For the most part, I haven’t talked too much about the housing mess that is causing a ripple effect in the rest of the economy. This despite the fact that I actually have pretty strong feelings on the subject. Government plans to help troubled borrowers are growing by the day. Local news story are constantly featuring poor borrowers who were “tricked” into buying a house or worse yet felt they have a right to own their house despite the fact that they could never afford the payments.
Despite all the sob stories, I will admit I feel very little sympathy for most people. If you count my girlfriend and I as a household, we are in the top 5% of households in terms of income. Yet we have deliberately stayed out of the housing market these past few years because it was very clear to any rational person that housing prices were over inflated. If we could barely afford payments on a standard loan on a regular house, how was anyone else affording it?
The answer is they couldn’t. These people took out loans that they would eventually not be able to afford or could never afford in the first place. That’s why I don’t feel bad for most people. The people I really don’t feel sorry for are
- Anyone who took out a stated-income (liar’s) loan.
- Anyone who refinanced their house and took equity out to pay for consumer goods they didn’t need like a new car or vacation.
- Anyone who didn’t read the fine print and who uses it as an excuse
- Anyone who bought a 2nd house as an investment (Investments lose money. They are risky, it is the nature of investing)
How anybody can feel bad for someone who took out a liar’s loan is beyond me. They are called Liar’s loans for a reason. There is a reason that banks require documentation of income for loans. They want to be sure that you can actually pay the loan back. Most people’s income is documentable. So the only reason for most people to use a stated income loan is that they in fact can’t afford the loan they are applying for. How much common sense (or maybe it is lack of common sense) does it take to not get into one of these loans?
As for the third one, people who argue they didn’t read the fine print. Can’t really feel bad for those people either. It is the biggest purchase you will ever make. You need to take the time to understand what you are getting into. If it is too difficult for you to understand, find somebody who can understand it. You can not trust your real estate agent or mortgage broker on this one. They have a vested interest in making sure you sign the loan and structuring it in a way that makes them the most money.
So while it may sound harsh and somewhat cruel, I really do hope our government does nothing to help people out of a mess they got themselves into. While I’m sure there are rare and isolated cases where people were deceived, I believe this not the norm and there are avenues of recourse for people who were legitimately deceived. But anything close to a wholesale bailout for those who should have known better is akin to rewarding stupidity. It makes me think of the movie Idiocracy where stupid people breed the smart people out of existence.