Subprime bailouts: Chump check

When I bought my house in 1990 interest rates were 17%!
I got a pretty good deal on the land because the market was flat and the construction of the house was quite reasonable due to a flat market.
I had a big morgage repayment but that was fine by me, I knew what I was doing. People who already had morgages were protected from increasing interest by a legislated ceiling on interest on existing loans of 13.5%.
So where did the banks get their money to ensure they didn't go broke? (a couple did go broke)
They charged new borrowers more didn't they!! That's why I had to pay 17%, if not for the ceiling I may have been on 16% or less.

That's all water under the bridge now and I'm happy with where I am at, I was also fine with the big interest rate, you win here you lose there, all works out in the end. My older brothers and sisters had a win with the ceiling so I was happy for them.
When interest rates fell I knew there was no way of knowing they would stay down so I left my payments high. If interest went up, who cares, my payments would stay the same and I was making headway on my loan. See, the high interest rate ended up saving me interest in the end because I paid more off my morgage after they went down.

What is the point of this? I have no idea but I have typed it now so here it is.

 

<div class='quotetop'>QUOTE(Boulder Bum @ Nov 6 2007, 02:38 AM) [snapback]535357[/snapback]</div>

Why don't we use our President as our role model?

Oh, I forgot, we do.

 

shall we bail people out who are upside down on their car loans and can't afford high interest payments too?

 

<div class='quotetop'>QUOTE(Boulder Bum @ Nov 6 2007, 02:38 AM) [snapback]535357[/snapback]</div>

This is a prime example of a moral hazard. My thoughts on this bailout is that we are using tax dollars to ensure the enslavement of a good portion of the public. There aren't many who are a bigger slave than a someone chained to the "american dream" especially if it take 70% of your gross income. But hey, the interest is tax deductible.

<div class='quotetop'>QUOTE(galaxee @ Nov 6 2007, 12:11 PM) [snapback]535554[/snapback]</div>

We will. Where do you think the equity came to make this big purchases?

 

Is any "government money" going to individuals?

The only "bailout" I've seen reported is some easing of things like the Fed's overnight rate to give the lenders some breathing room. And there's been some pressure on the lenders to assist the people who are in trouble ... but no government payments to individuals OR corporations, as far as I can see.

The interest rate charged someone is based not only on the prevailing rates, but also on that person's credit history. The person with a 7.1% mortgage was able to get that rate while his neighbor may have gotten 7.6% only because his neighbor had a lower credit score. The neighbor on the other side may have qualified for a 5.4% mortgage.

So what is Countrywide supposed to do? I suspect they look at the situation as preservation of their capital, and will write a loan for the interest rate they think they can get out of the "turnip". Since they cannot get the "blood" of the over 10% rate, they see the borrower can afford a rate of 5%, so they recast the loan for that amount. They still make money. They don't have another foreclosure on their hands.

Does the woman with the 7.1% mortgage really think the person teetering on the precipice of losing their home "got off easy"? I suspect she has slept better the last few months than the person who "got off easy".

 

<div class='quotetop'>QUOTE(fshagan @ Nov 11 2007, 09:44 AM) [snapback]537966[/snapback]</div>

In the end doesn't the person who gambled on interest rates win out? Is it not the same as someone playing blackjack and given reduced rates for duration of their playtime without a coresponding reduction in the payout?

 

Once again, the mess is being cleaned up in a one size fits all stupid manner.

Homeowners that only own the one home and are living in it because it is their primary and ONLY residence? They should be refinanced at whatever the going 30 year fixed rate is but should be required to live in the home for a set number of years....5...10....whatever is reasonable.

But those who seculated, who bought to make a buck? They should lose their investment to foreclosure and eat the loss.

As the woman in the article...when I refinances for the last time I specified a 30 year fixed and that my taxes and home insurance be escrowed as part of the monthly payments. That way I don't have to worry about my home being secure. I also have it homesteaded. I got 5.75 at the time because I saw the writing on the wall and knew rates would be going up. And they did.

It does all come down to greed. But some to naivete. The primary homeowner that bought too much house? Well, if they can't pay that 30 year fixed rate on that bloated MacMansion then I guess they can sell and downsize to something they can afford. The speculators that bought a bunch of houses using all those creative real estate techniques they saw in that informercial on Sunday Morning? They can eat their losses. If you don't know the game you don't play. If you can't afford the bet, better pass on the hand.

Aside from the cost to us all in taxes for bailout, lets not forget that all of our property values have gone down because of this. I'm not worried, however. I'm in a very desireable City even though my neighborhood isn't that desireable. But I've never lost having an affordable home. And the market will eventually rally. And since I plan on living in my home until I die, I'm not worried about it's value going down.

BTW when I took out a home equity loan for my PV I made sure I didn't go below the 20% mark, even though 10% was allowable. (I.E. I made sure I didn't owe more than 80% of it's value. No way I'd lose 20% due to a market slump. And I was right.) Bought in 1987 for 80,000. Current value is $555,000.