Thursday, April 05, 2007

The Housing Market Bailout

I'm usually on here defending regulation from Henry and V, but this story just irks me. Ohio is raising $100m to bail out homeowners with ARMs facing foreclosure. Who the hell gets an ARM when interest rates are at their lowest levels in many decades? An ARM is a wager between you and your lender: if interest rates fall, you win, if they rise, they win. If you start from an historic low, who do you think is going to win that wager? This is a market populated by predatory lenders and foolish debtors. Dumping tax dollars in to keep it afloat may not be the brightest idea.


cecihead said...

I agree that spending tax payer $ to bail out the problem is not the smartest way, but I applaud the quick reaction and understanding of the impact to the housing market which leads to the bigger picture of our economy overall. As a banker, I observe most of the people who took the ARM products are less educated and less affluent. They are people who might not have been able to afford a house at all or at least not at the committed level. Just simply watching the market collapse not only punishes the poorest of poor, but also took the whole economy with it. A foreclosed property devalues the neighborhood property value. The evicted family may now need state provided shelter, jobs, and will spend a long long time to recover from the bankruptcy hell. At the mean time, no one benefits from the situation, not even the "predatory lenders". The lenders won't really make money over foreclosure. Foreclosed property is normally poorly maintained and does not sell at a reasonable market value. With the legal fees, marketing and taxes, I don't believe lenders are as happy to do foreclosure as others perceive. After all, the lenders make more money if they can keep you paying interest. So I say, the state should put the burden on lenders, incent and mandate the lending industry to convert these loans into fix rate mortgage before the undesirable outcome for everyone. The state should step in to regulate, just not by taxpayer's money.

Henry said...

I just spent the last hour commenting on this post, but when I went to publish I forgot to log in using my google account and, reasonably enough, I lost the whole thing. So I thought that, now that I'm properly logged, and before going to bed, I'd take a moment to say: GOD FUCKING DAMN IT!