can someone explain to me why it's the government's responsibility to bail out borrowers who were told . . . .

Question

. . . .about ARMs and how they function? i keep hearing in the news how the government is supposed to step in and stop these ARMs from adjusting upward and freeze rates where they are still in their introductory phase, but WHY?

when you sign on to an ARM, you are told how the instrument works. you are given a CLEAR explanation of what it is. i have to say: i think it's irresponsibility on the part of the borrower; not the lender.

i DID start this question with 'can anyone expain to me' and i mean it. i'm NOT a finance expert or someone even in the business world. and before someone starts accusing me of being 'upper class and cold,' i guarantee that 98% of the people reading this question earn more money than i do. I'm a school teacher and musician, so i'm just above the poverty level. but i was very careful when choosing my mortgage and buying my home. is there really much more to this than what i'm seeing? seriously....explain.

jesswzmn - okay, but DIDN'T THEY SIGN ON? i understand lowering interest rates would cause a false housing bubble, but isn't there SOME responsibility here on the part of the "victim?" it's ALL george W and the fed's fault by the single, solitary action(s) of lowering interest rates? hehehe. (i don't like him either, but this is ridiculous)

give me more.

my first edit was done before your LAST paragraph, btw. the last thing i had read was how 'callous' i am. :)

Answer 1

Real simple reason: Elections are coming up. It looks good on a political resume that they help all these suffering people keep their house. In reality, they are helping all these financial institutions stay open. Foreclosures don't only hurt the people that were living in the house, it hurts the mortgage companies as well.

Answer 2

While it may certainly be a problem for the people who borrowed the money as well as those who lent it to them the simple truth of the matter is most homeowners (98%) are not in this situation. You will always have people with: bad judgement, willing to take extraordinary risks or who fall on hard times after taking out a mortgage. I cannot understand why the government feels it has any business interviening in this.

It is simply a fact that many of the people who took out these loans did so for a very good reason. It allowed them to buy a property (often brand new or still under construction) with little money down and very small monthly payments. They then intended to do one of two things. They would turn around and sell it for a profit (flip it) before the mortgage had a chance to increase or they would wait until the valuation of the property rose in what was a very hot market and then refinance to a fixed rate mortgage. Seemed a smart plan and a good way to maximize one's buying clout.

And don't forget, it worked very well for a whole lot of early investors. They got away with a killing if they got in near the beginning of the bubble. But for those unfortunate gamblers who got in too late, they were left with ballooning mortgage payments they could not afford on a house they never even intended to live in (the flippers) or unable to qualify for a fixed rate mortgage due to a loss of or no increase in the valuation. (the mortgage was for more than the house was worth).

It is simply not true that people got into these types of mortage deals through ignorance or high pressure salesmen. The vast majority knew they were rolling the dice and chose to do so anyway. But don't we love to make victims of people who make bad decisions and bad guys out of the industry that provide us with services?

Merry Christmas!

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Answer 3

you are right but for all the wrong reasons.

You are blaming an epidemic on bad judgment. Its just impossible that this many americans decided to become stupid all at once, or that this many lenders decided to become crooked all at once.

The bailout is a mistake, but in the lawmkers eyes, they are really bailing out the lenders, not the borrowers. Furthermore, the lawmakers kind of sorta have to do something because they dont want the whole world to come crashing down and people finally realizing that its the very policies of the lawmakers and the white house that have gotten us to this point.
You see artificially sustained low interest rates over a long time cause a housing bubble as the price of homes rise because of the cheap money and higher demand for housing. Notice however that the very solution that Bush came out with which is to keep interest rates artificially low will only perpetuate the problem and delay the eventual bursting of the bubble.

I am fascinated by how callous so many americans are and how short sighted you are to blame the victims who are in fact losing homes mostly due to a series of economic straws being piled on the collective backs of americans. Sad very sad that you do not see that and choose to play the personal responsibility head buried in the sand game.

You are correct, govt has no business bailing anyone out and using tax payer money to do it. But I submit to you that govt is the culprit that brought about the situation in the first place with a slew of policies that seem to be intent on driving american middle class workers to the poor house. I am afraid we are only seeing the tip of the iceberg.

Answer 4

A simple grazing through the financial news will show you that the mortgage fiasco is having global repercussions. It's not just bankrupting American families and companies but depressing the world-wide market. I agree that the brunt of the responsibility falls on the borrower for taking on a financial responsibility beyond their means, but lenders lured them into the contract with a scheme that had been working for years. They basically told the borrowers that if they bought a property at today's price with an adjustable rate mortgage with zero down, the "natural" appreciation of the property would allow them to have 20% equity in the property in a short time. That, along with the concept that they would have a good payment history up to that point, would allow the borrower to refinance using a conventional mortgage with more favorable repayment terms.

Answer 5

Frankly, if they are going to bail out lenders when borrowers were screwed by lenders, then the government has its priorities wrong. It needs to bail out Americans not the businesses, because the same crap is going to continue. Its like the government bailing out Enron, so Enron can screw people over for EVEN MORE money.


Edit: You don't understand. No lender is going to touch an individual if there is a chance the individual won't be able to pay due to current income. Doing so would be very bad. I bet you a million dollars that most customers had a large chunk down payment. In this case, it wouldn't matter to the lender on whether or not the individual can afford the monthly payments with his/her current income as long as the individual can pay the minimum. Once the individual folds, the lender gets the large chunk down payment and house for resale, which they find another sucker to screw over repeating the cycle. This is why the housing market is messed up and collapsing our economy. Its because of greed.

So why is the government bailing out the Enrons?

Answer 6

the government would not extremely need to get entangled. they don't opt to rescue people who made undesirable possibilities. they opt to maintain the financial gadget turning out to be so as that we re-% them next fall. The credit markets are a large number good now, extra often than not because of the sub-best loans and the rash of foreclosure. Banks have tightened credit criteria (final the barn door after the pony left) and the final circulate of money has extremely floor to a halt. Banks that have massive losses in mortgages are additionally slowing credit to agencies, etc. it is the money the government extremely desires to circulate returned. the government could opt to sluggish the cleansing of those undesirable bills so as that that financial gadget can digest it over some years extremely of all in late 2007 and early 2008. the concern is the credit malaise could unfold to different sectors and extremely drag down the financial gadget. notice no comments approximately how human beings have been given into the situation interior the 1st place as i think in own duty, yet I do concern with reference to the financial gadget as an entire! desire that helped!

Answer 7

Government has no business getting involved in this. The people who should pay are the fools who signed mortgages they couldn't afford and the greedy (and foolish) lenders who made the loans.
Politicians just want to appear to be doing something. The proposed "solutions" will do nothing but prolong the agony.

Answer 8

The simple reason is . . . those subprime loans were bundled and sold as assets. No one can properly value these bundles so banks are refusing to lend money to one another which means they are ultimately refusing to lend money to the public. The only way to unlock the market is to establish a system where a monetary amount can be assigned to the bundles. It's basically an effort to ensure that people who need housing loans can get them in the future. Furthermore, since banks are refusing to lend to each other we are unsure how this will effect other forms of consumer loans (car loans, commercial loans, business loans).