Friday, February 4, 2011

Housing Costs


Trace the fall of the hosing market in the United States. Cite 2 reasons why you think the Government should not have bailed out the banks. Then, write on the emotional side of the housing dilemma. Cite a specific family dilemma and what happened to them. Where are they now? Did they choose to short sale, bankruptcy, etc.?
http://www.npr.org/blogs/money/2010/08/26/129454550/inside-the-sausage-factory-how-wall-street-made-the-financial-crisis-worse

8 comments:

  1. It is predicted that "home prices in some areas could decline another 6 – 9 percent in 2011." (http://www.homebuyinginstitute.com/news/housing-market-predictions-088/) Benchmark mortgage rates are expected to stay under 5% in 2011 as well. "CDOs — collateralized debt obligations — were the primary way that big banks turned those subprime mortgages into what we now think of as toxic assets. But back in 2006, they were just the hot new part of the industry. The people working on CDOs could make millions of dollars a year, but their income depended on how many CDOs they sold." (http://www.npr.org/blogs/money/2010/08/26/129454550/inside-the-sausage-factory-how-wall-street-made-the-financial-crisis-worse) The Mortgage Bankers Association predict that refinance loans could drop 66% this year. Forclosure is expected to increase 20% and overall, the U.S. housing market is most likely going to go even more downhill this year. As for the CDO's, according to Bernstein, "The investment banks take the worst parts of the CDO and they put it into new CDOs, recycling it again and again, until pretty soon, the CDOs that you're left with are made up of the worst parts of the stuff." (http://www.npr.org/blogs/money/2010/08/26/129454550/inside-the-sausage-factory-how-wall-street-made-the-financial-crisis-worse)
    In Phoenix, a young man, thirty years old named Derek Figg was "trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home's value has dropped to $230,000 or less. After agonizing over the pros and cons, he decided recently to stop making loan payments, even though he can afford them." (http://online.wsj.com/article/SB126100260600594531.html) He had to leave the house that he only purchased two years ago and move into an apartment. According to the same website, "A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a "strategic default," walking away from their mortgages not out of necessity but because they believe it is in their best financial interests."

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  2. Wall Street took advantage of this financial crisis that nobody actually knew about in 2006 to create a profit for themselves. "Wall Street bankers had evidence, a year or two before the financial crisis hit, that there were serious problems with subprime mortgage investments. 
Rather than wind down this business, they sped it up using financial trickery. These people earned huge bonuses for their actions. They also made the crisis considerably larger and more damaging." (http://www.npr.org/blogs/money/2010/08/26/129454550/inside-the-sausage-factory-how-wall-street-made-the-financial-crisis-worse/) This lead to the financial crisis being larger than what it was before. To the Wall Street bankers, they gained a huge profit from this crisis. "Bernstein says. "The investment banks take the worst parts of the CDO and they put it into new CDOs, recycling it again and again, until pretty soon, the CDOs that you're left with are made up of the worst parts of the stuff."

(http://www.npr.org/blogs/money/2010/08/26/129454550/inside-the-sausage-factory-how-wall-street-made-the-financial-crisis-worse). This dilemma includes the banks helping the CDOs and most likely losing more money in the long run by taking more financial risks. After the housing boom cooling off in 2006 more bankers started conserving money and only partially lending to CDOs to avoid the financial risk. The bank bailout caused the them to take bad mortgage loans and recycle them through, selling them less than what they started out with. This causes families to become bankrupt as they must foreclose their homes because they cannot pay the money for their homes. Families are largely affected by this bailout as banks continue to include "High interest rates, hidden fees, and other nasty surprises lurking in the fine print of consumers' mortgage agreements and credit card contracts are all too familiar." (http://www.progressive.org/rc100809.html). Families must work harder to raise their children, where there is no margin for error. Their expenses include transportation, childcare, and moreover the higher costs in mortgage. Overall, the system is set up against them.

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  3. There are many problems with these people selling CDOs because of the damage it has done and is still doing to our economy. Due to these people being able to make millions off of selling these CDOs they were hot and new to this industry in 2006. These cause a big problem because these people started to figure out that these CDOs are harmful to the economy and were soon known as toxic assets. Bailing out these banks has caused many problems in housing cost because of the banks not having as much money. Also with banks getting into these CDOs have made it where they will make a lot of money soon, but loose money overtime. This has affected many families all over America due to banks having to now charge higher interest rates and hidden fees that people many not completely see. With the interest rates getting higher and people wanting to buy a house, these people do not have a choice in accepting these rates because there is no way they are going to find anything significantly lower then the rates they can find today. All this does is add onto a persons expenses and having to be more conservative and maybe cut down on how many children they can have.

