March 30, 2008
The Congressional Mortgage Crisis
The Democrat Party Newsletter (AKA the New York Times) posts this article highlighting the plight of Republicans in Congress over the housing crisis.
Of course this is only a problem for members of Congress who accept the premise that an individual's mortgage problems are a federal matter.
The Times opens it's article with this little anecdote:
I can only agree with the last part of Mr. Caprio's statement "Somebody ought to do something." I'm sure Mr. Caprio and I would disagree on who that somebody is.
But since the Times seems to feel that one anecdote is enough, let me supply another. It's a story I've told here before, but as it's the best response I have to the Times story, I'll tell it again.
It's the story of two young professionals who met and fell in love early in their careers. They bought a modest home in an OK neighborhood though too close to the highway. They started a family and advanced in their careers. After ten good years in that home they felt they were finally in a position to make a move.
So they sold the house by the highway and moved. Not very far - they wanted to stay in the same school district. They found a nice little cape on a quiet street with a great yard for the kids and the dogs. The house wasn't perfect. The interior hadn't really been updated since it was built in 1952, but the price they paid left them able to deal with that.
So they moved in and set about improving the house. A new fence, taking out a wall between the kitchen and the dining room, enclosing a porch and opening that to the kitchen, lots of paint, new hardwood floors. Then the big project of adding a master bedroom to the second floor; in the middle of which it became necessary to re-side the entire house. If you guessed that the cash left over from the sale of the first house was long gone at this point and that they were financing a good deal of this work, you're absolutely correct.
This did not overly concern the couple though. Their debt was manageable at their current income and their future prospects were solid. Then the wife, who had had disk problems in her back for several years took a turn for the worse. After her third surgery she could no longer work and went on long term disability.
With the loss of 50% of her income, the debt level went from manageable to crisis. Particularly since at about the same time the low introductory rates on their first and second mortgages began to expire, just as interest rates were beginning to rise sharply.
"Somebody had to do something."
Somebody did.
The couple took their first and second mortgages, and good deal of their ancilliary debt and rolled it into one fixed rate mortgage at the best rate they could get. Once the taxes and insurance were rolled in, the monthly payment was huge - equal to his entire take-home pay for the month. Which left the family living and paying all their bills on her disability.
Somebody had to do something.
The first year was brutal. The torturous living paycheck to paycheck balancing act that many are familiar with. Transferring debt from one credit card to another to take advantage of promotional rates. Double digit bank balances at the end of the month. A bare bones no frills lifestyle helped get them through.
At the end of the year, he got a raise from his employer. Not huge but it gave them a little cushion. They still lived the year month to month but just a little further from the edge.
At the end of the second year, he got another salary increase and things are looking a lttle easier going into the third year.
This could have been the poster family for the sub-prime mortgage crisis. They borrowed and planned and spent based on the expectation that their ever rising equity and incomes would be able to absorb the debt. Until the housing bubble burst and their low adjustable rate mortgages adjusted the only way they could possibly go. Up. And they would have been if somebody hadn't done something.
That somebody was't the federal government. It was me and my wife.
And that is the message I have for Mr. Caprio and residents of Los Portales. Somebody does have to do something. So suck it up and do it.
But as Congress returns from a two-week recess on Monday for a furious debate over whether to help homeowners on the brink of default, Mr. Diaz-Balart is caught in a crunch of his own.
On one side, Democrats emboldened by the Federal Reserve’s intervention in the collapse of Bear Stearns are demanding help for “everyday Americans.” On the other, Republicans including Senator John McCain, the party’s presumptive nominee, are urging restraint, reluctant to commit taxpayer funds to what they say is simply a bailout for greedy lenders and reckless buyers.
On one side, Democrats emboldened by the Federal Reserve’s intervention in the collapse of Bear Stearns are demanding help for “everyday Americans.” On the other, Republicans including Senator John McCain, the party’s presumptive nominee, are urging restraint, reluctant to commit taxpayer funds to what they say is simply a bailout for greedy lenders and reckless buyers.
