Policy and a Pint: Discuss the mortgage meltdown

I have read quite a bit from the Princeton economist Robert Schiller, he offers little hope in the short-term. Apparently, a number of housing bubbles (Florida and California) have taken decades to recover from.

We are on the wrong side of a number of indicators:

1) Home values exceed middle-class incomes.
2) The cost of a mortgage greattly exceeds rental value.
3) The upward pressure on interest rates.

Untill these thing adjust, we all need to hunker down.

The banks are getting smart and are more than willing to work with mortgage holders in arrears.....that is a positive sign.

The debacle stems from a chain of greed that includes the mortgage brokers, real estate agents, bankers, speculators, borrowers, investors and investment fund managers. It seems no one along the chain pointed out the obvious flaws in granting loans to people who had no business borrowing the sums that were practically given away in an environment of rising prices and laissez-faire government policy. Let's just hope the pendulum doesn't swing too far in some knee-jerk reaction.

Ted Schmidt
Mortgage Leads Nework
www.lossmitigations.net

I see some rays of hope. There are some places where the indicators mentioned above are not as bad as they might look, or where we are actually on the right side of those 3 indicators. Take North Minneapolis, for example. An average, 1500 foot home is selling for around $130k to $150k in most neighborhoods in that area. That puts the values well within middle-class incomes, and the cost of the mortgage doesn't greatly exceed the rental value. It is true that some areas of North Minneapolis are much less desirable from a socioeconomic standpoint, but with some sound research, buyers can learn to distinguish between the good and bad pockets that are a reality for most U.S. cities. And with the school choice movement gathering so much steam in Minnesota, it doesn't mean you have to send your child(ren) to a poorly performing school.

This is true with many other areas throughout the metro area, and probably true in many different parts of the country. It really illustrates the need that, as consumers, we need to adjust to the new realities of buying a home. When we do that, the market will balance out, at least somewhat.

The debacle stems from a chain of greed that includes the mortgage brokers, real estate agents, bankers, speculators, borrowers, investors and investment fund managers

Let us not forget the stem of greed rose from the roots of liberal activism. The seed of this problem grew from The Community Reinvestment Act passed by Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite warnings from the mainstream banking community.

In 1995 Congress amended CRA to aid the least credit worthy customers by allowing the securitization of sub-prime mortgages

In 2005, another amendment satisfied the complaints of small community institutions by lowering record-keeping, data collection and reporting requirements.

Yes, there was greed but there was also poorly considered public policy written into law in response to irresponsible social activism.