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February 28, 2009

We all benefit from bailouts

Chris Lester’s column (2/24, Business, “Fight the bailout burnout”) suggests the fears experienced by Americans are caused by President Obama not being cheerful enough when discussing the economy. People are fearful because their home values have plummeted, their 401(k)s are depleted, they have friends or family who’ve lost their jobs, and they worry they can’t afford college for their kids. I appreciate the president’s honest assessment and efforts to deal with the crisis.

As for the suggestion that a scarlet “B” be worn by “anyone receiving bailout assistance,” let’s be honest. It’s not just unemployed auto or construction workers or homeowners facing foreclosure who benefit. Everyone who uses public schools, drives across bridges and highways, needs a loan or even works for a company whose customers will have more money to spend stands to gain.

Like it or not, we’re all in this together. Berating the president or the most obvious recipients of the stimulus will not move us forward.

Pat Ryan
Prairie Village

I really enjoy reading the flood of boastful letters to The Star describing how sensible and perceptive some people are to have purchased only the size of home they could afford, paid all their bills on time and never defaulted on a loan. They also help old ladies across the street and always pet puppies and on and on.

They decry the government “handout” of helping people keep their mortgage payments current to avoid default, and they cynically demand that government also pay their mortgage payment. “It’s socialism!” they scream.

Yet these are the same people who will rant and rave and kick and scream and whine if half of the houses on their block go into foreclosure and become a blight on the neighborhood. If you think your home value is down now, guess what? You haven’t seen anything yet.

Get a grip, folks. Which option do you prefer?

Jim Lullie
Holt, Mo.

Comments

Smarter Than You

Sol:

We're both well aware of what an ARM is, and how it works. Calling it a "tool" doesn't change the fact that it is a financial comitment for which you are liable. Like I posited earlier, the difference between criminal and civil is intent.

Your name is on the line, it's your obligation. Pretty basic stuff, actually.

solomon

STY,

An ARM should be and is considered a "tool". Whether in a conforming loan or a non-conforming loan they have always been considered short term options, in other words, not loans a client keeps throughout their mortgage. That is why the term is set for a period of short term before it adjusts. There were 2/28, 3/27, 5/25 etc.

Something people not in the industry don't realize; 2 years ago there were over a hundred lenders with programs that allowed you to borrow 100% of your appraised value with no mortgage insurance based on your income and credit score. Now there are none. NONE.

Smarter Than You

Let's pretend a mortgage is a legal document where you agree to pay for a piece of real estate. Let's say when you buy the house you know you won't be able to make the higher payments when the balloon comes due. You sign it anyway and plan on doing a re-fi. You have committed a fraud as it pertains to the document you signed. You had no intent of living up to your legal commitment.

I didn't realize there was an inalienable right to refi, or that there was a constitutional guarantee of home values. I must have missed that day of school.

Pop quiz: does signing a legal document obligate you to the terms?

solomon

STY,

Simple math, my friend. If my loan was for 100k and I can't refi when it comes time because now all I can borrow is 92k due to the depressed housing market how did I commit fraud? If the highest loan to value has changed from 90% to 80% during the time since I did a purchase or refi and no company is doing the type of loans available when I signed my ARM how did I commit fraud?

I'm not trying to get the last word in here, but you mis-state the facts of the business when you say "fraud"

Smarter Than You

The difference between civil and criminal often is intent. Shouldn't we be able to agree that if you signed up for an ARM, you accepted responsibility for when the rate adjusts? If it is indeed your signature on the document, it is indeed your responsibility. If you couldn't meet the parameters of the deal you agreed to, than you perpetrated a civil fraud (and saying "I planned to work out some other deal" hardly mitigates the fact you are defaulting on your commitment).

solomon

STY,

If you know what an ARM is I don't know how you can make that determination. Signing a loan that has a fixed term of 2, 3 or 5 years with the intent on refinancing is not civil fraud.

Was there fraud in the business? Yes, we can agree on that. Was there the amount of fraud certain self proclaimed pundits are tossing around as an indictment? No way.

Jim

My, what short memories we have.

Eng, please explain to me how the Obama plan is in any way as "socialistic" as the McCain plan was. Remember that? That was the proposal that had the government stepping in and buying up all the bad mortgages directly.

If you had had your way, this nonsensical and amateurish plan would have become policy, and would have rewarded those least deserving. Just a reminder of what you voted for:

http://money.cnn.com/2008/10/08/news/economy/McCain_mortgage_plan/index.htm

Smarter Than You

You’re splitting hairs on me, Sol. I’m to blame because it’s what I was looking for.

We agree that “criminal” fraud, in the vein of falsified documents is important, but not the major cause of the current crisis. Look back to my original post and criminal wasn’t even mentioned until paragraph three. Stanza’s one and two accepted some form of temporary help for “causeless” job loss or medical emergency. My mistake in the final part was using “criminal” in place of “fraudulent,” and for that I apologize. (I was in a hurry and failed to proof for content).

My second post was a direct response to your question of “criminal” liability. Those who participated in criminal fraud should be held accountable. By my third post I had my thought process grouped and separated “fraud” from “falsification.”

