Blame the Banks, Not Homeowners for Foreclosure Crisis: Obama's Plan is a Step in the Right Direction
In this sour economy, there's certainly enough blame to go around. We can blame unregulated markets and lack of oversight. We can blame Bush and Alan Greenspan for failing to heed the warning signs of an impending recession. We might also blame inflation, high unemployment, and rising fuel and food costs. However, when it comes to the foreclosure crisis, let's place the blame where it belongs--at the steps of banks and mortgage brokers who packaged risky mortgage products and pitched them to unsuspecting homebuyers eager to invest in the American Dream.
The introduction of President Obama's $75 billion plan to aid homeowners at risk of foreclosures has sparked an outcry from financial analysts, pundits, "responsible" homeowners, and others who argue that assisting homeowners at risk of default is unfair and rewards bad behavior.
This logic assumes, however, that many of the homeowners now at risk of default were speculators, lied on their mortgage application, or leveraged debt to buy McMansions they could not afford. This is only a small slice of the foreclosure pie.
Many Americans bought their homes because they believed in the age old value of homeownership and thought it would make a sound investment.
For many, the American Dream has turned into an American nightmare with over two million individuals falling victim to foreclosure, 10 million more having trouble making their payments, and depending on how long the recession lasts, an estimated 6 million homes are facing foreclosure by 2012.
At the peak of the housing market in 2006, the national median price for a home was $230,000, a price out of reach for most two-income families. Ten years prior, in 1996, the median cost for a home was $144,000, nearly 40% less. In order to make homes affordable, Banks created mortgage products such as the option arm, which allowed homeowners to "pick" their payment or allowed smaller payments in the first two to five years with escalating payments over time. Women and racial and ethnic minority communities were also hit disproportionately hard by predatory lending practices and sub-prime loans.
While consumers should shoulder some responsibility for failing to read the fine print, it is banks and the lending community that chose profit over regulation and oversight that caused the foreclosure crisis. Ironically, these institutions have received over $379 billion to help revive the economy and stave off bankruptcy. This amount represents less than 25% of what is being proposed to help owners avoid foreclosure and stay in their homes.
The support to homeowners proposed in the plan goes directly to banks and mortgage holders to modify loans and to help families struggling to survive these tough economic times. It is not a hand out, but a hand up.
Barack Obama's housing plan is a step in the right direction. It will go a long way to bolster faith in the economy, stabilize housing markets in vulnerable communities, provide assistance to individuals who are now homeless as a result of foreclosure, and help close to nine million families stay in their homes. I hope it also opens the door for much needed discussions about affordable housing in our country.
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My mortgage was sold 3 times with in 90 days . Greedy banks my mortgage payment change 3 times in that time frame ...........
Let's get this straight--It's all our freakin' money! Not the banks, not Wall Street or AIG.
It's our money. What's wrong with giving the American People--US--our money instead of throwing it down the rathole of the Elites?
Does the new administration have a housing relief program that addresses the problems confronting people who have already gone through foreclosure and lost their homes?
My sister and I pooled our savings four years ago and decided to purchase an investment property in Las Vegas. We were able to rent the property out and managed to keep our mortgage payments up until a year ago when the economy took a nose dive and the rent was no longer enough to pay for the mortgage. We subsidized the monthly payments and we tried to negotiate with Chase to modify our loan but to no avail. Finally, we lost the condo back in September of last year along with our savings.
We tried to charge everything to experience and moved on.
Much to our surprise, the problem with the house did not end in foreclosure. A collection agency is now calling my sister for a "deficiency" of $33,000. My question is, is this legal? The bank made money by foreclosing the property since they got the house, they also had mortgage insurance in case of default, they claim losses on their taxes and on top of all these, they got taxpayer money to supposedly "help" homeowners.
It is bad enough that our credit scores have already been damaged by the foreclosure but it seems that that is not enough for these banks. What other recourse do we have? Is bankruptcy our only option?
pt1
There's an article on Huffpo today about the banking crisis as one of Trust. And that that trust is gone now, leading to hoarding and the freezing of capital.
Well, that Ideal of Trust holds true for the People of America, by--oh what's that engineer's favorite phrase who posts here; Oh, yeah--Orders of Magnitude!
There is a Constitutional CONTRACT between the Government and the American People. It's not just hinted at, or implied, or inferred in arcane writings. It is the basis of our nation--the Rule Of Law.
We made a deal with our Federal Government that in return for pledging our allegiance to the Constitution and the nation, that for following the laws, working hard, being good and trustworthy citizens, that we will in return receive certain assurances and protections.
