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Hillary's housing solution


By Barbara Gordon - Posted on 24 March 2008

Hillary today proposed $30 bn more to help bail us out from our national home financing crisis. That sounds great except that I'm pretty sure we're (the taxpayers) the ones paying the $30 bn. And I don't know about you but I already have a mortgage to keep up with!

Is there any good solution to this mess?

Sandi, you're the resident expert in this area. Do you have any thoughts?

I'm certainly not Sandi, and am definately no expert, but I have a common sense idea.  Why not impose an interest rate limit on home mortgages, something within reason.  Say from 5-6 percent for those with really good credit, to a max of 8 percent to those with lesser scores.  Make those limits immediately retro-active on all existing loans, such as ARM, etc, if requested by the consumer... with a low minimum fee if any, not the high cost of refinancing. 

The homeowner would benefit, the mortgage companies would still make money, and it should stop the epedimic of foreclosures that is helping to drive the ecomomy down.

What about the people who can't even afford 5%? It's my understanding that the predatory lending primarily took advantage of those for whom the increase from 4 to 5% would be unaffordable. Plus, I doubt our mortgage company would be willing to let us switch from 7.25 to 5 or 6, even though we have stellar credit. I hope they come up with a solution, though. I have such mixed feelings on the matter. On the one hand, a contract is a contract and I don't see why anyone should be bailed out. On the other hand, you don't want communities where >20% of the population is at risk of eviction.

I'm showing my ignorance here, but how in the world does one get a 4% interest rate on a mortgage?  My understanding is that people with ARM or high risk mortgages start out with an average interest rate, but that the rate increased dramatically, on a steady basis, after a year or two.

I don't think my solution is ideal, but it is a common sense one that would not involve a multi billion dollar spending bailout. 

I could be wrong, but I thought the whole point of an ARM is that you get a lower rate but you're taking the risk. We got 4.5 fixed, and at the time it seems like there were ARMs going 3.75 and lower. I know one family that got a 1.5, but I'm not sure how they pulled that off. 

I'm not certain exactly how the predatory lending worked. I thought they were lured in with the ultra-low interest, not realizing that it would increase over time. For the most financially-strapped homeowners, even 5% may not be affordable. But I think there were several different predatory mechanisms in place, and I honestly have no idea what we can do. I don't understand the system well enough. Look at this map I found of recent foreclosures in one sector of Minneapolis:

 

 

Crazy, huh? 

 

I am torn on this one. I feel for the people that are losing their homes, and I have no sympathy for the predatory lenders, but at the same time, the homeowner signed up for the trip. I sort of feel like we are being punished for getting a mortgage the right way, while some people are being rewarded for getting mortgages that they shouldn't have. I personally feel like that is a shortcoming of mine, so I am on the fence on this one.

^^

Exactly 

I understand what you are saying pc, as I felt the same way until fairly recently.  But the more I read and hear, and see among young families, I have come to a different way of looking at it.  Home ownership is a big part of the American dream.  Trust me, no one is being rewarded now.  They may have been in the beginning, but the predatory lenders let greed outweigh their business sense.  They minimized or failed to mention the severe negative aspects, and first time homebuyers often don't have the knowledge to ask the right questions.  They depend on the "experts" ie the lenders, to provide the information.  Now these people are caught with rising notes that they cannot afford, note that often double in the space of a few years.  And now, especially with the cost of everything from food to gas and electricity rising much faster than wages, they risk losing everything they have worked for.  And yes, they have worked for it.  No one has given them their houses, they have been paying their house note just like the rest of us.  Now, with the market beginning to flood, they face the value of their home decreasing, so that they may not be able to sell and break even.  It is very sad, and to me, another thing that is the result of pure GREED.   It seems like most of the ills of our world are the result of greed of some kind.
Good points. I only hope that whatever bailout plan they come up with doesn't benefit the greedy lenders. Some of these banks need to lose some money.

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