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The Housing Crisis
It seems that every night there is another story on the news about the housing crisis here in the US. I’ll say up front, as a renter, that I don’t understand every facet of the problem.
To review what I (think I) know:
Mortgage lenders approved loans; many of them variable rate loans, where the rate could (and most presumed WOULD) go up; and that a lot of these loans were Sub Prime (which seems to be another way of saying that the borrowers had less then good credit).Now, with the economy in the pooper, interest rates are (or at least had) climbing, increasing the mortgage payments of many people.
How am I doing so far?
Going back to the news stories… Some stories have said that either the homeowners and / or the mortgage companies should be bailed out. With taxpayer money. This is where I start to have a problem. The way that I see it is both the lender and the borrower went into this arrangement, this contract, with eyes wide open, and I don’t think that money that I pay for taxes should bail out these people of these companies. Maybe if I were one of those affected I’d feel differently, but well… luckily for me I’m not. That sounds colder then I mean it to, because I really do feel for homeowners who can’t make ends meet. I got myself into my own financial mess over the past couple years, and its my responsibility to get myself out.
The news also is saying that a lot of people owe more on their homes then they are now worth, because market prices are falling. First, I’ll say a home is an investment… When you invest in stocks your usually informed somewhere that there is no guarantee that your investment will appreciate in value, and so it is with real estate.
Maybe my idea is simplistic, but its still my idea: Get the mortgage companies and homeowners to compromise… The homeowner was able to make the beginning payment; allow them to continue paying that amount, although interest will continue to accrue at whatever the current higher interest rate is. It may turn what was a 30 mortgage into a 35, 40 or 45 year mortgage, but it seems (to me) the most fair: It keeps the homeowner in the home, and it keeps the mortgage company afloat with the income from the mortgage. It also only penalizes (not sure if this is the most appropriate word) only the homeowner, thru longer contract and longer time to build up equity in home, and the mortgage company, which could see short term profit fall from not receiving a higher payment, but will see its payoff in the long term.
I think the worst thing that can happen though is a govt bail out. A bail out is the wrong message to send; and industry makes bad / greedy decisions, and a consumer that makes an equally bad decision to borrow so much.
Like I said though, I don’t know all the complexities.
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