Let’s Leave The Real Estate Market Alone

For the first time since it has become an issue, President Bush has decided that it’s necessary to inject himself into the market correction currently taking place in the real estate market:

President Bush today unveiled a series of measures intended to help ease a wave of mortgage defaults, but he ruled out any federal bailout for lenders or for homeowners who bought properties they could not afford.

In a brief speech in the White House Rose Garden, Bush urged lenders to “work with homeowners to adjust their mortgages” if homeowners run into difficulties making payments. He also outlined steps to modernize the Federal Housing Administration, allow homeowners to refinance into FHA-insured mortgages with lower rates, temporarily reform a key housing provision of the federal tax code and launch a new “foreclosure avoidance initiative.”

Bush said U.S. markets “are in a period of transition as participants reassess and re-price risks,” a process he said will “take more time to fully play out.” But he stressed that the U.S. economy remains “strong enough to weather any turbulence.”

Referring to strains in the mortgage market, notably the “subprime” sector that includes riskier loans, Bush said the market has undergone “tremendous innovation” in recent years, with credit made available to more people. He described this development as mostly positive, helping to push American homeownership to new heights.

“Unfortunately, there has also been some excesses in the lending industry,” Bush said, citing a “troubling” increase in adjustable-rate mortgages, which start out with low interest rates and then rise sharply to higher rates.

What the President, and everyone else who has seen fit to make a comment on the real estate/mortgage situation recently fails to mention, of course, is the fact that there are two sides to every mortgage loan. There’s the lender, who takes the risk of lending hundreds of thousands of dollars. And there’s the seller, who, at least in the days of the high-flying real estate market, was not exactly the example of the rational consumer.

Case in point. There was a story in a local newspaper here in the Washington, D.C. area (a link to which seems to be unavailable at the moment) about a local couple who purchased a $ 600,000 home two years ago. The wife operated a maid service, and the husband was a construction contractor.

Yes, they may have qualified for a mortgage in 2005, but can anyone seriously tell me that they thought about whether they might have a problem if 2007 turned out to be a more difficult year than 2005 ? Frankly, I think the answer is no.

And yet George W. Bush, who claims to be a Republican, wants to intervene in the market to save people like this from bad financial decisions.

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  • UCrawford

    And you forgot to mention all the lender’s other customers who get hosed if the bank makes enough loans that people default on and the bank goes under.

  • http://www.maxsellsvegas.com/videolibrary/UsNews.htm Max

    We all look for to the government as some sort of Big Brother that is expected to save us when we get in trouble. If an FDA approved drug is found to be defective after it is released on the market the manufacturer must bear the financial consequences of pulling the drug and settling the law suites brought by the people who are harmed. The government does not step in and save anyone.

    In the case of these exotic ARM’s they were written within the confines of our laws. And now the lenders must handle the consequences of their decisions. And if the people feel damaged because they think the loans were miss-represented to them. Let them seek damages in court.
    The lenders are experts in their field and should have known better. I seems that greed and power does things to men in power.

    The people who mortgaged using exotic teaser rate ARM’s probably were far less educated and may have been damaged do to miss-representation by the mortgage loan officer and perhaps the way the loan documentation was written.

    The real looser here are the American people who mortgage responsibly and pay their loans or own their homes outright. Their home equity and economy has been affected in a real and tangible way.
    What we have in the United States today is a MORTGAGE CRISIS CAUSING A REAL ESTATE CRISIS with falling home values damaging the responsible citizen home owners of this country. The mortgage industries irresponsibility has damaged our employment in all aspects of the housing industry.
    In my mind the mortgage industry has exhibited irresponsible greed without regard for our economy or anyone’s interest but their own short term success. In short the Mortgage Industry has shown them selves to be money mongers without morals or ethics.

  • Chris Kachouroff

    You all got it wrong. All we have to do is print more paper money then everything will be okay. We just have to do it slowly so people don’t feel the hit right away. Then everything is hunky dory once again and we can start tinkering with interests rates.

    It’s like walking down the streets and throwing a rock through all the glass windows—then you can claim, “Oh joy! the window market looks like it’s coming back!)