Foreclosure victim on bailout: 'No way, Jose!'

Blogger's note: A reader, C. Benedicto, e-mailed this commentary.

"I lost my house to foreclosure after the 1994 Northridge Earthquake. At the time, the house I purchased in 1989 for a premium was worth less than the mortgage, plus I needed to come up with additional funds for repairs to the damage caused by the earth movement.

"Losing a home, which was my family's major investment, was painful, and to date my wife and I are still trying to recover financially and emotionally. However, despite the grave loss we feel, we believe we have no one to blame but us -- for being so stupid buying a house just to keep up with the Joneses and as an investment. We now stay in a modest abode and live a lifestyle within our means. 

"When a Realtor neighbor encouraged me during the height of the real estate frenzy to go aboard the bandwagon and buy a piece of property, which I believe was overpriced, because, she said, I could make a hefty profit within a year, I asked her how possibly I could afford to pay the mortgage once the teaser rates expire. To my amazement, she looked at me in disbelief like I was stupid. 

"These banks and speculators knew exactly what they were getting into. Many of them made a lot of money flipping houses like burgers when the market was going higher into oblivion everyday. Now that the housing market turns against them, they want me to help them out and pay for their greed. No way, Jose!!!!"

Thanks. A reminder, the blog is an open forum. If you'd like to defend bailout proposals, now is your chance.  E-mail story tips to peter.viles@latimes.com.
Photo credit: AP

Comments

[sunsetbeachguy]

Good on ya! C. Benedicto.

Now if you can just find that relitter to rub her nose in the mess she made, you know like the old school (mean) dog training.

[Inland Empire]

This family deserved better than what they got. This is the type of person who deserves help.
There should be no bailout for most of the current folks. The banks are making money no matter what. Ever look at an amortization schedule and see how much money is paid on a 30 year loan? (any amount, any interest rate). Some people did get duped but most of them were greedy. How can you make payments on a mortgage that exceeds your take home pay?

[Jim D.]

I'm of two minds when it comes to a government bailout of homeowners and banks.

But first, a little personal disclosure. My wife and I purchased a modest home in the Valley back in 2002 for a reasonable price on a 30 year fixed. At the time, the house was a little less than affordable on our incomes, but we managed and now our mortgage payment is less than it would be if we rented an apartment. We made the right decision at the right time.

We watched as the comparable homes in our area doubled in price, and while we did refi to another 30 year fixed for a quarter point less interest, we did not do as some of our friends and neighbors did and borrow against the value of our house. I'm an amateur economist of sorts and know not to be short-sighted enough to do this knowing that in a capitalistic system what goes up always comes down, and the people who are risk-averse in that system (i.e. those rich enough to be) will always come only slightly scuffed.

So now we have a situation where people who did not take advantage of it are resentful of the people that did, as it seems many on this blog are opposed to a bailout. While I'll agree that the government shouldn't bailout people who borrowed recklessly, or banks that lended recklessly, if they do nothing we stand to have an economy in complete turmoil. I don't think a bailout is going to save everyone and bring the economy back to a boom era, but it will help a disaster from becoming an epic disaster.

I'll give two historical examples of our government working to prevent disaster.

In the 1930s banks were failing and foreclosures we as numerous if not more than they are today. Many investors in the stock market engaged in some go-go speculation in the 20s, and then came the crash. The government could have chalked it up to the investors personal responsibility and left the investors and the banks to fend for themselves, but that would have left those dependent on banks for capital, such as homeowners, in a complete shambles. Perhaps I overgeneralized the New Deal philosophy, but point being had the government not stepped in to manage the economy things would've been a lot worse.

In the 80s when Savings and Loan crisis occurred, fueled mostly by the greed of bankers to take advantage of a newly deregulated industry and invest depositors' money in junk bonds, the government could've skirted its obligation and not bailed them out under FSLIC rules. But had they not, millions of borrowers would've lost everything they'd saved. Granted many dollars were lost in reckless investment there, but the government had to look beyond the possibility of rewarding criminality to prevent so many more people from being affected by losing their savings.

We are already being affected by the credit crunch caused by the foreclosure crisis. Interest rates for investments have fallen, companies in need of borrowed money for cash flow are having a difficult time of it and are forced to cut back, and so much more. If the government doesn't put a tap on it, then we could see more large scale layoffs, more banks failing or simply unable to lend money, and more investor skittishness about the stock market.

It's not socialism. It's a managed economy.

[MyLessThanPrimeBeef]

These banks and speculators knew exactly what they were getting into.

------------------

Like I said before, it's a case of pre-meditated bubble. And our country, its banking system, is being run by a bunch of serial-bubblists.

[Sean B]

We have lived in our home since '93. Occasionally, we'd get calls from mortgage brokers asking if we wanted to refinance.

In ~2005, I received a call from a broker who wouldn't take "no" for an answer. He spent 10 minutes trying to convince me that the path to true wealth was to "leverage" the equity in my home by taking a mortgage for the full value at the time and using the cash generated to buy additional properties.

