In this week’s TMQ, Gregg Easterbrook has similar thoughts to mine with regards to the so-called housing and mortgage “crisis”. You can read the full column here, but I will post some choice snippets below (emphasis added by me). A lot of his thoughts that resonate with me relate to the troubling societal disregard for the idea of personal responsibility. It seems like everyone wants to blame someone else for their problems. A lot of people don’t realize that with greater freedom and choice comes a greater need to make smarter decisions.
Two years ago, the real estate market was overheated: Many were borrowing unrealistic amounts against the paper run-up in equity of their homes, and first-time buyers largely were shut out of the housing market. It’s healthy when an overheated market cools off –now, first-time home purchases are possible again for young buyers. Those who are complaining they can’t sell their homes for what they might have realized in 2004 or 2005 are still likely to come out ahead when they sell, at least if they have held their properties for more than a few years. Last week’s New York Times estimated the real estate cooldown will reduce the appraised value of the U.S. housing stock 10 to 20 percent. Even the high end of that estimate would leave U.S. housing worth substantially more, in inflation-adjusted terms, than a decade ago, meaning the typical homeowner who plans to sell is still better off. Speculators who bought at the peak of the run-up in 2004 might lose out. But investing in homes or condos you don’t plan to live in because you expect to double your money quickly always has been like expecting a winning lotto number.
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What about people who jumped into the hot market from 2002 to 2005 using gimmick loans and might face default? There’s no doubt many were snowed by mumbo jumbo from mortgage brokers, and no doubt many never read what they signed. But reading before you sign is, after all, your responsibility — not a responsibility that should be passed along to fellow taxpayers who did read before they signed. Recent columns and politicians’ statements on the mortgage “crisis” have suggested that those who signed gimmick loans, such as interest-only or adjustable-rate loans that are cheap initially but become much more expensive later, really aren’t to blame for their own decisions. If you sign something that allows you to live beyond your means for a few years, and seems too good to be true, in what sense are you not responsible for that decision? Last week on a local newscast, I heard a woman who had signed a gimmick loan, and now was in danger of losing her house, say, “The broker told me it was no problem because if interest rates went up, I could just refinance.” We would not take seriously someone who said, “The broker told me it was no problem because if interest rates went up, I could find a bar of gold on the sidewalk.” If interest rates went up, so would refinancing rates; the way to lock in a low mortgage rate was to buy only what you could afford and sign a conventional fixed loan. People who didn’t do that, preferring a promise of something for nothing, are now complaining they should be bailed out.
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Wherever bailout demands go, bad legislation follows, and last month Rep. Barney Frank of Massachusetts proposed one of the most wrong-headed pieces of legislation in United States history: quite a bar to vault, obviously. … First, he would make firms that securitize mortgages, meaning package them for sale as bonds, liable if borrowers can’t repay. That is — if you lend me money and I can’t pay you back, you are the one at fault. The argument boils down to: Your Honor, this company was wrong to give me money, and therefore it must give me more money. Frank’s bill — an obvious valentine to trial lawyers, who want new openings to sue banks and firms such as Merrill Lynch — would make it the lender’s legal responsibility to determine whether borrowers can repay, not the borrower’s responsibility to be honest to the lender. Your Honor, the mortgage company is to blame for not stopping me from lying on my loan application.
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