johnnymk

Politicians are sorely misreading public opinion of imperiled homeowners who bought into the bubble.

http://www.latimes.com/news/opinion/...mment-opinions

By Peter Viles
September 4, 2007

President Bush announced his intention last week to reach out a hand to the "many Americans" who "may have been misled" in the sub-prime mortgage market. Two days earlier, presidential hopeful Barack Obama called for fining "predatory lenders" to bail out "hoodwinked" families. L.A. City Councilman Richard Alarcon wants a $5-million revolving fund to "help homeowners on the verge of foreclosure." The news media report on families losing homes, disabled owners facing foreclosure and newlyweds being tossed into the street.

Here's one tale of sub-prime woe you may not have heard. Casey Serin, a twentysomething real estate investor in Sacramento, bought eight houses in four states with little or no money down, couldn't sell them and couldn't pay the mortgages, and so naturally began losing them to foreclosure. He then began keeping a self-pitying online diary he called Iamfacingforeclosure.com.

Serin hasn't drawn much notice from politicians or the media, but real estate bloggers have so vilified him that CNet's news.com granted him the title "world's most hated blogger." And cases like his help explain the disconnect between public opinion and bailout-happy politicians and the elite media: According to a recent Fox News poll conducted by Opinion Dynamics, there's 70% opposition to a taxpayer sub-prime bailout.

"It is amazing all the sympathy we are seeing from politicians for people who knowingly took out loans they couldn't afford, often lying on their applications to do so," commenter "srl" posted at the LA Land blog I write for the Los Angeles Times. "Usually," added "Brian," "when the facts are examined closely, we find people who . . . took a chance that house prices would keep rising, that they could remodel the kitchen, buy the truck and the motorcycle, put it on the credit card and pile that debt into the next refinance. ."

You can find thousands of similar comments on scores of "housing bubble" blogs. I asked Patrick Killelea, whose blog (patrick.net) has long predicted the current housing crisis, to quantify his readers' feelings about a bailout. "It is easy to quantify," he replied. "100% against."

How can these people oppose helping out their fellow Americans? Easy. Many or most of them saw this crisis coming years ago -- not through any real estate wizardry but by observing the signs that have been in front of us through most of this decade. In large parts of the United States -- and in all of Southern California -- the housing market turned into an obsession, a mania. So when the mortgage industry nearly collapsed this summer, Americans were fully versed in 100% financing, "liar loans," "teaser rates" and "flippers." There was no mystery here, no unforeseen "perfect storm."

And yet now, just as the market is starting to cool and possibly provide buying opportunities, many of these folks -- especially those patiently waiting out the bubble -- find themselves crashing a pity party for the very buyers who priced them out of the market. They are furious that the government appears interested in supporting overextended borrowers and high prices, and they cite data to support their position. According to the California Assn. of Realtors, 41% of first-time California home buyers in 2006 put no money down. The median down payment for first-time buyers was just $10,000. No wonder LA Land commenter "jbunniii" writes: "No bailout is needed -- most of the borrowers in trouble didn't put any money down in the first place, so they will lose nothing by walking away."

You don't have to accept all of these arguments. There is no doubt that some big lenders confused and, in some cases, defrauded borrowers, with the tacit approval of Congress, the Bush administration and regulators. It's also notable that "bubble bloggers" are not disinterested parties. Many are hoping that prices will fall so they can buy.

But it's striking how little attention the views of the anti-bailout bears have gotten. Politicians, by rushing to the defense of recent home buyers, give the appearance of endorsing price stability at historically high levels. This makes little sense in Los Angeles, which ranks among the least affordable markets in America when housing prices are matched against income levels. Why should government favor today's owners over tomorrow's buyers?

"I make nearly 100K and cannot afford a home in California," "JK" wrote on LA Land. "Using my tax dollars to help irresponsible people keep homes they can't afford, while at the same time keeping me out of the market, will be enough to send me over the edge."

Napoleon54

Excellent article, thanks.

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bachviet

I'll say let them learn their lessons and hopefully they will be more careful the next time they starts investing.

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beatbox32

Amen! Like the person quoted at the end of the article, I'm making ~$100k in So. California and am dreading very much the possibility of a bailout. I've been waiting for the market to become more realistic and now that it's bearing fruition, gubament wants to go and make these insane prices the norm. Thanks a lot!!

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"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns--or dollars. Take your choice--there is no other--and your time is running out." - Atlas Shrugged

Maarchk

Yeah if the government saves everyone... People won't learn. And people who actually respect the prices and the ebb and tide will be not rewarded. I have to side with not saving people as mean as that sounds. But i think a lot of people are in trouble very early on in their loans, at most 2-4 years into a house. Its not like they had the house 15-20 years and they are going to lose it with only a few dollars to pay off. More like they have only paid a few dollars, and with the ARM loans, they probably would have paid the same for rent... so i dont see them getting that hurt.
I know some people will be really hurt, but i think they are the exception, not the rule.

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zippyjuan

Rewarding risky behavior only encourages more risk. "I don't have to worry, the Government (taxpayers) will bail me out." The worst of the predatory lenders have already grabbed their money, resold the loans, and closed up shop. Respectable lenders had a smaller percentage of their loan portfolios in the subprime market. Those who repurchased the loans or took one out for themselves should have been aware of the risks and now the dark side of those risks has come true.

I think the whole "bail out" thing comes from two places. First it the desire to help people with problems such as hurricane relief. The second is the election season (which now pretty much runs continually now). Pols want to do something- even if it is just a promise do to something they have no intention of backing up later with tough decisions. Election politics means that you do not want to be seen as against anybody on any issue. People may be losing their homes. You cannot say "too bad, you should not have borrowed more than you can afford." They will respond, "It wasn't my fault. The mortgage company said I could afford it."

If a business is critical to the US economy (as the S&L crisis could have been but Crysler probably was not), then a bail out may be beneficial. I think in this case, a bail out is not justified or in the best interests of the country- see the part about people taking on even more risk in the future.

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Maarchk

I'd be happy if they took whatever money they were going to put into the housing emergency and simply put it towards building affordable houses in New Orleans. I think those people have truly never been cared about to the extent that they should if the city is to ever recover. Not that i think its brilliant to have a city below sea level, but when my brother does something stupid and hurts himself, I dont tell him he is dumb, i go help him. If something bad happened to me, I'd hope he'd come save me too. yes this was a bad analogy of cities and natural disasters and you can all say it... Worst analogy... ever.

Napoleon54

I'd rather the government just NOT spend the money. It's not like we'd have a budget surplus if a bailout didn't happen.

Rebuilding New Orleans is another kind of risk. Why reward people for putting houses in stupid places? I don't think government should subsidize that risk either.

Kevster

This potential plan to bail-out these morons just infuriates me, especially since I purchased my home the right way with a large down payment and a 30-year fixed mortgage. These morons that helped artificially drive up housing prices with 'creative financing', especially here in the Sacramento area, are now defaulting and sending the foreclosure rate to record highs here in my area.

People won't learn any lessons from this if someone comes to their 'rescue'. As most of you also feel, it's just going to foster even more risky behavior in the future.

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Daedalus

Amen to that. Change lending regulations and laws to make mortgage fraud punishable by public caning and to bring a sense of reality back to housing. Then let the free market work to put houses back into the hands of responsible people who didn't overextend themselves (those who can actually afford the houses when correctly priced). Obviously what should have been common sense--that fruit-picking laborers can't afford $700k homes and shouldnt' buy them--isn't clear enough to everyone.

beatbox32

Found a very informative site while I was researching this stuff some more and wanted to share:

http://patrick.net/housing/crash.html