Easy Credit in Mortgages May Backfire

August 26, 2005, NY Times -- IF housing prices fall, will mortgages cushion the decline, or make it worse? Put another way, will more overstretched homeowners be forced to sell? At issue is whether financial innovations that have made it easier for Americans to buy homes have also made the system less stable and more subject to shocks that could drive many from their homes. Traditionally, home mortgages, unlike loans to buy stock, have had a calming influence during tough times. If you buy stock with borrowed money, a decline in prices can bring on margin calls, and you must either put up cash or sell. But homeowners have been able to hold on because mortgage loans - unlike margin loans on stocks - do not become due just because the value of the property declines. Your mortgage will not be foreclosed so long as you meet the monthly payments, even if the house is now worth less than you owe.
Easy Credit in Mortgages May Backfire [NY Times]

Comments

There's been a ton of talk that we're not in a housing bubble but a credit bubble. I've heard a lot of people say that IO and ARM loans are ok in some situations, but are scary as hell in the hands of people who really can't afford them.

Posted by: Anonymous at August 26, 2005 9:08 AM

I think what people overlook is that most people won't sell in a down market. They will do whatever it takes to hang on.

Posted by: JoshK at August 26, 2005 9:15 AM

You can be sure if there turns out to be a lot of defaults, then class action lawsuits will erupt. Then, the politicians will point fingers at the financial regulators and the mortgage industry.

Posted by: DN at August 26, 2005 9:53 AM

I agree, if you buy a house as a home, you will hold on as long as possible. But that's not always possible, especially if you are already stretching yourself before the interest rates go up. It's unfortunate that this has been allowed to go on. I agree that there will a lot of lawsuits.

Posted by: Anonymous at August 26, 2005 10:16 AM

Greenspan on housing/economy today -- http://www.marketwatch.com/news/story.asp?siteid=mktw&guid={A3CA37F5-7729-4975-9E35-79C7B3CB62F5}&dist=bnb

Posted by: anon at August 26, 2005 10:21 AM

Right, people had guns held to their heads and told to buy $2 million houses. I'm not saying there aren't predatory lenders out there, and those who have truly taken advantage of people should be scrutinized, but the thought that people already saying, "Oh yeah there will be lawsuits" is sickening. What about personal responsibility?

Posted by: Anonymous at August 26, 2005 10:37 AM

The comment about the credit bubble makes sense. This country is addicted to credit. And the housing prices are fed by the credit addiction. As a nation, we have stopped saving almost entirely. And it's not like those of us who will be retiring in 30 years can really bank on social security. Fiscal responsibility has gone out the window, and it's not just on housing. The average credit card balance that people carry is absurd...particularly at the rates many people get charged.

Posted by: Anonymous at August 26, 2005 10:38 AM

Those who make statements like "It's unfortunate that this has been allowed to go on" (anon at 10:16) - and I'm guessing by "it" you mean ARMs and IOs? maybe you should even define what you mean by "it" - should be extremely wary of how they use the passive voice. It wasn't allowed to go on, people MADE it go on, they used these loans and creative ways of financing to their ostensible advantage. It didn't just happen. If you can muster the finances to purchase a house, somehow you can afford a calculator and do some worst-case scenario number crunching.

Posted by: Anonymous at August 26, 2005 10:42 AM

Sorry, I didn't intend to convey that I think class action lawsuits against lenders who extended exotic loans are appropriate, only that I think they're likely to be filed in court if mortgage defaults spike higher. Plus, those politicians who have been trumpeting the extension of credit to underserved communities may very well be the ones waging their fingers at mortgage lenders and banking regulators if defaults rise.

Posted by: DN at August 26, 2005 11:06 AM

Sorry DN, frustration not directed at you, just at the fact that you're probably right.

Posted by: Anonymous at August 26, 2005 11:33 AM

I agreed with DN about the lawsuits and frankly, I do think it's sickening. In fact, this entire country has a problem with personal responsibility, which I won't bother even getting into.

