Sunday, December 23, 2007

Loans and Joe Blow

Everyone blames the banks for making these loans that millions are now defaulting on. I am now going to take the banks' side just to stir it up a bit.

Joe Blow goes into a bank and gets a killer loan. "Hey, I got this great ARM for my house. 1% for 3 years. Wow!"

Friend: Wow! That is awesome, dude.

Blow: Yeah.

3 Years Later

Blow: This mortgage blows, man. My payments just went through the roof! I'm paying, like, 8% now. I don't make enough to do it.

Friend: Bummer. Damn banks should not have done that to you.

Blow: Yeah. Maybe the government will help.

Friend: Yeah, dude.

OK, folks. Who signed the loan? Who knew at the time of signing that when the ARM period expired that the payment would go up? In both cases Joe Blow. The bank did nothing to hide this fact. No lender is allowed to hide this fact. Joe Blow is just plain stupid and in a way greedy. I can see the desire to own a home. I am not going to run out and buy one knowing that I would not be able to make payments! That is called common sense. Yet, Blow and family get this great loan for $100K OVER what they need for the house and spend it on things like a plasma t.v. (which will need replacement after 5 years anyways), a new SUV with all the trimmings, and a sand toy for each member of the family including Fluffy the dog (or is that a cat).

Because Blow wants all the toys, he lives outside his means. This is the American way. Inflation would not be so bad, the cost of living would be more stable, and life would be more realistic and balanced with the rest of the world if we crazy Americans would use our brains. Credit for this, credit for that. We live in debt. We do not live in reality. Everything must have a price. The lawyers make sure of that.

Get real. Life within your means. There is no need to keep up with the Jones's on your block because they will probably go bankrupt before you know it. Some people have money, some do not have as much. Live with it. Deal with it. Don't expect the government to take care of you. Only liberals think this way. Take responsibility and work for it yourself. Take care of yourself. Let the government take care of the scary folks trying to bomb the living shit out of us.

Good luck.


RealtorMike said...

I agree with your thoughts about living within our means, and that Blow should have known what the payment would do, but consider this; When interest rates for home loans dropped several years ago, it triggered a flood of buying activity from people who had been waiting to buy, and it also created a flood of refinancing activity, so everyone with a little time on their hands, and a little bit of financing knowledge, became a mortgage broker. In our area, the number of mortgage brokers nearly quadrupled in three years.

Guess what! After the pent up demand was satisfied, the mortgage market activity dropped back to a normal pace, and here were all of these lenders scrambling for enough business to keep the doors open. As a result, many lenders spent 5 years or so making mortgage loans to people who shouldn't have been able to finance lunch, and then selling these mortgages to investors. Given that, what else could possibly happen? Yup. Lots of foreclosures.

Anonymous said...

But let's take the broker's argument at face value: So you can advocate ARMs in a market heading for a downturn (where FRMs were at record lows, btw), and rely on “sophisticated buyers” to realize you’re a half-wit. Why would I hire someone so useless?

"Hey, don't worry about it. Property values are going up and then you’ll make a killing!”

Correction: Worse than useless.

Realize you’re far from indemnified by saying “The buyer should’ve read what he signed”. Lawyers can be very creative at depositions (can you say “withholding information”?) and may even be smart enough to outwit you savvy real estate moguls. Just ask the S&L tycoons who are now unemployable ex-cons with federal rap sheets. The current home crisis was brought on by snake-oil salesmen hawking ARMs and interest-only sucker loans to keep the bubble going. Well congratulate yourselves, it worked. The commissions you “earned” should probably cover discovery, court costs, fines and attorney’s fees. But you might need a second mortgage to pay the settlements.

marko said...

the entire reason for the financial crisis is easy....stupid people.

you can't tell me they "didn't know" the rate would adjust. they KNEW the risk and took it.

ARM and some other products like no doc requirements, are great for some people.

a great line from tommyboy...."what the american public doesn't what makes them the american public"

so if you are to dumb to know any better, don't sign on the dotted line. it's that simple.