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Presidential Candidates and Irresponsible Mortgage Reform
By Ryan Ward | February 4, 2008
As I type this entry I know that it probably is not wise from a business perspective to offer up my personal opinions for our next president so I will stay as far a way from that as possible. However, I feel that there is one proposal put forth from one candidate in particular that I cannot quietly sit out and not offer my opinion on because it is one of the most irresponsible pieces of legislation and panders so pathetically that it can’t go without a response.
Proposals have been flying about what can be done to help homeowners who find themselves in trouble with their mortgage and I am not going to get into who’s fault that is other than to say that there is plenty of blame to spread around. But, one politicians pandering is so outright irresponsible that I have to vent, if nothing else.
As a responsible citizen who votes, I feel that it is important to listen to what all of the candidates offer up for solutions to problems that we face as a nation. Last week as I was driving home from showing houses, I was able to catch some of the democratic debate and what struck me was the plan that Hillary Clinton set forth as her idea as to how to help “fix” the problem. Basically, she wants to put a 90 day freeze on foreclosures and freeze interest rates for 5 years.
Are you kidding? Freeze interest rates for 5 years? This has to be one of the absolute most irresponsible decisions I have heard any candidate, left or right, come up with. There is no way on planet earth that she has put one minute of actual thought into that plan outside of pandering for votes. This would wreak more havoc on the mortgage industry than anything else outside of discontinuing loans!
I want you to ask yourself one very simple question. Really. Just one.
If you were a lender and you knew that rates were going to be frozen for 5 years and you know that they are currently at historic lows, what would you do?
Now, it doesn’t take a rocket scientist to figure this out (although it is clearly above her head. Either that, or, she truly is just pandering). It’s simple. Interest rates would immediately skyrocket somewhere in the neighborhood of 2, 3 or 4%. So she would immediately take a problem that is quite bad and destroy it completely.
O.K. so that’s it. Feel free to comment on this below. Tell me what you think.
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February 4th, 2008 at 10:28 pm
This is a unsolvable problem for the most part and the market will self correct long before an “answer” is found here in Tucson Arizona I think we are much closer to touching bottom then most expect. Now what should be done is enact a little better regulation to make sure banks do not get overly agressive again. Failed banks are no good, and I’m very glad to see Bank Of America purchase Countrywide because the consenus was CW was on the way out and that would of really put a crimp in the real estate markets across the country.
February 5th, 2008 at 1:05 pm
I agree the BOA acquisition was a good one for the entire market and ultimately, less regulation would be better for the mortgage industry. What many people fail to realize is that part of the reason these lenders were doing some of these loans in the first place was to keep more regulation out. It was a damned if I do, damned if I don’t scenario for the lenders a few years back and this is what happens…
February 5th, 2008 at 11:54 pm
I don’t think there is much that the political system can do to solve this issue. Real estate markets are cyclical and we are in the bottom part of the cycle. Increasing the mortgage limits might help for places like California where prices are so high, but that will ultimately help buyers who are sitting on the fence decide to buy I don’t think it will really help many sub-prime borrowers.
February 6th, 2008 at 12:01 am
I think increasing the limits would do wonders! Subprime borrowers are just going to have to fight through this one. Hopefully most will find a way to get refinanced out of their mess with these low rates. I think the bailout the President put forth is adequate and handles the issue pretty well with private dollars. As soon as we start freezing foreclosures and interest rates we really begin to meddle with things that could have very serious unintended consquences. I honestly have to believe that her plan is more about pandering than it is a serious attempt at a solution. She has to know how irresponsible that would be. Doesn’t she?
February 6th, 2008 at 10:32 am
[...] Presidential Candidates and Irresponsible Mortgage Reform, by Ryan Ward. [...]
February 10th, 2008 at 8:35 pm
It’s a lot more complicated then just freezing interest rates and putting a 90 day freeze on foreclosures. Some of the hardest hit areas where the prices were run up from reckless speculation now have home owners with $500,000 mortgages for homes worth $300,000. On the flip side, some lenders sitting on a lot of inventory might welcome it in order to help change some home owners minds of just handing over the keys.
February 11th, 2008 at 8:56 am
I agree that many people would be helped short term by a freeze on rates, but, with rates as low as they are right now, I think people already have rates sort of “frozen” in place. If it was made mandatory, banks would raise rates as much as possible and then what would happen if we began to see inflation creep into the economy? Rates would need to rise to curb it and we wouldn’t be able to stop it…It’s just not the best place for government intervention.
I still think she knows it and is simply pandering for voted knowing full well that her plan stands zero chance of passing.
February 11th, 2008 at 12:21 pm
The whole thing is absurd. Govern(mental) intervention is not the answer. A freezing of rates and foreclosures will not fix much. It will only delay the inevitable. As stated before, the sub-primes are going to have to sit tight and the qualifications for these loans are going to have to be re-evaluated. debt/income ratios are unrealistic under current platforms, along with many other variables. I heard on the news last week that some homeowners that have found themselves in these predicaments have decided to stop making their mortgage payments and go into foreclosure. The mindset in this: I can stay in my home for up to a year while the process takes place and save a years worth of motrgage payments instead of just keeping my head above water. How bad is it when people have openly elected to be foreclosed on and take the credit blemish for the next umteen years. Pretty Bad! Thats enough for now…sorry so long.