And, on that basis, WE TRUSTED. Some here would like to say now that that makes us stupid, or ignorant, or in some way deserving of the theft of our homes, rights, liberties, and, yes, our history. I disagree!
We entered into a legally binding pact with the Federal Government. We held up our end. But they encouraged the creation of a bubble, based on artificially inflated real estate backed derivatives the value of which now exceed that of all the properties by--guess what--Orders of Magnitude. They broke their part of the bargain.
pt2
They broke it when they lowered interest rates and flooded the market with cheap money and the President and the head of the FED both went on TV and told Americans to buy houses now. They broke it by encouraging formerly well run companies like Fannie and Freddie--America's lenders of last resort--to become gamblers and speculators. And they broke that trust when they told the mortgage companies to develop "more creative" financing that they knew would wipe out low income and minority buyers.
They broke our Trust; the part where it says to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity." Justice was replaced by greed, Tranquility by loss and fear, and the General Welfare applied only to the wealthy.
It no longer cuts it to come on these sites and complain about the greedy, or the stupid, or the naive American who didn't read the small print. Just as we've been taught since gradeschool, we were good hard working Americans and we Trusted. We had a deal. But the Government became a partner, struck another deal, with a different group of folks, and now, all bets are off!
Since there is a great deal of misinformation regarding the specifics of the Homeowner Affordability and Stability Plan here is HUD Secretary Shaun Donovan speaking on the specifics of the plan last week:
http://www.youtube.com/watch?v=UAifOhxutcQ
Is it too much to ask that the Government do its job and provide the oversight that would have kept us out of this crisis. Yes the investment bankers caused the symptoms of what we see but the regulators saw it and told the Bush Adminstration about it. Why did they let it keep growing. That was an obvious concern over 3 years ago that went unregulated, allowing the pyramid scheme to play its game to the limit. Now we look at the banks and the people that are victims and try to make them responsible??? What is the role of govenrment? Should they only wage war and collect their pay and benefits? In the past 8 years, have we seen any real action by any of the Congressional Committees to protect the people from the greed and monopolies that have been created? Government is responsible and yet we see them pointing the fingures at everyone else. Small government, big government, whatever size is irrelevant as President Obama says; its an effective government that is important. It has to work for us - the people.
campaign contribution bribes override the people's interest.
And the median price for homes and the median/average household incomes are STILL incompatible.
I disagree.
The meltdown was triggered by sub-prime mortgages then bundled up by the banks to become collateral swapping and derivatives. Many mortgage applications were approved without regards to credit, ability to pay, no proof of income whatsoever. Fannie Mae and Freddie Mac had the good intentions, but the rules were relaxed to the point of "no regulations". THESE WERE THE CATALYST FOR THE MELTDOWN.
When irresponsible people make poor decisions that effect the ENTIRE NATION, some sort of restitution should be made to those who have suffered the most - MIDDLE CLASS who lost their jobs, saving and retirements because of these irresponsible people.
And those who made the poor decisions, should not be allowed to gain from their irresponsible behavior. They should be excluded from reinstating their mortgages, and should be effectively closed and that home should be given to those who are able to prove credit worthiness.
This had the domino effect - industries closings > job loss > mortgage defaults.
If there has be homeowners bailouts, it should only be given to those with proper documentation of earning capacities, good credit and ability to pay.
It's not enough they get free food, do we have to pay their mortgages too ? It is so difficult for me to see their grocery shopping cart overfilled, while I have to crunch my budget just to survive.
ITS NOT FAIR.
If the money goes anywhere it should go directly to the People, not again to the banksters. As another poster replied to me today in a most elegant phrase that sums up the top down nature of this meltdown--
"realization itself constitutes a catastrophe."
When the big players (investment banks, sovereign wealth funds, pension funds etc) in this gambling scam asked to be payed for their "investment" and the money couldn't be found because the downstream sellers of those products were themselves so overleveraged, That is when it began to unwind.
Americans were laid away--again. Maybe we are stupid, but we don't deserve this!
Much of the blame does go to homeowners. Most of the foreclosures over the past few years are in California, Florida, Arizona, or Vegas, where people knowingly paid extremely high prices for homes they assumed would continue to increase in value after they bought them. Most these folks were not un-skilled workers or immigrants or unsuspecting victims. Most of these folks were middle to upper-middle class folks who were gambling that home values would continue to go up.
I live in California and I TRIED to tell folks.
