Mortgages
The New York Times is reporting on the impending mortgage crisis: seems too many loans have defaulted, bringing down with them lenders. People have property they can’t afford to pay for, but that no one can afford to buy.
While real estate prices were rising, the market for home loans operated like a well-oiled machine, providing ready money to borrowers and high returns to investors like pension funds, insurance companies, hedge funds and other institutions. Now this enormous and important machine is sputtering, and the effects are reverberating throughout Main Street, Wall Street and Washington.
Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers — known as subprime mortgages —recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.
Philadelphia has (largely) been unaffected by the housing hysteria: if you know where to look, you can still find yourself a 4 bedroom house for under $200,000. Sure, some areas like University City were priced into cloud-cuckoo land seemingly overnight. When I moved here in 1999, you could get a 3-story, five-bedroom house at on the 4700 block of Kingsessing for about $150,000: that same house is now $350,000 at least and in the exact same shape as it was 7 years ago. For that matter, a house comparable to mine (two stories, 3-4 bedrooms, eat-in kitchen, DR, LR, full basement) east of 49th Street now goes for $150,000 or more. Mine is west of 49th, and I paid $35,000. No, I didn’t forget a zero.
When I bought the house, people advised me to get a loan and go for something bigger, more expensive. But the house was what I could afford, and I was unwilling to get myself in over my head: I didn’t buy to flip the place and make a profit, although the house has very definitely accrued in value. When I used some of my equity to get a loan for home improvements and a car after Sam’s mother decided to remain in Quebec, I only took out what I needed, even though the loan officer encouraged me to take out as much as possible.
I have a lot of sympathy for people facing foreclosure, especially first-time homeowners with cruddy credit (like mine is now), but it seems to me that this wound is largely self-inflicted.
2 Responses to “Mortgages”
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March 12th, 2007 at 4:55 pm
You are right. It is self-inflicted, but the mortgage companies and the loan officers are not blameless. What kind of person/company would talk someone who is obviously not very fiscally aware into an adjustable mortgage, at the very high end of what the mortgage company assesses this person/family could afford when the rate is so low? It is practically criminal!
March 12th, 2007 at 6:06 pm
“What kind of person/company would talk someone who is obviously not very fiscally aware into an adjustable mortgage, at the very high end of what the mortgage company assesses this person/family could afford when the rate is so low?”
The same kind of person who talks you into buying a sportscar instead of a hatchback.
A few years ago, when the market was runnign hot, it didn’t matter if you had bad credit: a subprime (the argument went) could help you improve your credit. You’d get the loan for the house; make payments; then refinance or flip the house for massive profit. It wasn’t as much of a risk. And then like the Tulip craze, the bottom dropped out. Ooops.
We never learn. If there is one thing that people do not do, it is learn.
That is why our species is going to be extinct, or alive in much fewer number in the next 100 years or so.