The Economy and the Current “Credit Crisis”

I was reading Mr. Smith’s blog below and my blood began to boil.  I must be on the wrong email lists, because I’m not a proud recipient of Senator Harkin’s email.  Please do not sign me up.

What made my blood boil was the notion that there are innocent victims in the curreng housing mess–that “predatory lenders” are to blame for the entire thing.  So I started to think like one of the “victims” did when they originally purchased a home.  Since most of the issues are related to “Alt-A” mortgages, not true “sub-prime”, it’s important to define the differences.

Sub-prime typically refers to credit applicants with impaired (“bad”) credit histories.  Alt-A typically refers to the following:  no-doc or low-doc mortgages; interest only; 100% financing (no money down); negative amortization mortgages; or a combination of any of the above.  Those folks had acceptable credit histories and presumably the ability to pay, which differentiates them from true sub-prime.

So if I’m a mortgage applicant, I’m obviously smart enough to know all the advantages of home ownership, how to earn money and how to pay my bills, and I hear one of the following:

  • no money down or 100% financing–I’m thinking, cool, the real estate market is appreciating fast enough to overcome the potential risk of negative equity and I’ll be all right.
  • interest-only–I’m thinking, cool, the real estate market is appreciating fast enough…
  • no-doc/low-doc–I’m thinking, cool, what’s the big deal about all of that unnecessary documentation anyway?
  • neg-am–I’m thinking, cool, I don’t have to use any of my money and besides the real estate market is appreciating…

You get the drift.  The real issue here is greed, plain and simple.  Senator Harkin and his liberal buddies are confused.  I don’t want to bear the burden of the result of anyone else’s poor, greed-driven choices.  Like I tell my 13-year-old, you have to understand that there are consequences for poor choices and unfortunately for the greedy home-owners, now they have to face those consequences.

But don’t worry, in ten years or so, the banks, mortgage insurers, Wall Street barons and Congress will forget any of this happened and the cycle will repeat itself.  As the Proverb says, “like a dog returning to its vomit…”

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