Hey, I have an idea. Let's freeze all those adjustable rate mortgages for seven years at those low rates we had 2 years ago. Don't you agree those people "deserve" to keep their lower payment? Don't you think the lending industry somehow stuck it to those poor souls and "deserves" to be punished? Wouldn't the whole world just be a nicer place if we made this whole mortgage mess JUST GO AWAY?
Well, that's what the politicians want you to believe, anyway. Let's tinker until we get it right. Why wait for the free market to take care of things? People are suffering!
If you want to know the answer to this question, just look at any area that has ever tried RENT CONTROL. You know, that's when the GOVERNMENT sticks its nose into the business of being a landlord because those poor tenants "deserve" not to have any rent increases.
Does rent control work? No. Here in Northern California, several of our cities have rent control. In every case, it has been a disaster. Why can't we just admit that "price fixing" in any format, for any commodity completely convolutes a free market economy? (but it sure sounds good when spewed out as a solution when those that are "deserving" are forced to pay higher prices, now doesn't it?)
What happens with rent control will happen if we freeze adjustable rates. It should be obvious to all that people with frozen rents/rates ARE JUST NOT GOING TO MOVE. Do you think this helps or hurts the economy?
In the case of rent control, apartments are passed on for years among friends and relatives, illegally I might add (since landlord can raise rent when the original tenant on lease moves out). When rents are $2000 a month, there is still a 35 year old paying $650 for his college apartment, and using it as a party place. Why not?
Investors who buy rental properties don't buy in that city. Why would they, when their costs to operate are not frozen while their ability to raise the rent is?
Net result?
- Rent in the area soars, because those coming in new to the market must subsidize those who are already there paying lower rents that have been frozen (landlord charges a higher rent to make up for the lower rents that are frozen in the building)
- Investors flee and are no longer providing new rental units (thus creating an ever greater shortgage of housing)
- Landlords who are stuck with rent control units must let repairs go undone, and the properties in the area deteriorate.
- Those that have the unfair advantage find ways to use it (abuse it?) in ways that go against the original intent
- Those who rent are perhaps hurt the most. By paying an artificially low rate on a property owned by someone else, they are deferring the price hike they will eventually pay for housing. Do you think they are using this advantage to SAVE money?
Okay, back to my idea. If adjustable rate payments are frozen, there will definitely be fewer foreclosures. But will this solve the mortgage crisis, prolong it, or simply create another set of problems?
- What will lenders do to compensate for this huge loss? Could they raise prices (rates) to the rest of us?
- What will this do to the prices of real estate? Will it drop further as a result of the huge number of buyers who will simply NOT MOVE?
- What kind of statement does this make to the Americans who paid more for the fixed rate mortgage? Who adjusted their lives and paid to refinance into a fixed rate? Should those who took responsibility subsidize those who did not?
- And what becomes of those who "deserved" to have that frozen rate when that old adjustable thaws out and they must finally pay the REAL PRICE? Have we helped them?
- And what about the carnage in the real estate industry? Is Brian Brady's prediction true? Will half of us be gone next year because PRICE FIXING has created a stagnant market, both in real estate AND mortgage lending?
What do you think?
Comments(73)