Consequences of Massive Bailouts

[30ashopper]

Shopper, I agree with what you said about it being speculative and everyone knowing it if we are talking about folks who got in high looking to flip property before the first payment was due on the note.

But what if we are talking about someone who bought a primary residence with the intention to live there full time indefinitely with the mindset that the worst case scenario is if they face financial hardship they could always just sell the house they love if necessary.

Very few on this forum besides SHELLY aren't speaking without the benefit if hindsight.

I have other friends who wanted to buy here but couldn't afford it/didn't qualify then because of bad credit/irresponsibility so they rented thinking they were throwing money away. And now their credit is good, they have cash and they are buying these same places from the bank.

Ahh come on Geo, if they bought a house with a loan/payments they could afford, a downturn in the market wouldn't effect them in the least bit.

We're talking about folks who got creative with financing - interest only periods, negative amitorization, cash back refinancing, lines of credit, and variable interest loans.

A very small percentage of all these folks are worthy of compassion - people who took out normal, non-risky 30-year fixed loans on a house and ran into financial trouble through job loss or some other unexpected financial burden. The rest are all learning a valuable lesson in the down-side of risky behavior, which while painful to watch, will be good for them and the rest of us long term.

 

[Here4Good]

Ahh come on Geo, if they bought a house with a loan/payments they could afford, a downturn in the market wouldn't effect them in the least bit.

We're talking about folks who got creative with financing - interest only periods, negative amitorization, cash back refinancing, lines of credit, and variable interest loans.

A very small percentage of all these folks are worthy of compassion - people who took out normal, non-risky 30-year fixed loans on a house and ran into financial trouble through job loss or some other unexpected financial burden. The rest are all learning a valuable lesson in the down-side of risky behavior, which while painful to watch, will be good for them and the rest of us long term.

See, I'm not convinced it's a very small percentage, not with unemployment in the double digits and with the rampant flat out lying and cheating that mortgage brokers did. I have one relative that was just stupid, one that was cheated by a refi offer, and one that had a serious financial downturn. Not exactly a scientific poll, but that's only 33% stupidity.

It's hard to tell, sitting in Sowal, because such a high percentage of foreclosures around here are due to speculation and stupidity, but I think the NYT article played up the fast and loose aspect of these "squatters".

I don't think it was immoral (or whatever you want to call it) for the couple to forego mortgage payments and save their business. That's long-term thinking. All of these people are completely hosed now, credit-wise, and will probably find it difficult to rent a nice place when they are finally evicted because of that credit rating. Nobody's skating (except Wall Street, apparently).

As for them gassing up the airboat once or twice and going to Outback, lighten up. The investment bankers couldn't forego their million dollar bonuses, even when you and I were footing the bill. Let these people have a $12 steak. I know we're all paying for it, but what do you want to do? Re-institute debtor's prisons? These people will have to live in crappy rentals and pay cash for everything they buy for the next few years. It's a much heavier sentence than Countrywide got.

 

[Geo]

Everyone's sad story is different. There are many like you say. But there are also situations like I have described.

I was really just reacting to the labels of "good" vs. "bad" decisions without regard to what for many is really a smart decision.

I'm trying to point out the double standard we have in place for big business and the ultrarich.

When a very large financial institution walks away from its obligations for a commercial development because the numbers no longer make sense it's just business. When Trump declares bankruptcy and starts over there's no harm or foul. But John Citizen sees his primary residence literally worth half its purchase price in three years and he has a moral obligation that doesn't apply to the "haves"?

 

[Geo]

Well said HereforGood

 

[scooterbug44]

If someone cannot make their mortgage payments because of reduced or lack of employment due to the economy, they have my sympathy - I know some people for whom that is the case.

If someone is behind the financial eight ball and is robbing Peter to pay Paul and willing to accept the consequences of doing that they have my sympathy.

If someone truly got screwed on their mortgage - NOT JUST DIDN'T DO THEIR OWN MATH AND/OR READ THE PAPERWORK - they have my sympathy and cause for legal action.

But someone who is justifying their continued fiscal idiocy (read the whole article about that couple and you will see it isn't that I begrudge them an occassional meal out, it's that they are dumb with money) with "everyone thought the housing bubble would last forever" and "my house isn't worth what I paid for it so I am going to bail" does not.

People both in Sowal and beyond knew the housing market was too good to be true and it would end at some point.

The bottom line is that people borrowed more than they should have to buy more than they should have......................and the banks let them because they could profit off of it.

And the chickens have come home to roost.

P.S. I don't judge individuals differently than businesses. I think EVERYONE has an obligation to be financially responsible and live up to their responsibilities.

 

[30ashopper]

Everyone's sad story is different. There are many like you say. But there are also situations like I have described.

I was really just reacting to the labels of "good" vs. "bad" decisions without regard to what for many is really a smart decision.

I'm trying to point out the double standard we have in place for big business and the ultrarich.

When a very large financial institution walks away from its obligations for a commercial development because the numbers no longer make sense it's just business. When Trump declares bankruptcy and starts over there's no harm or foul. But John Citizen sees his primary residence literally worth half its purchase price in three years and he has a moral obligation that doesn't apply to the "haves"?

Don't think anyone has a moral obligation, but they might feel they do. Home loans are just contracts, when you stop payment, the contract stipulates what happens in response. If you can live with the long term repercussions, I say walk away. (I did that myself for a number of checks I wrote to Dominos when I was in college. ) Just tell them not to go begging John Q "responsible borrower" Public for a bailout, mkay?

 

[LuciferSam]

The idea of stretching myself financially to provide a roof over my head has always terrified me.

 

[Kayak Fish]

Scooter, I agree with you that people made bad choices. Buy I no longer agree with you that they are continuing to make bad choices. I know longer believe in the "moral" stigma that we see attached to someone who makes a rational business decision.

When the ultrarich (e.g. Donald Trump) find themselves on the wrong side of market conditions they don't keep throwing good money after bad and they don't let emotion or morals cloud their judgement. They "work the system" and start over. It's not personal- it's business.

I have a friend who was professionally advised a year ago to stop paying on his house. But he refused this course of action because it didn't *feel* right. A year later he is wiped out, umemployed and not paying on his mortgage because he paid on it until he could pay no more. Cashed out all investments and what little savings he had to keep paying on it as long as he could
because it was the "moral" thing to do. And as it has worked out- the stupid thing to do.

This post wins.

 

[Teresa]

excellent discussion. love listening to you all. always learning from you too.

so, we have a lot of friends in and around South Walton who have lost or who are losing their homes. probably most were due to financial mistakes and overextending. but the market was far different then and the risks did not seem to be that great - this is a real estate market with a lot of work going on in building, developing, selling, renting, etc. that was then. this is now. the worst nightmare risks kicked in and these people were good people then, making business decisions, and they are still good people, making business decisions. I am with 30A Shopper - its pretty straight forward. Good people caught in bad real estate economy. Its very stressful for them. I would not think its ever easy to walk away from the home that was once your dream come true. It is heartbreaking while at the same time a relief to be able to shed the unbelievable burden. I think its immoral to make such blanket judgments on anyone going through this. sure, there are some really bad decisions going on out with some folks there but what's new about that?

 

[poppy]

Lenders need to take some cues from the mafia and go after those who are gaming them. It's not good "business" to just let someone walk away owing you money be it $1 or $100,000 via a loan or bad checks (shopper). Word gets around quickly that nothing bad will happen if you stiff your lender except maybe a loss of some credit points and hell anyone can live with that. Break a couple of legs and pull a few fingernails and a surprising number of people will find the money.