And when I said that it's a shame it was allowed to go on, that doesn't negate my belief in personal responsibility. I just meant it as a comment on the mania mentality that went on, especially in light of the tech crash.

So chill, Anon at 10:42.

Posted by: Anonymous at August 26, 2005 12:54 PM

Maybe I'm confused, but, don't we agree? Just don't get what's up with the "chill" directive. I think the point I made is valid. I was just saying that the words used to frame a debate are meaningful and to make it sound like something that just was allowed happen, in my opinion, is wrong.

Posted by: Anon at 10:42 at August 26, 2005 1:04 PM

Just adding another two cents...

http://www.bankrate.com/brm/news/mortgages/BubbleMain.asp

Posted by: c at August 26, 2005 1:41 PM

I can picture the TV news features now if homeowners start defaulting on their I/O mortgages. The borrower, in tears, will tell how he/she trusted the mortgage broker, how the broker said they could "just refinance" if the monthly payments got too high. The spokesperson for the the mortgage lender will say the firm followed all the proper regulatory procedures in place at that time, that the borrower signed all the disclosures, etc. The politicians will say the big banks took advantage of the borrowers, downplaying the risks so that they could get their origination commission. Bad soap opera.

Posted by: Alex at August 26, 2005 2:07 PM

I've managed to save up roughly $30878 in my bank account, but I'm not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?

Posted by: Courtney Gidts at January 19, 2006 10:29 PM

Before buying a new car, there is research to be done. Here are car buying tips, and online auto buying information to help you find and buy new cars. Shopping for a car can be a frustrating and irritating experience. Or, it can be pleasant and empowering - it all depends on how prepared you are. Audi Cars, BMW Cars, Cadillac Cars, Chevrolet Cars, Chrysler Cars, Dodge Cars, Ford Cars, GMC Cars, Honda Cars, Infiniti Cars, Jaguar Cars, Jeep Cars, Lexus Cars, Lincoln Cars, Mazda Cars, Mercedes-Benz Cars, Mitsubishi Cars, Nissan Cars, Porsche Cars, Scion Cars, Subaru Cars, Toyota Cars, Volkswagen Cars, Volvo Cars

Posted by: Michelle Colstra at June 22, 2006 6:28 PM

http://gay-cock.homepage24.de/ Gay cock Gay cock sucking Gay cock sucker Free gay cock Gay teen cock Hard gay cock Gay cock suck Gay white cock Young gay cock Gay man sucking cock Gay cum on cock Gay super cock Large gay cock Gay uncut cock Gay man cock

Posted by: Gay teen cock at August 14, 2006 9:58 AM

http://anal-gay.homepage24.de/ Anal gay Anal gay sex Anal gay sexo Anal cum gay Anal gay porn Anal fucking gay Anal fuck gay Anal gay hardcore Anal gay teen Anal gay video Anal fisting gay Anal boy gay

Posted by: Anal gay porn at August 14, 2006 9:59 AM

Posted by: Anonymous at August 14, 2006 9:59 AM

http://gay-fuck.homepage24.de/ Gay fuck Gay ass fuck Hard gay fuck Fuck man gay Gay anal fuck Free gay sex Free gay sex video Free gay sex pic Free gay sex movie Free gay sex story Free gay sex clip Free gay sex gallery Gay butt fuck Young gay fuck Gay teen fuck Hot gay fuck

Posted by: Free gay sex story at August 14, 2006 10:05 AM

Classical singer Russell Watson postpones his forthcoming UK tour after undergoing brain surgery...

Posted by: Jakob Moreau at December 13, 2006 10:22 AM

« Friday Links Burg Development: South 1st Street Rising »

August 26, 2005

Easy Credit in Mortgages May Backfire

Comments

Post a comment

Get Brownstoner on your Mobile Phone

Latest Restaurant Additions