Re: Today is a great day in and for America Ot

Dillon Pyron wrote

This would be the economic crisis that started when the Clinton
administration decided that universal home ownership was a "good
thing" and that lower interest rates were the way to do it?

Lower rates weren't the problem. Lower credit standards were. The Democrats
did what Democrats so often do, they ignored whose money they were spending.
One of the things I run into all the time is "The banks have plenty of
money, why do they require such high income, credit and collateral to
approve a loan." My standard answer is "If it were your money, how much
income, credit and collateral would you require?" My next words are "It is
your money."

The crisis that started when people who couldn't afford to buy a house
did? The crisis that started when people bought more house than they
could afford because they could sell it in six months at a profit and
buy another house that they could afford even less?

As far as being "duped" by lenders, are there really that many stupid
people who can't read? Did none of them ever hear "don't sign
something before you read it?" Many of the people who are losing
their houses are fairly well educated. But fools.

I have to go with the "duped by lenders" here, but it's not really their
fault either. The government enacted regulations that required them to do
something and measured their performance by how much they did for those
that, traditonally, did not meet high credit standards. Those that fell
victim to easy financing were foolish too, but the truth is, most of the
lenders and borrowers are young enough that they have never seen a period
when real estate prices declined significantly and over a long term.
Historically, increasing real estate values always saved the financial
industry from its own mistakes. Sometimes it did not save the institutions
that made the mistakes, but somebody else was always there to get things
moving again. This time has proven to be different, and very serious. The
combination of collapse in the real estate markets, with drastic declines in
industry, with massive fraud in both the financial and industrial sectors
has brought our economy down and is holding it down. For good reason, nobody
trusts anybody. Worse still, our problems are taking everybody else with us.
The kind of market necessary to pull us back up quickly no longer exists
anywhere in the world.

What we're seeing today is not real. Reality is worse. There are people out
there, very important and powerful people, doing everything in their power
to artificially slow the decline, to make it appear that this is all a
temporary dip in an otherwise healthy economy. It's not working real well,
but I can only imagine how much worse everything would already be if the
support were not out there.

When we bought our first house in 1982, FHA interest rates were at
15%. FIFTEEN. By the time we close, it was down to 12%. But we only
bought as much house as we could afford.

Interest rates are rarely a key issue. Buying more house than you can afford
is. I financed my home with a fixed rate mortgage. I must have bought about
the same time you did, because my original rate was similar. I refinanced
when rates declined, also at a fixed rate. I avoided the potential of an
increase in interest that would exceed my ability to pay. Of course, working
for the government, increased in my salary were more or less certain to at
least keep pace with inflation, at least until the last few years. Even
then, my income went up. It just didn't go up as much as my cost of living.

What was a much bigger problem was the no money down, interest only loans.
They, and the sub prime loans are the ones that killed the market. Lenders
made the loans because collateral values would always go up. They were safe,
or so they thought. Borrowers got the loans for the same reason. They could
buy more house than they could, otherwise, afford. They too were safe
because real estate values would always go up. They could afford the
interest and could always generate more money by refinancing against higher
future values . . . except values didn't continue to go up. When they
declined, those lenders were no longer secure. In some cases, they called
for reductions right away. In others, they called for them on renewal dates.
Those that had bought more than they could afford, didn't have the money to
reduce the debt and either went into workout situationsor lost their homes.
That drove the market down further, and intensified the effects. It's a real
mess, and it's not going away soon.

Lee


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