When I kept insisting that I wasn't interested, and told him of my plans to have the house paid for in a decade, he openly scoffed, "Only fools plan to pay off their homes".

Had I followed his advice, I'd be looking for a bailout, if I hadn't lost all by now. I'm still in the same house; I wonder where he is today.

[EG]

"the market was going higher into oblivion everyday." I like that phrase. Perfect description of the recent So Cal housing market.

[Mousebender]

I'll say I'm being affected by the credit crunch. My family now has a faint hope that someday homes will be fairly priced, not overpriced relative to rents.

If a bailout is merely an example of a managed economy, keep in mind that a managed economy allows all sorts of opportunities to its managers to direct the spoils to themselves.

Remember that our government lacked the foresight to enforce justice by proper application of the justice system to fraudulent lenders and borrowers. That's the primary role of government in a free society and a free economy: to ensure freedom from force or fraud by application of the justice system.

Besides, the boom of the past few years was made possible largely by consumers who borrowed against their future income. There is no economic policy that can forestall the economic effects of an unwinding of credit--policy can merely shift the effects in time, and among participants.

I've said it before: Anyone who says we're all in this together can prove it by buying my family a house.

[blackbox]

OMG, OMG. DId someone say the 1930s. OMG OMG could we be headed for a depression or return of the dark ages? OMG OMG

Dude, stop fearmongering!
There will be pain all around, but we need to flush the system of past excesses. Foreclosures will skyrocket, prices will get back to affortable levels, and those who were smart enough to save and pay down debt will be in a great position. If you were a responsible, sensible person you would not be so worried about a recession. We'll be fine, but thx for your concern!

[Carolina]

Jim D.

" I don't think a bailout is going to save everyone and onbring the economy back to a boom era, but it will help a disaster from becoming an epic disaster."

You need a national perspective. California's economy is in a self imposed "epic" disaster due to the housing bubble bursting, poor local and state government, and very expensive public employees. Ninety-five percent of the rest of the country is doing just fine. There is no easy path out of this. The best option is to let the markets correct quickly without intervention.

[arroyogrande]

"So now we have a situation where people who did not take advantage of it are resentful of the people that did"

Rephrased - people who didn't fall for the sales pitch because they knew "exotic financing" doesn't equal "affordability" are resentful of people trying to force them to pay for the excesses of those who *did* fall for the sales pitch.

Full disclosure - I still own two houses in LA, both rentals, and we are living in a rental house. The cliche of a "bitter renter" is so 2007.

I don't know enough about The Great Depression to make a comment...however, in regards to the S&L crisis, the government had an explicit guarantee (and contractual duty) to bail out savers. People deposited money in S&Ls based on that guarantee.

In the current situation, investors in mortgage backed securities and home buyers *never* had a government guarantee (although investors through GNMA did).

And one thing I can not understand is, why would you want to keep people in houses they cannot afford? If you cannot afford to buy a house, shouldn't you be renting? Or is renting houses only for lepers and those of us who are 'financially unsophisticated'?

- arroyogrande

[Mickey Malone]

"At the time, the house was a little less than affordable on our incomes, but we managed and now our mortgage payment is less than it would be if we rented an apartment. We made the right decision at the right time."

If it was even a little more than your incomes you would have been OK. Yes , you made the right decision. But, never buy a house more than $50.00 more than you have to come up with each month!

[Expat]

Fearmongering? you have no idea what is really going on. This is not like other recessions or bubble deflations. It is huge. This is perhaps the first time in history that a nation of such size and importance has faced such a massive crisis with no savings or industry to cushion the blow.

The US consumer has been told to ignore real wages and income distribution. Just buy a house and your problems are solved. Run out of money? Use your home equity!

The US is broke. The dollar is plummeting. Inflation is rampant. There is no industrial or savings base to fall back on.

House prices will correct down another 35%. Millions of people will be bankrupted. Major financial institutions will be bankrupted. The dollar will fall another 25%. Stock markets will fall another 25%. Meanwhile, the prices of real things like food and energy will continue to rise in USD terms.

I agree, we won't all spontaneously combust, but, man, it's going to be ugly.

[kimberly]

I was a banker for citibank and wells fargo. I saw the mortgage reps doing anything they could to find a way to get a deal approved. i had many people sitting at my desk asking for a line of credit on their home. I walked peopel through the changes in the payments after the teaser rates - but my focus was on business accounts..so I didnt really talk to THAT many people. I do wonder though why there is not more pressure being put on the lenders to investigate application forms. there was so much lying going on - why not make the people who lied on their applications give back some of their commission??? hell i knew there would be a bailout in the end....i would have bought a house I couldn't afford. seems it would have been more interesting than living in my small studio in long beach. Cheers to the financially responsible and UNgreedy!

[CZ]

Just why is he called a "victim"?

Isn't the lender the victim ?

[SB]

Jim D.,

Might I suggest reading a book entitled America's Great Depression by Murray Rothbard. You can read it free online if you do a search. You will see that the comments you made regarding the Depression of the 30s being much worse had the government not intervened to be completely false.

