "objective truth" you demand of me, but just a statement of your personal opinion.

Hi FF,

Being "objectively truthful" doesn't demand that I substitute my opinion for yours, you know.

I would NEVER ask that of you (nor would I ever ask the earth to stop spinning around the sun! )

I think it's extremely unlikely that a severe decline in prices would effect "only a relatively small segment of society." That is not the "objective truth" you demand of me, but just a statement of your personal opinion.

You mean your opinion.

What I am saying is that it either affects a small segment on both sides, or not. You may come back and say it negatively affects a large segment, and positively affects only a small segment... but if this is to be true, the negative effects would have to be greatly diluted and minimized (or the the positive benefits greatly concentrated.) In the open markets, I just don't see any reality in either of those arguments.

FURTHER, we can't ignore the endured pain of personal discipline and denial of immediate pleasure by those who've endured the downsides of easy credit the past 5-8 years.... merely to justify the saviourism (at their expense) of those who overindulged. That is bad ethics, as well as bad economics.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

No, what I put in quotes is your opinion.

I'm unclear what you're trying to say in the paragraph that starts "What I am saying is that . . .." Perhaps you could amplify?

Your last paragraph has nothing to do with what will happen if housing prices collapse. I am one of those who wasn't tempted by easy credit and funny mortgages. We tend to follow the maxim that appears at the start of this forum and spend less on housing than we can afford. That prudent approach has resulted in us owning a number of pieces of property that collectively are worth a tidy sum, and it resulted not from speculation, but because of following the fundamentals and some good luck. If their value dropped say 40%, that wouldn't wreck us financially, but we'd take a hit.

For that reason and many others, I want the housing market to be strong. I regret that it inflated so much (and not to our personal benefit, mind you), but there you are. It's happened. I don't want to see it crash. I'm sure the majority of Americans who are property owners agree with me on that. If there are some reasonable ways to help prevent that from happening, I'm open minded enough to consider them. I regard that attitude as enlightend self-interest.

FF,

No, what I put in quotes is your opinion.

You're going circular on us.... look at the thread itself above us. I quoted YOU from your OWN QUOTING OF YOURSELF (see post at time 14:15, 2nd paragraph.) That's not my opinion, its yours.

I'm unclear what you're trying to say in the paragraph that starts "What I am saying is that . . .." Perhaps you could amplify?

You keep justifying that "only a small segment" is going to benefit from the current cycle... but you somehow feel it appropriate that we artificially distort the markets for SOMEBODY'S benefit.

Up to this point you hadn't said (anywhere that I had read) that your desire was out of self-interest... so I "assumed" you were concerned about others.

I was pointing out that an effect is an effect is an effect... it happens, and it has results that balance out as pros and cons among various different particpants. It has future repurussions, and it itself is a repurcussion of previous effects.

If it is only an effect that benefits a "small segment of society" then it is likely to either be an equal detriment to a small segment of society, a worse detriment to a SMALLER segment of society, or a lighter detriment to a LARGER segment of society.

Clearer now?

Your last paragraph has nothing to do with what will happen if housing prices collapse.

Of course it does, how can it not? That is PRECISELY what I was referring to.

I don't want to see it crash. I'm sure the majority of Americans who are property owners agree with me on that. If there are some reasonable ways to help prevent that from happening, I'm open minded enough to consider them.

I don't disagree, as long as we do not incur any artificial market constraints or distortions that create unintended consequences that worsen the situation overall, or over time. THAT caveat is a tough hurdle to clear.

The healthiest market are the least adulterated markets.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

In open markets, prices could go up, the could go down, the might even go nowhere.

Is the prudent home owner who avoided the funny mortgages and easy credit, and also avoided buying at the height of the market really taking a financial hit?

If for example that said prudent home owner had price appreciation of (for argument sake) $100K from the years of 2002 to 2005, and then say by the end of 2007 they have back that $100K, is that prudent home owner any worse off then where he started? His gains during the bubble years were fictional and on paper, the subsequent devaluing of the entire real estate market has merely removed the high market valuations of his home, it hasn't actually done anything to harm him financially (i.e. does he have to pay out $100K from his bank -- no).

Essentially, I don't think we can look at the insane highs of late 2005 as the new 'floor' to home prices? To assert people across the nation are taking a financial hit because their properties devalued 20% since 2005 ignores the fact that previous to that they had appreciated 50%.

Everyone seems to be recording a 'loss' on their property values because they're using the HIGHEST value their house (or their neighbors) ever appraised at as the starting point! It's bizare accounting. If you ever filed your taxes on capital gains this way, the IRS would throw you in jail. Your gain (or loss) is the difference between what you sell an asset for and what you buy it for. You don't re-adjust the purchase price every time the market makes a new high.

The only people who are really taking a beating on this are those who bought in too high! That's why you don't buy at the height of an obvious bubble.

To the broader topic of government action. It is not the job of government to assure that your house (or any asset for that matter) does not lose value. Let the free and open market set the value of your house.

The only people who are really taking a beating on this are those who bought in too high! That's why you don't buy at the height of an obvious bubble It may not have been obvious to them. I personally have been saying housing bubble since 2002! I also would benefit tremendously if housing values declined 50%! I bought my house in the early 90s. No I am no genius, that is when DH insisted he wanted to live in the burbs and we got married. I desperately need a bigger house. So what if I sold my house for only 25% more than I paid if I could also save that amount on a new house.

I have also been saying for years that the smartest thing to do would be to sell and rent for a while. Sure, if you are a couple with no kids. You try finding a rental that will accomadate 5 kids, a caregiver and a cat! To be honest the boom went on for so long I was starting to wonder if it would ever stop

So yes in theory a buyout would hurt me from a pure real estate point of view. All sectors are interrelated so it is never pure. This why I asked the question about being an adult in 1987. If you have witnessed one crash first hand, you never want to see another. The accomanying unemployment is not pretty