February 23, 2009

More housing stuff

There's an interesting article in the Boston Globe about the stimulus bill and the rising anger by those who are not behind on their mortgages (ie the 93%) who are now going to be paying for those who are. Let's start with that, if you listened to the news, you'd think that it was 7% who are up to date and 93% who are not. Seeing the actual numbers is really interesting. There was also a study that showed that the default problem is pretty much concentrated in five states.

There's some fascinating discussions in the column, including a point blank admission by a supporter of the bailout that it's not fair but that something still needs to be done.  That's a position that I don't think is the best, but, hey, bonus points for copping that it sucks for those who are stuck with the bill.

For further discussion, including my being the heartless bitch y'all know and don't actually hate, below. 

The following quote really piqued my interest and, I think, encapsulates why we got to where we are.

Leigh Bigger, a case worker with state Department of Youth Services, thought she was helping herself and the neighborhood when she bought a Brockton three-decker for $357,000 in 2004 and kicked out the drug dealer on the first floor.

But when she tried to refinance her adjustable-rate mortgage a year later, her lender decided a three-decker represented too big a risk and balked at giving her a fixed-rate loan. She got one eventually, but at an 8 percent rate that increased her payments to $3,800 a month from $2,800. She then had trouble filling her rental units, and couldn't keep up the mortgage.

She's been trying, without success, to negotiate a lower interest rate with her lender.

"I'm a Christian, God-believing person, whatever happens in my situation, I am going to be OK," said Bigger, 45. "Overall, we do need a sacrifice and bailout to help people. Somehow we have to help people who are keeping neighborhoods intact."

Let's review. Ms. Bigger (which is a nearly Dickensian perfect name given the topic) purchased a multi-unit property. It is unclear whether or not this is both her home and rental units or rental units only. Regardless, she purchased at an adjustable rate mortgage. Honestly, do people not get that meant the rate could also go up? I may be misreading this, but it seems that she assumed that she would be able to obtain a fixed rate mortgage when the ARM was set to readjust. From my understanding, this was a common practice. People took out interest only ARMs and then refi'd at the reset point, using the paper equity in their homes to qualify them for the fixed rate they couldn't get originally. She also appears to have assumed that she would be able to keep the rental units filled consistently, thus covering the mortgage.

Honestly, I don't blame her for making that investment, regardless of whether its rental only or home plus rental units. That's not flipping or leveraging property. It's a very common thing for people to do. If you're willing to put up with the headaches of being a landlord, managing rental units is a good way to obtain extra income and grow wealth.

The problem appears to be that she does not appreciate that this involves risk. If you borrow at an adjustable rate, you are betting that either the rate will decrease or you can refinance before the rate goes up. If you're planning on paying the mortgage by the rent, you better make sure that you can carry it with only 50% occupancy. Otherwise, you're facing precisely this situation. So she took a chance. That chance is not paying off. It appears that she now believes that someone else, who did not make the initial investment and most certainly did not receive the benefits therefrom, must now help shoulder the loss. Yeah. No. I'm sorry she has the loss. I'm sorry it's hard. But it was her choice and her risk and her rewards and it has nothing to do with me. But here I am paying for it. Yeah, not so much with the actual caring over here.

There is a twist to this though. It appears that she invested in a dodgy neighborhood. There are good public policy reasons for public underwriting for risks in those areas. It is more than a metaphysical good for a neighborhood when drug dealers are thrown out and more responsible homeowners move in. That was the original purpose of the Community Reinvestment Act. I disagree that redlining was per se racist (though there are certainly occasions when it was). Redlining was a recognition of the harsh reality that there are areas in which an investment in real estate was highly likely to yield a loss. By altering the terms of that investment, be it through tax incentives or direct cash injections, investors would be more willing to take that risk. The goal was to inject enough responsible homeowners to tip the neighborhood back into being a safe bet. It's not just high crime or bad neighborhoods, the dying coal towns by me have been offering first time buyer assistance that, effectively, pays the down payment in exchange for person staying in the house for five years. The goal is to keep the towns from disappearing when the current homeowners all, well let's be blunt, die off.

I do agree with the broader goal of such plans. This is tl;dr already so I won't go into how the CRA got twisted to require loans to people with no visible means of support, which rather puts paid to the idea of throwing out the bums.

So if she bought this unit based on representations concerning public assistance with refinancing and the like, then, yeah, I do see why she's ticked. That's not asking that others pay her mortgage, that's asking that the representations upon which her purchase was made be honored. That's different.

I do have one thing to say though. Barney Frank can STFU. You know what, if it weren't for him and his demands that credit restrictions be loosend, I bet she wouldn't be in this mess. Either she wouldn't have gotten the first loan or the markets wouldn't have tightened and she could have refi'd. So he can just sit down and stfu.

As a reward for reading this far, I give you old school sexass (sfw) (no, really) 



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