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  4. Fall of the housing market was cause mostly in part by sub prime mortgages.

    The housing bubble, meant that for a time, houses sharply increased in value and consumers often borrowed at a subprime (less than the lowest) rate believing that the price of their homes would rise and they could thus refinance for lower payments. Many people didn’t just refinance for lower payments but also for consumer spending. Inflation of house prices meant people in possession of a home suddenly had more equity in their home. They could access some of that equity by refinancing, and spend the money as they chose.Unfortunately, the bubble began to burst in late 2005 and houses began to decline in price. People who refinanced, especially those who did so with variable interest rates, suddenly had homes valued at much less. Many with variable rates and interest only loans ended up unable to continue making payments on their home, flooding the market with more homes for sale than usual and further lowering home values.Another issue at hand was that a variety of mortgage companies that had issued subprime loans, invested their money in hedge funds that became worthless. This meant that several of the largest lenders of subprime loans contributed to the subprime mortgage crisis by having to claim bankruptcy and foreclose on loans. People who now had homes at lower values, had loans larger than the value of their homes, and were frequently unable to refinance with other lenders. Stricter lending practices by remaining mortgage companies has also been a factor in the subprime mortgage crisis, since some of the homeowners were ineligible for any type of loans based on new criteria.

    (http://www.wisegeek.com/what-caused-the-subprime-mortgage-crisis.htm)

    Reasons why banks shouldn't have been bailed out.

    First, even with this huge infusion of money from the government, this bailout may not be enough to convince banks to start lending again, especially if their mortgage assets continue to decrease in value quickly. For instance, Japanese banks went through a similar bailout, but those banks became much more careful with new loans thus putting the brakes on the Japanese economy. As a result, the Japanese recession has lasted for over a decade. Therefore, the fear of banks not knowing how low their assets could drop is a prime reason for banks to not lend money even with the money from the bailout.

    The second problem with the 2008 Credit Bailout is that the actual total amount of money needed is unknown. No one knows how many banks would need bailing out and how many mortgages will go default. The $700 billion dollar price tag on the bailout is just a guess that is not even based on any calculated estimates from a banker or actuary. Therefore, more money may be necessary.

    (http://www.philforhumanity.com/2008_Bank_Bailout.html)

    Where am i supposed to find a specific family dilema that won't hurt anyone's feelings to post on this blog? hmmm?

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  5. For many months the government came up with every program they could think of to help out many home owner so that the values would keep up and so that the home owners did not file for foreclosure. None of this helped and many people were left without a home. According to Reality Trac. just in California there were 65,915 foreclosure properties meaning 1 in every 203 housing units in December 2010.
    "The Case Schiller index shows that today’s home prices, adjusted for inflation, are still about 30% higher than historic norms." (http://www.homesforsalesaintpetersburgfl.com/will-the-housing-market-continue-to-decrease/)
    There is a family in Florida, that moved from Maryland to improve their life styles, hoping that they would be making a lot more money. EVerything tuned out wrong and they ended up living worse then they already were. " We were still in arrears on the mortgage, because the lender wanted ALL or nothing. I didn't know where it was going to come from. The rumbling in the media was that George W was going to rescue those in danger of foreclosure. The announcement came: if you aren't currently in arrears, we'll protect you. If you're not in arrears, then you're not at risk of foreclosure. Help would not be coming for us... Right now, I'm sad. All the reasons for moving to Florida: WDW, Mom and a house? I don't have a single one of them." ( http://www.blogher.com/foreclosure-personal-story).
    This is an example of how many times the government has promised help, but never provided anything. This story above was published in 2008, so everything described was under the Bush Administration.

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  6. For many months the government came up with every program they could think of to help out many home owner so that the values would keep up and so that the home owners did not file for foreclosure. None of this helped and many people were left without a home. According to Reality Trac. just in California there were 65,915 foreclosure properties meaning 1 in every 203 housing units in December 2010.
    "The Case Schiller index shows that today’s home prices, adjusted for inflation, are still about 30% higher than historic norms." (http://www.homesforsalesaintpetersburgfl.com/will-the-housing-market-continue-to-decrease/)
    There is a family in Florida, that moved from Maryland to improve their life styles, hoping that they would be making a lot more money. EVerything tuned out wrong and they ended up living worse then they already were. " We were still in arrears on the mortgage, because the lender wanted ALL or nothing. I didn't know where it was going to come from. The rumbling in the media was that George W was going to rescue those in danger of foreclosure. The announcement came: if you aren't currently in arrears, we'll protect you. If you're not in arrears, then you're not at risk of foreclosure. Help would not be coming for us... Right now, I'm sad. All the reasons for moving to Florida: WDW, Mom and a house? I don't have a single one of them." ( http://www.blogher.com/foreclosure-personal-story).
    This is an example of how many times the government has promised help, but never provided anything. This story above was published in 2008, so everything described was under the Bush Administration.