Of course this is only a problem for members of Congress who accept the premise that an individual's mortgage problems are a federal matter.
The Times opens it's article with this little anecdote:
In Los Portales, a pink and terra cotta condominium complex in this city of hard-striving Hispanic immigrants and often harder luck, many of Juan Carpio’s neighbors are losing their homes.
To the right of his ground-floor unit, two apartments are in the early stages of foreclosure. Across the street, a three-bedroom unit has been seized by a bank. To the left, another one is up for auction.
“The government should help,” said Mr. Carpio, 57, a former truck driver whose wife is a security guard. “Somebody ought to do something.”
To the right of his ground-floor unit, two apartments are in the early stages of foreclosure. Across the street, a three-bedroom unit has been seized by a bank. To the left, another one is up for auction.
“The government should help,” said Mr. Carpio, 57, a former truck driver whose wife is a security guard. “Somebody ought to do something.”
I can only agree with the last part of Mr. Caprio's statement "Somebody ought to do something." I'm sure Mr. Caprio and I would disagree on who that somebody is.
But since the Times seems to feel that one anecdote is enough, let me supply another. It's a story I've told here before, but as it's the best response I have to the Times story, I'll tell it again.
It's the story of two young professionals who met and fell in love early in their careers. They bought a modest home in an OK neighborhood though too close to the highway. They started a family and advanced in their careers. After ten good years in that home they felt they were finally in a position to make a move.
So they sold the house by the highway and moved. Not very far - they wanted to stay in the same school district. They found a nice little cape on a quiet street with a great yard for the kids and the dogs. The house wasn't perfect. The interior hadn't really been updated since it was built in 1952, but the price they paid left them able to deal with that.
So they moved in and set about improving the house. A new fence, taking out a wall between the kitchen and the dining room, enclosing a porch and opening that to the kitchen, lots of paint, new hardwood floors. Then the big project of adding a master bedroom to the second floor; in the middle of which it became necessary to re-side the entire house. If you guessed that the cash left over from the sale of the first house was long gone at this point and that they were financing a good deal of this work, you're absolutely correct.
This did not overly concern the couple though. Their debt was manageable at their current income and their future prospects were solid. Then the wife, who had had disk problems in her back for several years took a turn for the worse. After her third surgery she could no longer work and went on long term disability.
With the loss of 50% of her income, the debt level went from manageable to crisis. Particularly since at about the same time the low introductory rates on their first and second mortgages began to expire, just as interest rates were beginning to rise sharply.
"Somebody had to do something."
Somebody did.
The couple took their first and second mortgages, and good deal of their ancilliary debt and rolled it into one fixed rate mortgage at the best rate they could get. Once the taxes and insurance were rolled in, the monthly payment was huge - equal to his entire take-home pay for the month. Which left the family living and paying all their bills on her disability.
Somebody had to do something.
The first year was brutal. The torturous living paycheck to paycheck balancing act that many are familiar with. Transferring debt from one credit card to another to take advantage of promotional rates. Double digit bank balances at the end of the month. A bare bones no frills lifestyle helped get them through.
At the end of the year, he got a raise from his employer. Not huge but it gave them a little cushion. They still lived the year month to month but just a little further from the edge.
At the end of the second year, he got another salary increase and things are looking a lttle easier going into the third year.
This could have been the poster family for the sub-prime mortgage crisis. They borrowed and planned and spent based on the expectation that their ever rising equity and incomes would be able to absorb the debt. Until the housing bubble burst and their low adjustable rate mortgages adjusted the only way they could possibly go. Up. And they would have been if somebody hadn't done something.
That somebody was't the federal government. It was me and my wife.
And that is the message I have for Mr. Caprio and residents of Los Portales. Somebody does have to do something. So suck it up and do it.
Posted by: Stephen Macklin at 08:40 AM | No Comments | Add Comment
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