Quote:
Originally Posted by Soriak  From this Bloomberg article:
Both their stock prices fell by about 30% yesterday.
Another article I've read said that as much as 80% of mortgages in the US are backed by either Fannie or Freddie. Another 10% come from the Federal Housing Administration. When you also consider mortgages with VA benefits, then more than 90% of all loans are made more attractive by the government. No wonder so much money ended up in the housing market...
There are two questions then for this topic.
1. Should the government do anything to help Fannie and Freddie? This is going way beyond a bank bailout, the bill would be in the trillions. Assuming they should, is there a cutoff amount when it's no longer reasonable to hold off a real market crash?
2. Should the two GSEs (Government-sponsored enterprises) still be around after this is over? How about the FHA? If their whole purpose is to make it easier to get mortgages, don't they invite another bubble and another crash simply by doing their job? The FHA requirement, for example, is 2 years since bankruptcy and 3 years since foreclosure. Is that really enough time to get back in shape to buy a house? And why should the government take that risk if banks won't? |
I was reading an interesting article in BusinessWeek that were talking about people that were purposefuly walking away from their loans (and they had good credit). In some places like California, homes are selling for half of what they were last year. The author talks about someone who bought a house for $340K that was once 650K last year. Anyway, the article talked about how some people were so mad that housing values were coming down, that they would buy a second house in the same neighborhood (but with a mortgage payment that was half). Once they were in their new house, they would stop making payments on the other inflated house. They knew that this would ruin their credit, but were so mad they didn't care. They could claim bankruptcy, but at least they would be in a house that was protected under the BK laws. They were willing to not be able to finance anything in the future.
What made some of them even madder is that some of them had to enter into some of those loans where they only paid part of the mortgage (to keep the mortgage price down). The hitch with this was that any unpaid balance would be added to what they owed. So you had people that were in homes they couldn't afford, and the debt kept going up every month. This was fine when there was no other choice, but when homes prices started dropping like a rock, and they knew they could get a home for 50% off, they started switching homes and defaulting on the old one.
The scary thing is that the banks know the people are doing this, and don't care. As the author said, since it takes awhile for a BK to disappear off of one's credit rating, those people will be locked into those homes for years to come. They won't be able to buy a different home anytime soon.
Scary.
