The "Principal" of the Matter
I've heard a lot of ideas about how to handle this subprime mortgage mess, and the somewhat related burst in the housing bubble. But what I heard last night just has me shaking my head.
When asked about the bankruptcy bill in the Vice Presidential debate, Senator Biden had an interesting response:
WHAT???
Principal -- that's the amount of mortgage obtained. When you buy a house, the buyer and seller agree on a sales price. The buyer usually gets a mortgage, with some money down and the rest being principal.
So as Governor Palin said, you've got people thinking they can afford a $300,000 house when all they can afford is a $100,000 house. She was talking about predatory lenders, but I've seen a lot of educated people buy far more house than they could afford too.
So according to Senator Biden, if you get that $300,000 house when you can only afford a $100,000 house, and you wind up in bankruptcy court, we should just adjust the principal that you owe on that house so that you can afford it.
Are we going to start essentially giving $300,000 houses to people who can only afford a $100,000 house?
How absolutely ridiculous! We need some personal responsibility here. And yes, on the part of the buyers. If you're going to make what is generally the biggest purchase in your lifetime, you better make sure you can pay for it. Yes, sometimes a crisis happens -- layoffs, illness, etc. But those aren't the reasons most people are defaulting on their loans.
I've never missed a mortgage payment. Not even been a day late. We sure could use a little extra money. Can someone adjust the principal on our mortgage too? Oh that's right. Those who are responsible and pay on time get to help bail out those who don't.
Come on folks, it's the principle of the matter.
When asked about the bankruptcy bill in the Vice Presidential debate, Senator Biden had an interesting response:
...we should be allowing bankruptcy courts to be able to re-adjust not just the
interest rate you're paying on your mortgage to be able to stay in your home,
but be able to adjust the principal that you owe, the principal that you owe.
WHAT???
Principal -- that's the amount of mortgage obtained. When you buy a house, the buyer and seller agree on a sales price. The buyer usually gets a mortgage, with some money down and the rest being principal.
So as Governor Palin said, you've got people thinking they can afford a $300,000 house when all they can afford is a $100,000 house. She was talking about predatory lenders, but I've seen a lot of educated people buy far more house than they could afford too.
So according to Senator Biden, if you get that $300,000 house when you can only afford a $100,000 house, and you wind up in bankruptcy court, we should just adjust the principal that you owe on that house so that you can afford it.
Are we going to start essentially giving $300,000 houses to people who can only afford a $100,000 house?
How absolutely ridiculous! We need some personal responsibility here. And yes, on the part of the buyers. If you're going to make what is generally the biggest purchase in your lifetime, you better make sure you can pay for it. Yes, sometimes a crisis happens -- layoffs, illness, etc. But those aren't the reasons most people are defaulting on their loans.
I've never missed a mortgage payment. Not even been a day late. We sure could use a little extra money. Can someone adjust the principal on our mortgage too? Oh that's right. Those who are responsible and pay on time get to help bail out those who don't.
Come on folks, it's the principle of the matter.
posted by Susan | 6:58 AM
7 Comments:
AMEN sister!!!!!
Hmmm - I bet you never were shafted by a mortgage company. They have all the 'rights' on their side. When interest rates were 21% on mortgages in 1982, I was allowed to qualify for a roll-over of my mortgage (at 6 points higher than it was originally - just 2 years earlier) but I was not allowed to qualify for a variable rate mortgage. This is simply highway robbery by protection of the capital of others. Eventually I was able to pay a $4000 penalty and get out of the mortgage. This was a reputable 'Trust' company I was dealing with.
In the subprime cases, the interest has similarly gone from 2 below prime to several points above prime. No one should have been allowed to sell such a concept. When the regulatory mechanism - required to control greed, a natural phenomenon on both sides of the agreement - when this mechanism fails, then yes - adjustments to principal and rate should be made. How much is a judgment. The Levitcal rules for the Sabbath year and the year of Jubilee are even more radical.
Well, I've held real-estate for almost 18 years. I've never signed for something I couldn't afford. I've never signed for a mortgage that wasn't reasonable. I've never been a day late on my payments.
Maybe there are lenders out there holding guns to people's heads, forcing them to sign on to loans that they can't afford. But I've never seen that.
I have no doubt that there are since I have seen it first hand. By the way, I too have never failed to fulfill my obligations in 40 years of real estate - but I consider that a gift though I have worked hard always to receive it. My swings are small compared to the troubled firms on Wall street - and I own a firm so I am not anti-business. My payroll has been as high as $200,000 a month - not so high now I am happy to say. But I know the temptation to play the rules when they favor my position. In the current situation, the rules did not make good sense from the beginning and the firms who profited by them are reaping what they have sown. Our trouble is that all will suffer for their now critical lack of trust.
Thanks for the reply and thanks to Greg for finding a book on Google Books that has saved me from some high pressure study.
Wow, Bob...interesting cross-post ;-) I just assumed you were buried in a university or seminary.
As for the current mess, it all stems from not following the advice "Do not invest in what you do not understand." Whether talking about the buyer who found a deal too good to be true, or the investment bank that sunk funds into a a complex financial instrument.
Just as in the Savings and Loan scandal, DotCom bubble, and the Enron\Worldcom bankruptcy, there are charlatans who get away with $$$ and no jail.
I certainly don't think some of these lending practices should have been allowed in the first place. The whole subprime thing -- totally unethical way of doing business. But I feel strongly that we don't just blame the lenders or companies. People signed for the mortgages, and they could have said no.
I've seen people in my own peer group -- educated, professional -- who with the mentality of "I deserve the best house" have bought far more than they can afford. They need to be accountable for their own decisions.
Also, the concept that home-ownership is for EVERYONE is just wrong. We are not entitled to own a home. It is not one of our inalienable rights. It is a priveledge. Unforutnately that concept got lost along the way somewhere.
Sure, there are business that will take advantage of the consumer. But the consumer can also say no.
Personal accountability... personal accountability... that's the one thing we as individuals can truly control.
Yes, Anonymous, but they are not charlatans, if we met them on the street we might consider them as respectable persons.
While I do not admire the trillions of dollars in outstanding derivatives, I probably have some in my portfolio. I received a credit event by mail re WaMu last week on so called preferred shares. (Some preference!)
The system of regulations and desire for money without adding value, has failed and has hurt a lot of people even some who consider themselves blameless and moral. But we were included in the hedge funds - none of us really escapes.
As to personal accountability, Susan - who can disagree? But to what extent have we been tested on it?
(And BTW - grim reality girl - I always stop for Pugs when I am on my bicycle.)
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