I’m typically not an angry or cynical person.  However, this economic crisis is really starting to piss me off.  The most recent set of events that angers me is the idea that we need to save the mortgages of people who got into homes they never should have, and that they can’t afford.  Now, I’m not advocating that people get kicked out of their homes and onto the street, but the fact that they and their mortgage broker got into a home they couldn’t afford after their ARM kicked in shouldn’t turn into my tax burden. 

The reality is that the housing market is still overpriced in many areas.  And that for the median housing price to come in line with the median household income, prices still need to fall in many areas.  This, as painful as it is, comes about by foreclosures and flooding the market with available homes and a lack of buyers.  Simple supply and demand. 

Here are two interesting articles about this.  First, Diana Olick on CNBC.com states in her piece here
the following:

“Let’s say you take all the people who claim to be in trouble on their mortgages. Take those mortgages away, lower the value of the house to the current market price, and calculate the monthly payment based on the current interest rate on the 30-year fixed (and I mean conforming, not jumbo) which is around 6.35 percent. Oh, and by the way the historical average on the 30-year fixed over the last 25 years happens to be 7.89 percent, so I’m offering a deal. How many of those folks could still afford the home? My guess is that some could, but many more could not.

What I’m getting at here is that no matter how far we go in modifying, restructuring, writing down principal on loans in order to stop foreclosures, the bottom line is that most of the borrowers in trouble had no business being in the homes they bought in the first place. You can modify their loans for five years, but they will probably lose the home anyway.”

Very true statement.  Buy rushing in to save these mortgages that shouldn’t be saved you are simply delaying the inevitable as well as hurting me, the taxpayer, that didn’t jump into a home when I shouldn’t have or that I couldn’t afford.

The other interesting article is written by Barry Ritholtz on his blog The Big Picture.  He talks about the Moral Hazard of the Coming Mortgage Bailout.  Check it out here. He leads with this quote:

“Why am I being punished for having bought a house I could afford? I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

-Todd Lawrence, Norwich, CT homeowner with a traditional 30-year mortgage

I love that quote.  He has a great chart showing how the price of homes is still elevated.  He also calls that you only want to save the homes where there is a reasonable justification for a mortgage workout. 

These are two excellent articles and really show why the mad scramble to save mortgages could actually hurt the economy and extend this recession more than help.  The US needs to understand that we are going to be in for some pain, and that it is necessary.  We did a lot of stupid things, but delaying the pain only delays the inevitable.’

Just my thoughts…

crisis financial

So I’m not close to an economic or accounting expert.  However, I’ve been in business for a while and the current request by financial firms on Wall Street that FASB 157 be suspended is ludicrous.  I won’t even attempt to articulate all the reasons why…I’ll leave that up to Barry Ritholtz in this post.  However, the thought that a company can hide the true value of their asset simply because it has dropped in value below what they are willing to bear is insane.

Amidst this entire credit/financial crisis, the underlying theme seems to be people abdicating their responsibility to another.  Wall Street blaming Washington for not keeping them in check.  Investors/companies seeking “get rich quick” schemes to create new trading mechanisms for which the existing rules don’t work.  Bankers and Lenders greedy to get rich quick by throwing money at consumers to buy homes they couldn’t afford or qualify for.  And Consumers buying homes they knew they couldn’t afford, but banking on the increasing home value to save them down the road.  The worst part here, is that no one is willing to say “We got it wrong, let’s get it fixed.”  Rather they are doing all they can to hide their errors (which everyone knows about) and hoping this blows over.  Insanity…

crisis financial