Annie
February 11th, 2008 at 12:31 pm
Quote:
“The mindset in this: I can stay in my home for up to a year while the process takes place and save a years worth of motrgage payments instead of just keeping my head above water. How bad is it when people have openly elected to be foreclosed on and take the credit blemish for the next umteen years. ”
This is a scary reality that some homeowners have decided to do. Here in Georgia we have non-judicial foreclosure and if you do that your out of the house in as little as 3 months…not such a good option here.
February 11th, 2008 at 1:04 pm
Tennessee is also a non-judicial state and the expected time to be out is about 2-3 months. Here is a link to all the states and whether or not they are judicial, in case anyone is interested.
http://www.all-foreclosure.com/procedures.htm
February 12th, 2008 at 7:34 pm
Well from the looks of things we are not going to have to worry about if Hillary had a chance of getting this to pass or not. Either way it just helps show why having someone with no real experience doesn’t belong in the White House.
February 12th, 2008 at 7:37 pm
Ken,
You might have a very good point about that. Seems she’s losing a little ground everyday…not that her competition has any experience either.
February 12th, 2008 at 7:49 pm
No he doesn’t. His track record…or lack of one speaks for itself.
February 27th, 2008 at 10:33 pm
I agree but Hillary is saying what people want to hear. People do not consider the long term impact of interest freezes – they hear “great, my interest won’t go up†and think “free money.†I was just reading an article about the Bay area that suggests that investors are the ones defaulting, so this move won’t help homeowners in need so much as investors who got in over their head, anyway.
March 2nd, 2008 at 9:23 pm
I was just reading elsewhere that Obama wants to make REALTORS criminally liable if we work for a buyer who pays to much for a home.
March 7th, 2008 at 9:59 pm
Well, I guess I will be the one to disagree slightly here. Yes, we know rates are at historic lows, true. But, we also know that arms are going up and people that had rates under 5% two years ago, have rates of 9%+ now. So freezing, wouldn’t do much harm, I think. In fact, I think it would do some good, as it would stop the foreclosures from taking up the market, thus driving down the prices of homes, as we have all seen. As someone else stated, someone who paid 500K now their house is worth less than that. Good point, as more foreclosures go on the market, the property values dip, it has been seen throughout history, so stem the flow of foreclosures, and maybe some people will save their home values. One good way to stem the flow of foreclosures, is to, well “freeze” the rates. Now, these people that have gotten their rates “jacked” up to 9% or better, they could afford their payements at 7%, sol maybe the banks that hold those mortgages should “roll-back” and then “freeze” or turn their loans into a “fixed” rate. To me, that might help some of the cycle be stopped. I have had clients who could afford their payment, before they got hit with the huge interest rate increases. Now, yes, they should have known better and the like, we hear all the arguments, but throwing them out of their house, does no good for the economy, if they could afford, say a 7% mortgage, last year, and yes, the banks are going to make their money from that rate. Mortgage brokers will then make their money, when those people refinance if rates dip in a year or two, realtors will make their money, because now the property values aren’t diving, and so forth. Just my two cents, and to be honest, I have picked no one in this white house race, because in my opinion, not one of them is truly worthy of it, Obama, Clinton, or McCain, again, just my opinion. I am not sure there is anyone else, I am just truly disappointed in the selections this year, of course last election didn’t really light my fire either.
March 7th, 2008 at 10:41 pm
Very long winded post coming…
I’m going to have to disagree with just about everything you said here and you did not back anything up with facts to support your position. I’m not being hard on you, just real about this. It’s too important to look at emotionally.
Foreclosures make up about 3% of the market. Foreclosures are not “taking up the market”.
Prices coming down is what we need in an inflated market. The government has tried “freezes” of all kinds in the past and both democrats and republicans have done it and it has backfired EVERY SINGLE TIME. Freezes lead to shortages and an increase in cost. Google it. It would drive all rates up. Raise rates, you slow sales. What could be worse in a market like this than raising rates?
If you bought your house last year for 500K and it’s worth 460K now, so what? You shouldn’t be selling now anyway. It’s not the governments responsibility to bail someone out. Time and time again free market solutions prove to be FAR superior than government programs. Go to a health clinic and you will see very quickly.
The market is “bad” because of a perception, too much inventory and too much spec building. Let me give you an example: We have a 4 year (read FOUR YEAR) supply of new construction condos and townhomes. Do you think that has anything to do with foreclosures? None and freezing rates won’t help the real problem. Freezing interest rates would force banks to immediately raise their rates. Again, nothing could be worse for the market than higher rates.
Foreclosures are nowhere near as bad as people make it out to be and they have to have some responsibility that is not paid for by all of the rest of us.
Please tell me why I should subsidize someone else’s misfortune? Would this not come at my own expense and possibly put me closer to their position? Again, how would that help?
You are correct. They should have known better. Period. Actions have consequences.
I disagree that it would hurt the economy. What hurts the economy is continuing to provide assistance - at the expense of others - to those who have proven to not use their own money wisely.
You say banks are going to make their money at 7%. That is innaccurate. It’s called risk - and default - and declining values on defaulted loans makes them have to charge higher rates so they can “make their money”.
You have turned the cycle inside out by taking the position you have which would empower the very people who have already proven that they are not responsible. What gives? Perhaps I should ask them for investment advice.
And to boot, the democrats are trying to tack on the ability to write off a mortgage in bankrupty as well. Absurd.
“Hey, I owe 200K and I’m bankrupt. How about I give you 20K because it’s all I have and I keep my house?”
This is what happens with credit cards and it’s a big part of the reason rates are high for them!
I’ll tell you what - I’ll be writing a post explaining in great detail why exactly it is that “freezing rates” will cause more harm than good. Please come back and read it.