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Bailouts Bids Benefit Banks but Borrowers Being Abandoned

By Benjamin Clark

Real Estate Agent with Homebuyer Representation, Inc. DRE# 5467433

October 01, 2008 08:03 AM

hundreds of millions of dollars Why are we bailing out the banks when consumers were duped into the cruddy loan products the banks sold them...? (At least some of them were "up-sold" the ARM or some other ridiculous loan, perhaps with an inflated Debt/Income ratio as an added bonus?)

Why should businesses be saved when consumers will lose their homes?

The whole mess came about because loans were made that shouldn't have been made... (hundreds of thousands of loans, maybe even millions of them!)

The facts are:

Buyers should come in with down payment,
Home prices should be set at an affordable level (by offering sound loans to qualified buyers only) and
People who can't prove they can pay should pay a higher rate to offset that risk or continue as renters...

And if you look at the crisis and what is naturally coming about in the free market because of it, those exact things are happening. The reason we are in this mess is because banks ignored those basic guidelines.

If the banks had followed sound business practices, we wouldn't be in the mess we are in today.

The long-term answer is to get the banks back to following sound business practices. They basically took on more than they could back up. I know a number of lenders who didn't push these risky mortgages on clients and they are still doing well.

I don't know of a single past client of mine who is anywhere near a short-sale position or having any trouble making their mortgage payment... Why?

Because

they got fixed rate mortgages when rates were the lowest they had been in their lifetimes,
they bought homes they could afford, and
they weren't buying a home while barely making ends meet (or not making ends meet).

I understand there is a big problem, but if the banks are going to be "bailed out", certainly consumers should also benefit and get some "bail out" support.

And what about those who continue to make payments on their homes and will continue to make those payments...? Shouldn't those citizens be rewarded for their common sense and for making the situation better than it would have been if we had all decided to max out and gamble our futures (because the banks allowed, and yes, even promoted it)?

Why give the bail-out money to the people who have proved they can't properly handle money?

The fair and equitable (and free-market) answer is to let the banks go through exactly what their borrowers are going through... let these companies, based on what value is really left in them, be "short-sold" to people (other corporations) who know how to properly handle money.

And NO, that would NOT be the Government!

Buying a home in Salt Lake City or the Surrounding Area? Make sure you get an Agent on YOUR side of the transaction!

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Finally...

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Rich Dansereau

Positive Real Estate Professionals - Knoxville, TN

I too am angered that many of those lenders who will benefit from the bailout are the very ones who made huge sums of money writing high risk loans and now they want to make more money from the average taxpayer. Perhaps some of those profits should have been reinvested in their company rather than executive pay.

Oct 01, 2008 04:27 PM

Benjamin Clark

Homebuyer Representation, Inc. - Salt Lake City, UT

Buyer's Agent - Certified Negotiation Expert

The best part is that even when they fire those executives or they resign, they walk away with severance packages in the millions to tens of millions of dollars.

Oct 01, 2008 04:52 PM

John Cannata

214-728-0449 http://TexasLoanGuy.com - Frisco, TX

Texas Home Mortgage - Purchase or Refinance

Ben - You have to think bigger picture. Yes, many loans were written that should not have been. And yes, people were placed into products that they did not understand. But that is not all that happened here. Many investors purchased homes in an ARM loan thinking they would just flip the house and would never reach the ARM. Well, after you purchase 2 or 3 or 5 houses and can not flip them, you are going to get hit with an increased payment when the payments adjust.

I realize it is not just the Real Estate Investors. There are many people who really wanted to buy a home and just were not financially ready. For some reason, many companies approved their loan anyway with their 'fancy financing skills'.

Why is this bailout good? Well, no one else can really stop the bleeding. Sure, we could wait for companies to continue to go out of business. MANY innocent people can lose their job because their boss' or underwriters approved loans that should not have been approved. This bailout helps these people keep their jobs. Its not just about bailing out the CEO. Bigger picture shows that this will help thousands and thousands and people keep their jobs. Don't you think that is worth it? Or can we not get passed the fact that the CEO benefits? Just my two cents.

Oct 02, 2008 02:50 AM

Benjamin Clark

Homebuyer Representation, Inc. - Salt Lake City, UT

Buyer's Agent - Certified Negotiation Expert

I'm not focusing on the CEOs. That was in response to Rich's comment. I am not saying a bailout isn't a good idea, just asking the questions:

What's in it for the American Citizen?

What message does this send the American People about irresponsibility?

Isn't there a solution that shares the responsibility?

On another thread an agent mentioned a lender who called up their clients with adjusting mortgages and renegotiated a middle-ground solution. Sounds like a corporation who was willing to take responsibility and to take their well-being into their own hands, and not count on a Federal "bailout."

I'm only saying that businesses should be held to the same standards and expectations as the citizens are.

Oct 02, 2008 08:00 AM

Benjamin Clark

Homebuyer Representation, Inc. - Salt Lake City, UT

Buyer's Agent - Certified Negotiation Expert

There was no way nobody saw this coming.They chose to ignore what was going to happen inevitably.

Harry Dent Jr. predicted the great real estate collapse of 2008 5+ years ago based on the number of incoming real estate purchasers. They would simply dry up. (A factor of following the birth rate 20-30 years prior).

Instead of tightening up restrictions to slow the influx of buyers to the real estate market, lenders, the government, the Federal Reserve and everybody else contributed to squeezing every last drop out of the dwindling pool of first time buyers (who make the cycle go round).

Oct 02, 2008 08:04 AM

Dale Terry

Yadkinville, NC

Ben, good article, now lets see if the same logic can be used when those very same buyers, ones with good credit and downpayment can make their payments because of job losses. This is one area that is not being talked about. Many of the folks losing their homes are now either unemployed, underemployed or did not get a true wage increase that was expected when taking the arms. let's look and see if the New York real estate market survives this downturn. The folks on Wall Street are decidedly better off than Main St. and if they can't pay their bills, then arguments that the consumer is the main culpret become mute.

Oct 26, 2008 03:15 AM

Dale Terry

Yadkinville, NC

Oct 26, 2008 03:15 AM