Monday, October 6, 2008

I am mad a hell about the mortgage crisis

This is the best explanation that I have read as to what the root cause is of the current mortgage/credit issue.

The summary is that liberal journalists and editors pressured our government to ease long standing mortgage lending standards like the traditional debt-to-income ratio that had been used. They lowered the standards so that more minority and low-income borrowers would quality. The standards were lowered so much over the past few years that borrowers that were clearly unable to keep up their payments were given loans. Loans were granted with no documentation, no down payments and for more than the true market value of the property. Liberal legislators pushed these ideas on Freddie Mac and Fannie May. Even people of some means have taken advantage of these questionable lending practices by buying homes that were much higher that what they could afford hoping that they could refinance later as the home's value increased.

I saw this happening earlier this year when we sold our rental house and to a lesser extent 3 years ago when we bought it. I thought it was interesting when we bought the house that we could get what is called an 80/10/10 loan. (My previous experience in buying homes was 25 years earlier when you had to have 20% down, no exceptions.) We got 30-year mortgage for 80 percent of the purchase price and then that bank had a sister bank loan us another 10% for 15-years and we wrote a check for the remaining 10%. I thought that was creative and it was interesting that the bank was the one that suggested it.

When we sold our house the young couple that bought it had not saved enough for even a 5% down-payment let allow 20%. They bought the house by writing a $500 check and signing their names to a mortgage. I have paid more than that to get into an apartment! The deal they got was that we raised the price of the house by $5,000 over what they offered and we would accept. Then they got a loan for the original agreed upon price and at the closing the extra $5,000 went to the bank for the down payment. Pretty neat, huh? I was assured a number of times that the couple who purchased the house always paid their bills, credit card, etc and there was no problem with this approach. It seemed almost illegal to me. But once the house was sold and the closing was done, it was not my problem.

It now appears that is was not the banks problem either because they were able to sell the loan to Freddie or Fannie or someone else and pass the "risk" on. Neat, or so I thought.

I am sure this couple does pay their bills and may still be making the mortgage payments. But it appears that there are a lot of people in this country that are no longer paying their bills and mortgages because I and many others are being asked to pay part of the $700,000,000,000 to bail out the stupid banks, Freddie Mac, Fannie Mae and god knows who.

For the first time since this mess started, I understand why there are so many people mad as hell about this and not willing to allow congress to pass the previous bail-out plan. For one thing the cost of this is not going to be carried by "everyone" because 40% of the potential tax payers do not pay any taxes at all! And the next 40% paid hardly any taxes. So what is happening is that a small percentage is going to have to pay a great deal and work a great deal harder to pay for the mistakes of congress and social meddling that is being pushed on us by a few.

The current credit issue is the best reason that I have seen for voting for a John McCain. Someone who will work to clean up the root causes of this mess and get the government out of our lives.

Here in Texas it is very likely that McCain will win, but those of you in other states need to think hard about voting for and suppporting McCain instead of the social engineering that we will get with Obama.

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