Your most recent post was the response I was looking for. . .ARMs. In fact, you delineate between criminal activity and fraud without knowing it. That’s because signing a contract, such as an ARM, without the capability to pay it off is a CIVIL fraud. And fraud, criminal or civil, should never be rewarded.

Otherwise, we seem to be in agreement that those who were criminal in their activities shouldn’t benefit. Given the present economy, and within reasonable parameters mentioned above, some temporary assistance under strict guidelines is palatable. I just don’t think we should be rewarding fraud of any type.

solomon

STY,

I am definitely saying that the majority of foreclosures have nothing to do with criminal activity. ARMs that were signed with the speculation that values would continue to increase so they could re-fi again before the rate adjusted, sub-prime loans at 100% loan to value and people using their home equity to pay consumer debt(then piling on more consumer debt) are the largest culprits. There were approximately 15,000 foreclosures in the Kansas City area in 2008, do you actually believe that most of them were due to criminal behavior? There was some fraud committed, but to suggest hundreds of thousands of appraisals nationwide were crooked when it is one of the most regulated documents in America is absurd. Appraisers walk a very fine line or they lose their license and in many cases go to jail. Considering that they invest a huge amount of time in training and serve apprenticeships before getting their license makes most of them very honest and competent.

I've never said "give 'em all what they want", so I don't know why you'd assign that to me.

Smarter Than You

Pub:

Sorry the thought process eludes you. We'll try it again.

Everyone's upset about exec's and Wall Street types getting bonuses in spite of the economic meltdown. Fair enough. So why do you now want to "bonus" people who have assets they never should have qualified for, made a bad decision in purchasing or were part of a fraudulent scheme?

Smarter Than You

Just to get this straight, Sol, your position is that this crisis of mortgage had little if nothing to do with fraudulant practices or falsification of documents? So if everyone was actually worthy of these loans why should they receive special consideration?

I'm willing to accept that given the current economy we can provide limited help under strict parameters. What is your logical reasoning to just say "give 'em all what they want?"

solomon

Engineer,

I agree with you that the President is spending a lot of money. You and I discussed all of last summer and fall that life as we knew it was going to change after the election. I guess where you and I disagree the most is that you see things as they were in the past and I don't think our nation can do things the old way anymore. Am I concerned about the costs that are being passed down to future generations? A resounding YES. But, unlike you I was concerned about it when it was being spent on, IMO, a fruitless military endeavor in Iraq.

At least we can both say that we did not vote for him. :-)

Engineer

GOOD GRIEF

Engineer

solomon
On secind thought, as they would say in Peanuts "GOOD GTIEF".

Engineer

solomon
The trillion dollar figure was viet_vets. If you are going to project costs into the future, projections of Obama's programs could be made that would yield stupendous numbers. But as I have said, we had all better forget about Bill Clinton and George W. Bush and concentrate in the problem now at hand. CHANGE to what?

solomon

Good afternoon Engineer,

A person does not have to be an Obama supporter to see the hypocrisy in your opinion.

It is not a "mere" trillion dollars (as if a trillion dollars could ever be mere), economists and gov't officials put the cost of the misadventure in Iraq at between 2 and 3 trillion dollars once all is said and done. I'll also remind you that none of that money went/goes to the betterment of this country at all. Nit pick all you want about the "welfare" you say the President is engaging in, it goes to your fellow Americans (although you begrudge "them").

Engineer

Pub 17
You like to pick nits, so would you explain the meaning of "Bill Clinton's paydown of the national debt of balanced budget"? I know he never decreased the amount of the national debt, at lest he never decreased what you call "the nominal amount". Due to the devaluing of the currency he may have decreased what you refer to as "the real amount". Every thing you say may well be accurate within your frame of reference but it is calculated to misguide. Fits right in with the MO of a "forensic economist" a hired gun paid to present only one side. But we would all do well to move on from BC and George and look to the real problem we now face.

Engineer

viet-vet1970
A mere trillion in debt will be chump change before Obama gets through. He is trying to dig a hole from which there will be no exit. If someone doesn't just take us over because of our dcreased and weakened defense capabilities under his direction.

solomon

STY,

I was in the residential mortgage business for a few years. I now run a small business that concentrates on commercial mortgages.

My question is not a knee jerk reaction. It is a very small group within this crisis who provided false documentation (almost impossible to do since payckeck stubs and w-2s are required.). The vast majority of appraisals were not fraudulent but reflected the prices in the neighborhood (and by law were not ordered by the customer). The idea that most loans in trouble would not pass muster on legal lending practices is also not true, maybe not sensible decisions after the fact, but not illegal.

To think I'm happy with bailing out people losing their homes and affecting the value of mine if they live in my neighborhood is not accurate. Your assertions that the majority of these cases is because of criminal behavior is equally inaccurate.

Smarter Than You

Sol:

That's just the type of knee-jerk reaction I expected from most (have to admit, I'm surprised to get it from you). There is no problem with people who have legitimate need from "without cause" job loss or medical emergency. Criminal enterprises include those who got mortgages fraudulently; who either 1)couldn't/shoudln't qualify under legal banking practices, 2)utilized criminal behavior like false appraisals, 3)utilized fraudulent documentation.

I guess if you're OK with picking up the tab for criminal behavior, you'll gladly pay the bill next time some-one does a "dine-and-dash" at a restaurant you happen to be in.

 
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