When we started looking to buy a house five or six years ago we went and got pre-approved for a mortgage first. We had the same two options most home buyers have - a fixed rate mortage or an adjustable rate mortgage
. At the time mortgage rates were low, and ARM rates were insanely low. But we read the information about the ARMs how they are adjustable, and therefore can, and almost always do GO UP. This was not information that I had to research and squirrel out. This was straightforward told to us. The adjustment period on many of these loans made me very worried that we would be very in over our heads before we were ready to sell the house, especially if the housing market slowed down at all. Seeing as how it seemed just plain dumb to set ourselves up for financial failure we went the route of a fixed rate mortgage.
Now I am not telling you this to show how smart we are. No, rather it seemed to be a complete non-option if we did not want to risk losing our home. Which is exactly what is happening now to many other people.
Some people lied on their mortgage applications - the lenders should have fact checked, rather than encouraging it, and is serves them both right.
But really most people took out loans that they could only afford in the short term, from Banks that well and good could have cared less, figuring that the housing market would be strong enough that even if these people had to sell their homes, they would still get paid. But that is not what happened. The housing market stalled, and even slid back a bit. So now, when they ARMs are going up and these people can not afford to pay their mortgage anymore they try to sell their house. But they can't sell it for enough money to be able to a)pay off their mortgage and b)afford to buy another place. Which is bringing about foreclosures in amazing numbers.
Now the screams are going up for these people to be bailed out. To freeze their mortgage rates at the lower rates, and in some of the plans do so with federal money. Look, I don't really want anyone to lose their home, but is seems downright WRONG that people who made stupid choices will get rewarded for it with a lower interest rate, leaving those of us who have be paying, on time, every month, having made the choice to buy a house we could actually afford, paying higher interest for making the right choice up front.
Other plans are to allow the FHA to guarantee refinance loans for people who would not otherwise qualify because of late payments. Which at least seems to require some sort of personal responsibility, but really, even then, why did these people not refinance on their own before their adjustment period was over and their credit was still good enough to be able to get a loan without federal assistance.
People do not HAVE to buy houses. Yes, they need a place to live, but renting is another choice as well, one which I myself made for years, what with not being able to afford a house. People lose their houses all the time for a variety of reasons, many of which I would be much more likely to want to see them bailed out for than making stupid choices and expecting someone to fix it for them. Can we please, as humans, stop rewarding stupidity?
I am absolutely open to discussions on this. If there is something I am missing, please feel free to tell me. But really, I can't see how this* is the right thing to do.
Links of interest... An article on Bloombergbecker-posner blogMy 1st Million at 33BBC News
*this = bailing out people who made stupid financial decisions