I make more than a number of people working to pay an exorbiant mortgage...
I'm renting and enjoy life experiences to the fullest.
And saving for retirement...
The home mortgage crisis is reflective of the greed of those who presented the mortgages at a salable rate. If the mortgage was structured to be a fair asessment of the value of the home, then most of these scheme loans would have not been approved by a lender to a person or family without the proper payment requirements.
Therefore, the blame goes to the mortgage lenders and not to the wannabe McMansion owners. Surely some must have thought the bubble would last until paychecks inflated to larger than their mortgage requierments, but I do not believe the homebuyers were more than greedy. They much wanted a piece of the american pie so largly offered by those with the ability to lend,.
The big winner here is the home builders who sold these overpriced, inefficient, too small lot sized eco-disasters which now need to be realized by a foreclosure to better stabilize the entire market.
With housing prices falling due to foreclosures and accurate appraising by cities including into their appraising the real cost of auctioning the foreclosed home, the market will adjust over time.
Until then, the homeowners who have lost out will have to find shelter from shared dreams.
Sure, let's never blame the baby-boomers who cashed out in the mother of all Ponzi schemes. Let's not blame the people who did not read the fine print on their mortgage applications. They are all victims of an infernal system.
Yep. That will help. And we will never make the same mistake again...
:-)
Just read on another site where you used the phrase, "Social Contract."
You might want to stop a minute and think about what that really means before you consider reaming any of the Americans who are suffering today due to the Bush regime's breaking of that contract.
Homeowners in a market that is rising, look at a contract that offers ownership close to what they're paying in rent. It is adjustable, so the contract is expected to rise in three years. Does it say by how much? Just when does the homeowner cross the line and sign a contract they know they won't be able to afford?
We have yet to hear about homeowners that deliberately signed a contract they knew they could not afford. How many are there, that knew they would not be able to sell their homes at a profit in three years?
Responsibility lies with those that were aware that appraisers that did not "play the game" would be blacklisted. We need look no further than the archived lists where appraisers discussed what they were doing to stay in their chosen careers. Enough of the blaming homeowners for doing something they did not do, or let's see some names.
"We have yet to hear about homeowners that deliberately signed a contract they knew they could not afford. How many are there, that knew they would not be able to sell their homes at a profit in three years?"
By that criterion, close to none. But that's not the correct criterion to apply. If you ask how many COULD HAVE KNOWN that they were buying into a bubble... the answer is that everybody could have know that if they just had wanted to. The data about average, inflation adjusted home prices was publicly available at all times. So then, please name the names of the people who did deliberately NOT buy a home because they knew about it.
Well, I can give you a head start: KillTheMessenger's name is on that list.
Absolutely correct, Messenger. I refused to pay 500-700k for a house here in California and warned others to do the same. I love the Bay and will live here all my life, and now I'll do it for about half the price. However, banks knew what they were doing, or else they would not have been paying more in commissions for the sub-prime, pre-payment penalty, horrible, horrible loans, to their workers. A business lines up it's workers incentives with it's own. They created this and they should feel the brunt of the downturn because they should have been the responsible ones. People were lured into the American dream, and that's not hard to do.. If "smart people" can be lured into Ponzi schemes, how hard can it be to lure unsuspecting poorer people into SHELTER. can't be callous, just be glad you were cautious.
Homes didn't magically rise in price from 1996-2006. They rose because banks pushed these creative (predatory) loans. Homes should NOT cost what they do now. Their worth has been falsely inflated based on the actions of the greedy banks.
The goal should be to allow these homes which were purchased with bad loans to be foreclosed on. Then, homes prices will finally fall to a point where people can purchase them without signing their lives to a loan that's impossible to pay back.
Barack Obama's plan will keep home prices too high for most Americans while rewarding banks for their decade of greed.
In this case, falling home prices would be a sign of a good economy - just like falling gas prices are.
Greedy banks and greedy home owners. I want to hear about the retiring baby boomers who sold their home to the lowest and not the highest bidder because they felt it wasn't worth as much as the market was willing to pay.
:-)
Well, you're right on time...which hardworking and deceived Americans are you going to assault today?
This is exactly the part of the equation those who want to blame working Americans, don't get! All that money chasing itself through the economy inflated the price of homes, and a lot more. It wasn't demand on the part of the consumer. We need to establish that.
Roll the prices back to where they were before the loose money flood and creation of the predatory loan scams, reset them there with payments based on that number. Keep working Americans in their homes.
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