Sunday, March 30, 2008

Here's a Little Story You All Might Like

A young couple bought a house about 5 years ago. Credit wasn't all that great. Their agent told them to get qualified with a lender....gave them a couple of reputable names in the area. They used a friend of a parent instead. That should have been okay. They should have gotten a good deal. Well, the deal wasn't so good. They ended up with an interest-only loan that couldn't be refinanced for 24 months.

That type of loan is exactly what it sounds like. All the money you are paying every month covers only the interest on the money you borrowed. You aren't paying down your principle at all. The agent and the title company were alarmed because this wasn't a loan either saw here in the Midwest very often....not five years ago. We're too conservative for loans like these.

Interest-only loans work fine, if real estate is appreciating. The borrower is stil
getting the increased value of the home, so it's not a huge deal if he isn't paying down his original loan. He's still increasing his equity in the home.

Fast forward. Kids refinance....probably with the same kind of company a couple of years later....another adjustable rate....maybe even paid all their closing costs on the new loan by rolling those costs into the new loan. More debt. Interest rate went from 6.5 percent to 11 percent when loan adjusted last year. The family lost the house this month. They couldn't make the new payments and didn't ask for help in time.

Result: They are going to be in a credit mess for 7 years.

You can bet that some financial institution made good upfront money on those two loans because the credit involved was not so great. The loan was then sold off in a package to a hedge fund or bank that bought riskier loans because they are lucrative and give their investors a good return. Loans get bought, repackaged and sold over and over, each entity taking a cut of the profit. The purchaser of the loan is willing to take the risk because the return is so good, unless it all hits the fan. It did.

The bank that forecloses will spend thousands of dollars to execute that foreclosure, and will try to stick it to the family whose house they just took. In this case the loan holder wanted an additional 40K from this family, until the family got a lawyer. The foreclosure went through, but the 40K was waived.


This is one case. One little house. One little family.

Many wouldn't think of the little family down the street with two incomes and a nice car as victims of predatory lending. Most of the people in the lending industry would have thought of these loans as a good way for young people to get started on the American dream of home ownership. The lender involved in this second adjustable rate mortgage that broke the bank would have said that the borrowers saw the "Truth in Lending" statement and knew exactly what they were getting involved in, and all of that would have been correct. Yet, something went terribly wrong.

A couple of very important factors were at work against these and lots of other homebuyers. One, was a real estate bubble that they couldn't imagine bursting, and the other was the symbiotic relationship between banks, their lobbyists, and the government.

In the spirit of full disclosure, let me say that I sold houses for over 20 years in the midwest.
I saw good markets and bad. Mostly good ones, though. The market in my town flattened out a few times, but home values never went down....not in 20 years. I, myself, couldn't have imagined this downturn, and I really tried to make sure my clients didn't get in over their heads by using the many good conservative lenders who want clean transactions, not mess.

Over the last few years that I sold homes, though, I saw some weird new "loan products." There were 105% loans, which are beyond scary. There were 80% first mortgages tied with 10 and 15% seconds so that buyers didn't have to pay private mortgage insurance to better qualify for more expensive homes. There were a lot of variations on these risky deals that only work in a market that is constantly appreciating. It's hard to believe that none of us in the housing industry, no one in the banking industry, and no one in government could see this coming.

This mess was built from the ground up from greed, unfounded optimism, and a total lack of oversight. Greed on the part of lenders for the big interest rates they would receive for taking the risk of lending to risky borrowers.....unfounded optimism on the part of buyers and their agents that the boom would never end.....and lack of oversight from a government where the banking industry's lobbyists succeeded in persuading regulators to cut all that nasty red tape that keeps banks from making freaky loans like these.

Now the financial industry will get bailed out. Even though lenders knew there were risks, they will get bailed out. Even though they fought hard to relax the rules of lending the government will bail them out, which means you and I will be doing the bailing. We pretty much have to if our economy is ever to get back on track, I guess.

However, I don't think that the few dollars the government is going to throw at the thousands and thousands of families who were in over their heads will even compare to the need. I also don't think that we will ever know the true extent of the government's complicity in writing this nightmare scenario to please the financial sector. And I don't think that a lot of these borrowers have any idea how long the seven years that they are stuck with crappy credit is going to seem. Unfortunately, they are going to find out.

Liberality and Tolerance: The Twain Should Meet

I hop around several of the top blogs and, usually, a great time is being had by all. Some of the articles and comments are so funny, I find myself sitting alone at my computer laughing out loud. Looks a little off-center, but it all makes the day a little shorter. The other day, however, was different.

One of the articles being discussed was the shocking death of an 11-year old girl, whose fundamentalist-Christian parents prayed for her recovery, from what turned out to be a diabetic coma, for over a month while the poor child suffered and died. My first thought was that someone should just take the parents out and shoot them. I've got to admit that where the welfare of kids is involved, I have very little sympathy for caretakers who don't do their job. However, I was unprepared for the reaction of nearly all of the other posters. You see, in the estimation of most of those who cared to answer, it was solely the fault of religion. Period. 'Nough said. Done.

