Mortgage Meltdown

[El Blanco]

I'd like to try and turn this into an actual discussion about the mortgage crisis.

I recently purchased (ok, still waiting for closing), so this is an issue for me. No, I didn't go for a sub prime loan or anything like that. I got a regular 30 year fixed at a good rate. I spent close to three years cleaning up my financial status and building up my credit. I bought into a co-op that I can easily afford and I made sure I can handle any unexpected expenses (within reason).

I constantly bugged family and friends that own to get their experiences and advice. I raided half the real estate section at Barnes and Noble. I went through Fannie Mae's website and shopped around. I found a good lawyer, asked a million questions and generally made sure my ass was covered.

I've been trying to get a handle on whats been happening, but economics is not my strength. Feel free to correct my inaccuracies and misconceptions. Here's what I got so far:

For years, banks and lenders have been criticized for not lending to more low income buyers (particularly minorities). Several years ago, the Fed and Congress started passing laws and reworking the way mortgages are processed. this gave the lending institutions wiggle room to invent new wild and wacky ways to lend money. This gave rise to the subprime loan (basically lending money to people with lousy credit) and the Adjustable Rate Mortgage (which remains solid with a low interest rate for the first few years and then gets adjusted to meet the market every year afterwards).

This gave people who previously had no chance of owning a home an opportunity. Unfortunately, it didn't give them all the information they needed. You had a lot of people buying way more house than they could afford and not knowing some pretty important facts about home buying.

This also gave and opportunity to less than scrupulous lenders and brokers who had a whole crop of people with lots of eagerness, but very little wisdom. There was blood in the water and the sharks went a-feeding. I've actually got a horror story about somebody who was royally fucked by his financial adviser this way.

Also, you get an influx of "flippers". People that bought homes in order to turn around a sell them. A friend of mine has been trying to do this for a while now, but can't seem to get moving. Apparently, a lot of them, especially out West are going under. Whole communities were built assuming buyers would come flocking in, but that didn't happen. I think part of the problem is people were buying houses they could sell rather than buying houses they would live in themselves.

So, Bush and the government step in again and what looks to me like offers a huge bail out to the borrowers and lenders. Needless to say, I'm a little pissed. I worked my ass off to make sure I could handle a mortgage, maintenance, utilities etc etc. I look for every bit of information I can on the topic. I basically make certain that I'm ready to own. Now, people who weren't ready and are getting bit for it are getting my tax dollars to get off the hook. Same for the lenders that were either dumb enough or unethical enough to oblige them.

however, I do recognize that we couldn't just let all those mortgages fall into default. Besides the immediate impact on the economy, there would be long term affects. With all those people losing their homes, there would be fewer property taxes paying for schools, cops and firefighters (among other social services). My own expenses would increase because there would be fewer people sharing the load. Also, my Roth IRA, my 401(k) and other investments are actually holding bonds backed by mortgages.

Something had to be done, but I didn't really want a bail out. and I certainly want the current system scrapped and a return to the old one.