While it is probably true that most homeowners skip significant portions of the "fine print" in their loans, it is also true that the Real Estate agents were pushing these specific loans in order to make overpriced homes seem affordable. At least in the Bay Area of Califorina, a visit to an open house in 2004-2007 would highlight a flyer type that was not as common in the preceding years.
While it was common to find a monthly payment estimated on the marketing material for a specific home, It was uncommon to find a misleading estimate. However, the housing prices were gaining in the neighborhood of 20% per year. This gain is huge and as people have learned, inflated. With the inflated values, the traditional payment estimates were prohibitively high.
The solutions for this were commonly the adjustable rate mortgage (ARM), interest only loans, and stated income loans. In an environment there the property value will increase at a rate of 20% per year, these are almost no lose propositions. Even if you lose the ability to pay your increasing mortgage, you can unload the property for a profit.
However, these loans are not sustainable in a flat or declining housing market. Add a job loss and the homeowner will quickly be in a situation where they lose their home as they cannot pay the mortgage or sell the property for what they owe.
Having said that, the government acted as if it were somehow going to solve the problem by selectively bailing out certain troubled assets. What the government didn't seem to account for was that those assets were not the problem, but rather a symptom of a larger looming problem.
Had they honestly wanted to save those homeowners w/o begging for fraud (many homeowners have worked to make themselves look troubled in order to get in line for a government handout) they would have addressed the core problem instead of the initial symptoms.
Foreclosures, on a large scale, devalue similar properties. In short, one problem brings another as clusters of foreclosures destroy equity in the surrounding properties. Buying slows as potential homeowners see prices dropping on a monthly or weekly basis. Why buy a house today when you know you can wait a month and offer 10k less?
Back to the point. The most realistic attempt to save property values and stave off mass foreclosures would have been for the government to acknowledge that the lending industry had performed something irresponsible and calculated in knowingly approving a large number of unsustainable loans. Rather than cherry pick loans to save, the government could have stepped into regulatory mode and forced the mortgage companies to temporarily suspend increases and revert monthly payments to their rates 2 years prior.
The missing monthly mortgage income is an entirely separate debate. Would it need to be compensated in some fashion, most likely by the government? Would it need to be absorbed by the banks? Would homeowners be required to extend mortgages, equity share on a percentage, or have an additional no interest mortgage based on the missing interest/principle that was being temporarily eliminated from their newly locked mortgage?
While it was common to find a monthly payment estimated on the marketing material for a specific home, It was uncommon to find a misleading estimate. However, the housing prices were gaining in the neighborhood of 20% per year. This gain is huge and as people have learned, inflated. With the inflated values, the traditional payment estimates were prohibitively high.
The solutions for this were commonly the adjustable rate mortgage (ARM), interest only loans, and stated income loans. In an environment there the property value will increase at a rate of 20% per year, these are almost no lose propositions. Even if you lose the ability to pay your increasing mortgage, you can unload the property for a profit.
However, these loans are not sustainable in a flat or declining housing market. Add a job loss and the homeowner will quickly be in a situation where they lose their home as they cannot pay the mortgage or sell the property for what they owe.
Having said that, the government acted as if it were somehow going to solve the problem by selectively bailing out certain troubled assets. What the government didn't seem to account for was that those assets were not the problem, but rather a symptom of a larger looming problem.
Had they honestly wanted to save those homeowners w/o begging for fraud (many homeowners have worked to make themselves look troubled in order to get in line for a government handout) they would have addressed the core problem instead of the initial symptoms.
Foreclosures, on a large scale, devalue similar properties. In short, one problem brings another as clusters of foreclosures destroy equity in the surrounding properties. Buying slows as potential homeowners see prices dropping on a monthly or weekly basis. Why buy a house today when you know you can wait a month and offer 10k less?
Back to the point. The most realistic attempt to save property values and stave off mass foreclosures would have been for the government to acknowledge that the lending industry had performed something irresponsible and calculated in knowingly approving a large number of unsustainable loans. Rather than cherry pick loans to save, the government could have stepped into regulatory mode and forced the mortgage companies to temporarily suspend increases and revert monthly payments to their rates 2 years prior.
The missing monthly mortgage income is an entirely separate debate. Would it need to be compensated in some fashion, most likely by the government? Would it need to be absorbed by the banks? Would homeowners be required to extend mortgages, equity share on a percentage, or have an additional no interest mortgage based on the missing interest/principle that was being temporarily eliminated from their newly locked mortgage?
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