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  7. With the start of the national foreclosure crisis in 2007, the number of states with foreclosure start rates above 0.50 percent increased dramatically, reaching 35 in 2007 and 46 in 2008. July 15, 2010: RealtyTrac, released its 2010 U.S. Foreclosure Market Report, which showed a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a five percent decrease in total properties from the previous six months but an eight percent increase in total properties from the first six months of 2009. The report also shows that 1.28 percent of all U.S. housing units (one in 78) received at least one foreclosure filing in the first half of the year. As of mid-2008, over half of borrowers in California, Florida, Arizona, and Nevada, over a third of borrowers in Ohio, Michigan, and Indiana, and over 10 percent of borrowers in the rest of the United States had negative equity. (Accessed 2/15/2011: http://www.billlucey.com/2010/07/the-rise-and-fall-of-the-us-housing-market-a-timeline.html)
    It was unfair to bail out the banks and force responsible Americans to pay for the acts of others who either knew better and took risks anyway or should have known better and ignored risks—greed and ignorance. It penalized responsible citizens who bought a house within their means and income and can afford their payments. Speculative, greedy financial institution managers created this mess for the majority of Americans with integrity to clean up. Where is the justice in this?

    The $850 billion bailout action interfered with the fair market system on which Capitalism is based, improperly freezes home prices at current inflated rates, which makes it impossible for hardworking Americans to afford a home. Only the rich, foreign investors, and large property companies can buy the foreclosure properties. Will the United States eventually be owned by foreign countries?

    Friends of our family bought a lovely home in Pittsburg, California; but the husband lost his job and was unable to make the mortgage payment. It was a lovely home, but they had to walk away from the loan, so it was the bankruptcy route. The economy is bad and many Americans have been unemployed for over a year. The unemployment percentage has gone down compared to last year, but part of the reason it has gone down is that many workers have given up looking for a job. Many Americans have depleted their 99 weeks of unemployment insurance; but unemployment benefits don’t even cover the house payments of the people who are unemployed.

    To own a home is part of the great American Dream believed in by billions of people around the world. People’s homes are their safe havens from the stress and troubles of life. They eat, sleep, grow, love, hate, and have fun, and often die in their homes. “There’s no place like home.” To lose the home you love hurts and leaves a psychological scar on your life. The experience tears at people’s emotions and the stability of the United States.

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  8. During the Housing bubble, many people made a lot of money that quit the bubble before 2005. Banks would borrow money overseas for a much smaller interest and be able to buy homes that people were living in already. Housing prices were always rising until sub prime mortgages began to be given out. A sub prime mortgage is similar to a prime mortgage but it was given to families that were not responsible. Prime mortgages were still being out but sub prime mortgages were beginning to be given out so that more houses could be sold. Once a large amount of families began to foreclose on their sub prime mortgages then there was suddenly a large amount of houses on the market. The prices for houses began to drop for once. Families with prime mortgages began to wonder why they were paying off their $600,000 house when it was suddenly only worth $300,000 and they purposely foreclosed also. More and more houses began to appear on the markets and house prices dropped more and more. Families went from spending money on consumer goods and investing in the housing bubble, to losing money and not being able to pay their bills.
    http://vimeo.com/3261363?pg=embed&sec

    Reasons Why Banks Shouldn't have been Bailed out:

    Even if most banks do get bailed out, they won't begin lending money like they used to and this would prolong the recession. If the government bails out the banks then they would have to put more money into the bailout than actually exists, and this would put us in debt for decades.
    The banks had to get bailed out because either way our economy would be in ruins because many more people would be left without a job and many would still have lost their money.

    Families during Fallout:
    I personally know a family that purchased a house in Atherton around that time. They got a good deal on the house and they refinanced it so they could remodel. Once they remodeled they fell into bad luck because house prices kept dropping and even though they put a lot of money into their new home, it was less than when they first bought it. They stuck it through though and now their house is worth a lot more than it ever has just because they stuck it through the years.

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