Excerpt of the Day: On Borrowers’ Role in the Subprime Situation
Rob Asghar, a writer and editor based in Southern California, dished out unwanted but necessary medicine in a subscription-only Wall Street Journal op-ed on Thursday:
By and large, the lenders were no less irresponsible than the borrowers who aspired to live a bigger life than they could afford. But all of the strange creatures of subprime — the overpaid loan officers, bloated budgets, lavish Las Vegas “planning meetings” and the like — were nurtured by consumers who believed that incurring massive debt was the secret to becoming a rich landholder (or boat owner).
Regulation of the industry may address some problems — but not without creating the new ones that inevitably result from straitjacketing the free market. Besides, market forces were already slaying subprime’s monsters. By late 2005, most in the business knew the feast was entering its final moments.
The recent effort by the Bush administration to help a segment of subprime borrowers is, fortunately, a mostly cosmetic matter. (One mortgage executive tells me that only about 5% of the loans in his company’s loan portfolio will be affected.) Policy makers in Washington would do well to leave it at that. We need bureaucratic meddling far less than we need a sober and clear-eyed citizenry.
As my own friends bought and maintained homes, I quietly mused about how the homes owned them, not the other way around. I moved often, based on job commitments, with no interest in buying a house.
….. When the average person learns to treat those (market) forces with humility and respect, we’ll all be served far better than by any political promises that claim to stand up for the little guy.
With Barney Frank and John Conyers (second item at link) around, and a presidential campaign in progress, the chances of “leaving it at that” are lower than they should be.
Yes, it is true that a segment of the subprime borrowers took loans they shouldn’t have for house too much for them. However, as much as it serves them right for loosing their home and blowing their credit rating, many more people are being hurt by this behavior. We have four distinct groups who through their stupidity or greed put the rest of us in a pickle. The four being foolish borrowers, house flippers, builders and lenders.
The rest of us who need to sell their property now can’t do so because now there are too many houses on the market. How many seniors are being harmed who can’t sell their property to move into assisted living or a nursing home are stuck with two sets of bills on limited incomes? How many people are in the situation of relocation to another state, now can’t because their isn’t a buyer for their home? It may be satisfying to see the four groups get their come upance but at what cost to the rest of us? Because of the overbuilding now their aren’t enough renters to at least mitigate the situation.
Comment by dscott — December 29, 2007 @ 5:44 pm
A couple points. While lenders and borrowers both share a good deal of blame for loans being given to or taken by people who could not reasonably be expected to pay the money back, we shouldn’t forget the politicians (and race baiters) who over the years have pressured lending institutions to make loans available to people who might not otherwise qualify for those loans.
To dscott, it may sound heartless, but my answer to you is the folks you mentioned are mostly inconsequential. Truth is very few people “need” to sell their home at a particular time. People may WANT to sell their home immediately, but unless they planned poorly they don’t need to sell immediately. Also, if a home has been properly maintained they can still sell it right now. Can they sell it at 15% above last years market value? No. However, they can still sell it well above market value of ten years ago. Houses are still selling. They always will. Sometimes the buyer gets a good deal sometimes the seller gets a good deal. Just like coin collecting, stocks, etc. there are good times and bad times to buy or sell. The difference is with a home in most cases you can continue to live in it until the market pendulum swings back in your favor.
Comment by largebill — December 30, 2007 @ 10:25 am