Government intervention was directly responsible for the Depression lasting until 1946 (not when WW 2 began as is commonly believed). If they would have left things alone, the crisis, though severe, would have been short lived. Today, the same policies are still in effect and will prove to be just as ignorant. Be prepared for a lot more suffering whether or not there are more ridiculous stimulus packages.

Like the many children today in there 20s and 30s who are continually bailed out by their parents, but never learn a lesson from poor financial decision making, the same analogy can be seen on a large national scale. People need to learn to take their own medicine and be more self-reliant!

[BrianH]

If the typical person in LA could afford the typical home via an FHA loan with a 3% down payment maybe I would be a little more receptive of some form of help from the gov. However, when the home prices are so high that someone making 75k a year has no chance of qualifying for the typical 3/2 single family there can be no help. Home prices need to readjust to historical levels. Period.

[MyLessThanPrimeBeef]

Arroyogrande, from our resident economists here, I deduce the Great Depression happened a few month before Y2K, another disaster we somehow survived.

Why? Because everytime it's mentioned here if housing prices should return to Y2K levels, it would be another Great Depression. I gather from that, in 1999, say, we were in a Great Depression, except I didnt know I was in such misery until now.

[invest3]

It is important that we remember the roots of this debacle as this whole fiasco can be laid at the feet of one man: Easy Al Greenspan. It is ironic that Greenspan, a crusader for decentralized free trade and global markets, presided for 18 years over one of the most archaic and repressive economic systems devised by man: the centralized U.S. Federal Reserve.

After the collapse of the dotcom/tech bubble under Greenspan’s watch, the Fed flooded the banking system with cheap credit by cutting interest rates to rock bottom levels. Holding rates low for 3 years encouraged consumers to take on risky mortgage and other debt that, in many cases, would be nearly impossible to repay. In June of 1994, the Greenspan Fed then began a series of rate hikes, 17 to be precise, ratcheting the federal funds rate to 5 ¼ and sending adjustable rate mortgage payments skyward. Americans are now left to deal with the fallout from the Greenspan led lending binge: a subprime mortgage market that has imploded, a housing market that is in free-fall in some parts of the country, and an estimated 2 million families that may lose their homes to foreclosure.

Alan Greenspan is no doubt a bright person. However, no one man or board is intelligent enough to understand all of the intricacies and nuances of a $13 trillion economy. Greenspan admitted that he did not realize the effects of the subprime debacle until late 2005 or early 2006.

Thomas Jefferson once said, “I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs.”

Now that the lending cartel’s interest rate experiments have gone awry and Professor Greenspan has blown up the lab, it is time for Congress to strip the Fed of its interest rate setting authority. Instead of monopoly control, the market should be allowed to set rates through an intra-bank exchange where supply and demand determine the price of money. Mr. Greenspan, as a self-described "libertarian Republican," should be pleased with such a free market proposal.

[Bitterhomeowners]

in 2008, Bitter renters are now replaced by Bitter home owners or shall we say Bitter home "borrowers" since most of these people put 0% or little down and techically don't own crap.

So they listened to some snake oil salesman and took out equity from their home and spent it on Luxury brand items and SUV. Now they want a bailout and anyone that oppose is a "bitter renter?"

How in the world can the USA economy sustain growth that's based on consumption and borrowing???

Let this baby crash and let the normal economy cycle run so we can all get back to living our normal live.

Who's bitter now????

Signed,

Happy Renter who didn't fall for the Real Estate Ponzi Scheme and Living Debt Free.

[Teresa]

My husband and I DID take advantage of the bubble. We sold his condo and used the money to move to a more reasonably-priced state.

But I'm still against a bailout. My feelings have nothing to do with "resentment" of people who took advantage of the bubble. It has to do with my free-market beliefs. If the market is left alone, the market will adjust accordingly.

[LB Renter]

What a yawn. We're a year and a half into the correction and have seen nothing but nominal price drops. There is NO shortage of people willing to shell out $3000+ per month to "own" a one bedroom condo. None of them are anyone I know, but the prices aren't dropping in any meaningful way, and there are still some sales happening to set the current comps. The working class simply have no place in California, and that isn't going to change. 2000-2005 was that paradigm shift.

[kat]

When a person borrows against the equity in their home how does that make the loan any different than any other loan? Unless the person sells his or her home to repay the money how does the value of thier home make them any more capable, financially, of paying back the money.

If I suddenly found my house to be worth a million dollars and I decided to borrow $500,000 on the strength of the worth of my home, I still would be able to crack a $500,000 nut every month.

[kat]

p.s. My house is paid for - I would not have the original mortgage to pay, in addition to the equity loan, like most of these greed mongers

[anonymous]

well put. it's about time this country learns that sometimes there are consequences for going after the quick buck and that there is no such thing a zero risk. a bailout would be even more disastorous to this country than no bailout, which is going to be pretty bad regardless. but hopefully others will learn from there mistake like you.

[kat]

Corrections. . "I still would NOT be able to crack a $500,000 nut every month."