Though the parents did not belong to any organized religion, they had a small prayer and bible group and home-schooled their children. To a lot of the liberal and progressive community that sounds an alarm. Many don't understand the mindset that parents are totally in charge of their children and can make all decisions for them, educational, spiritual, and physical. Admittedly, I am a little sceptical of a parents right to total control such as this myself.

Some of the posters used this argument, and I think this is a topic worth discussion. Are children the property of their parents until they reach legal majority? Should parents be able to withhold medical treatment because they feel they have such a right? Where do the parents'religious beliefs come in? Can it take precedence over a child's right to proper health care?

Yet the argument that my fellow posters put forth most often was that religion was the cause of it all. Yep, religion sucks and is the cause of every ill in the world today. Over and over and over the posters said the same thing in different words.

My personal take on the loss of this child is that she died because of superstition and, well, stupidity. Not to put too fine a point on it, these folks really don't sound all that smart. Religious belief is not always grounded in superstition and blind faith. Media reports of incidents such as this and other similar tragedies makes it seem that there are a lot more of these fanatics than there actually are. Most parents, regardless of whether they study the bible or home school their child would have had that girl to a doctor, if not immediately, then certainly within a couple of days. Only the fringe of the fringe would have allowed such a thing to happen, or feel they had a right to experiment with their child's health and its relation to their faith in such a way. Blaming all religous people and all religion seems a tad harsh.

Why were these people choosing prayer? Was it because of their strong faith? Did they have a distrust of the outside world that kept them from seeking assistance? Did they have no health insurance? Did they live in one of the many rural counties in this country that has little or no access to doctors, so prayer was all they felt they had? We'll probably never know because stories like this one are like smoke...they fade quickly. On to some other story.

However, there should be some discussion of at least two of the basics in this story. Should the seeming neglect of a child's health be allowed as a relgious right? And should their obvious error indict all people of faith?

Many of my blogger friends would answer no to the first question and yes to the second. However, the vehemence of the attacks that were made on all things religous
in so many of the posts makes one wonder what type of "religious" experiences these poor people are trying to forget. I would suggest that they pray for the child and her family, but I'm guessing most would find my suggestion offensive.

Saturday, March 29, 2008

Be Afraid, Be Very Afraid

Every day that we are closer to the end of the George Bush era seems to signal a new reason to be a little more on edge. Certainly it isn't the fear of the unknown. It couldn't be any worse than the known we've been experiencing for the past 7+ years.



Shall I name it? It's the fear that these folks will never leave.



I am not one of the conspiracy theorist who think Bush and Company will find a pretext to establish martial law, cancel the election and just keep on keepin' on. No, I fear worse than that.

I fear that they have so beaten down the American psyche that frightened citizens throughout this land will go to the polls to elect someone who will protect them from Al-Quaida, aka the Middle Eastern Boogey Men. They will elect another one just like the other one. That someone? A rather confused, rather senior senator who has decided to sell his soul to become president during his few remaining years.



And John McCain is playing along with the scheme. The Bush Administration would love to see McCain become president since he has become a toothless old lion who will continue the failed policies that have this country in its worst disarray in half a century, perhaps ever.



What is it about the vanity of a politician like McCain that allows him to believe that he is anointed to become the next president regardless of his lack of knowledge in so many fields?

He has admitted that he knows and understands little about the economy, especially the economic problems that have come to full fruition in the past few months. A sane person with no such expertise would be looking for an exit strategy from this race so as not to be linked with the financial mess that may take years to repair. Instead he blusters on, agreeing with plans to bail out Wall Street Financial entities, but having little interest in bailing out individuals who are losing homes. Since he admittedly knows little about economic policy, it's kind of hard to feel that this is the best course.

Let's look at his stand on the war in Iraq. George should love it. It's an echo of his policy, or lack thereof. STAY THE COURSE. Be loyal to the Iraqis, don't leave the job undone. Not very original, but certainly very jingoistic. John's message is that our allies will never be able to rely on our word if we don't stick out this unending mess. There's also the undercurrent of his feeling that the dark forces will have won if we pack up our troops and leave. In other words, his foreign policy is about the same as his domestic plan...weak.

This is where I get the feeling that John will just be the same old same old. When we start invoking loyalties that don't exist to a people who wish we would get out of their country, I can't tell where the Bush Administration ends and the John McCain candidacy begins. Does this man believe this claptrap? All this flagwaving, gut-testing claptrap?

According to their scenario, the world's opinion of us will diminish if we stop interfering in the internal affairs of another country, get our financials in order, clean our house, move forward as a nation and meet the challenges of the 21st century. No mention of our worldwide fall from a position of leadership to one of derision because we have chosen to ignore the urgings of good friends and not such ones to do these things.

Well, they've certainly succeeded in making most of us afraid. Unfortunately, we're afraid of them.