Congressman says his mail ran '50 to 1' against mortgage rescue

Rep. Kevin McCarthy (R-Bakersfield), pictured, tells the L.A. Times that his constituent mail on the Barney Frank mortgage rescue plan was running "50 to 1: 'Don't bail these people out.' "  McCarthy voted against the bill.

Other interesting tidbits from Richard Simon's piece on latimes.com about how the House vote unfolded today on the mortgage rescue bill:

--One California Republican,  Rep. Gary G. Miller of Diamond Bar, voted for the bill. Otherwise, the vote in the California delegation split along party lines, with Democrats supporting the bill and Republicans siding with the White House in opposition.
--Miller said Frank "helped win his support by adding a provision that would permanently raise the maximum mortgage the Federal Housing Administration can back to $729,750 from $362,790." (Aside: Did anyone ever believe that increase would be temporary?)
--Three Californians skipped the vote: "Reps. John Campbell (R-Irvine), Laura Richardson (D-Long Beach) and House Speaker Nancy Pelosi (D-San Francisco) did not vote. By tradition, the speaker seldom does."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo: kevinmccarthy.house.gov

Comments

[Milla]

Darnell -- the only thing that's crazy is thinking that one size can fit all across RE markets. Homes in LA, NY, SF will always be more pricey than homes in Arkansas.

[sheila]

to be clear, the $7,500 tax credit is for YOU GUYS - THE NEXT CROP OF FIRST TIME HOMEBUYERS, not retroactive for the people who were first time homebuyers and got stuck. Why aren't you guys in favor of this?

[E]

$7500 tax credit!

Whooo Hoooo!

I can save more by using Redfin.

*After* the ARM resets that is.

[Julia]

What makes me angry about this bill are the write downs. It just rewards people for overspending and does nothing to prevent this problem from occurring again.

I bought my house in 2004 with 20% down, I did it buy saving and living within my means. I bought a starter home, and am building up equity. Even in this down market, if I wanted to move up to a nicer house, I have more than enough equity to put 20% down.

My neighbor's house in foreclosure. For the past 10 years, all this guy did was refinance. He even bragged about knowing a loan broker who could get him a 600K loan on a house barely worth 500K (and this was in 2006). This guy makes good money, and if he'd been responsible, he'd own his home outright. Instead, he had to have shiny new cars, boats, do all this home remodeling, etc. Well, he was out of work for 3 months because of the WGA strike, and now his home's in foreclosure. Personally, I think it serves him right.

The idea that the government could reward such frivolous spending by writing down loans in infuriating. These idiots caused this mess, let them suffer, not the tax payers.

[jb]

Milla,
5% is "fair" based on what? to who? Fine, you lend them the money with 5% down.

When they walk away when the house loses 20% of its value, do not ask the taxpayers to rescue you. The borrowers have to have some skin in the game, this is what got us into this mess (along with a ton of fraud).

[Laker]

Milla,
You are so wrong with your 5% down payment...
20% should be the standard, and only small amount of people need to have option to pay less than that. For example, super high credit score, very high and fully documented income and assets.
For everybody else, there should be minimum 20% down.
Even in your priceless LA, 20% is needed. If you think families with children don't have the money, then they need to rent and save.
They will collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment. Hopefully all the bad congress bailouts will be flushed in Bushes toilet veto, and price would be allowed to fall back to what the market will support.

sheila, the $7,500 bailout to first timers is a joke. Why?
1st it props up value for no reasons, and people that bought prior to it, would be unjustly screwed.
Then, if you buy a house in North Carolina for $100,000 then $7500 is a nice 7.5% of interest free 15 year loan....
However, if you buy in LA a house for $800,000 than that huge $7500 is barely 0.9% and will not even cover your first bill of property taxes....If you do such a thing, it should be proportional so that the buyer in LA will get $60,000 of free money to buy the $800,000 house.....i want to see this happens...Where is all this money coming from??? The fed's printers???

[arroyogrande]

"The idea that the government could reward such frivolous spending"

That's what the government *wants* to do. It was "frivolous spending" that gave us the "Goldilocks economy" (ie not too hot, not too cold) of the past few years. Sure, it was a fake economy built on a negative savings rate and easy credit, but many many people (including the federal government) think that they can trick American consumers into repeating the process (buying things they cannot afford)...and thereby bring Goldilocks back.

- arroyogrande

[arroyogrande]

"Many responsible, deserving people got caught in the first total credit meltdown since the Depression, and had every reason to trust that they could refi their ARMs just like responsible borrowers have been doing for 20 years"

For the past 20 years, people have used ARMs when interest rates were HIGH, so that the likelihood of a rate adjustment would favor a LOWER rate when the interest rate crisis was over. Remember 13% interest rates?

This differs from the current crop of ARM users, who used ARMs EVEN THOUGH FIXED RATES WERE AT HISTORIC LOWS! Getting an ARM when fixed rate loans were at historic lows means that you are GAMBLING; taking a risk that, even though rates are at historic lows, they will stay there! What kind of thinking is that?

If you want the payment guarantee that a fixed rate loan has, you GET A FIXED RATE LOAN. Otherwise, you get a lower rate on the ARM, but YOU take the interest rate risk...not the banks. Not a good idea when rates were (and still largely are) at historic lows.

Saying that they "had every reason to trust that they could refi their ARM" is like saying "heads, the homebuyer wins, tails, the bank looses". Some buyers thought they were *so* smart, hopping from ARM teaser rate to ARM teaser rate, all the while pretending that it wasn't a game of Russian roulette.

- arroyogrande

[Cal]

The size of the down payment should be determined by the strength of the borrower and the risk premium the lender is getting on the money. The biggest mistakes of the boom was not evaluating the strength of the borrower (no underwriting), not judging the value of the collateral (inflated appraisals) and not getting enough reward for the risk being taken (low interest rate).

It used to be called the 5 C's of lending, Character, Collateral, Capacity, Conditions, Capital in evaluating making a loan.

Character, how you deal with your obligations. It isn't just credit score but credit history as well.

Collateral, the value of what you are lending against. You need to know what you have as a backstop in case things go bad.

Capacity, how much available cash does a person have, how much do they make, how much are their monthly obligations, etc.

Capital, how much of a down payment is the borrower making, what assets do they have.

Conditions, the current lending enviroment and availability of money.

If a borrower is rock solid in every category but down payment.. well down payment could be reduced and require insurance or up the interest rate a bit. That would be smart lending. What is dumb lending was what happened during the boom where they threw out everything and thought they could model everything off of FICO (which can be easily gamed) and collateral value (which they clearly don't have a handle on).

I personally believe that if you are going allow low down payments the lenders really need to have a low front end ratio (how much in total the borrower will be paying towards housing). The reason for this is because buying a house for many is an incredibly emotional decision. And quite simply large financial decisions do not go well, once the emotions fade the bank is in a very risky position so they should make sure they have limited their exposure. Putting large sums of your own money on the line has a way of sobering people up quickly and if for someone reason it didn't it would still protect the banks interest.

[Cal]

The size of the down payment should be determined by the strength of the borrower and the risk premium the lender is getting on the money. The biggest mistakes of the boom was not evaluating the strength of the borrower (no underwriting), not judging the value of the collateral (inflated appraisals) and not getting enough reward for the risk being taken (low interest rate).

It used to be called the 5 C's of lending, Character, Collateral, Capacity, Conditions, Capital in evaluating making a loan.

Character, how you deal with your obligations. It isn't just credit score but credit history as well.

Collateral, the value of what you are lending against. You need to know what you have as a backstop in case things go bad.

Capacity, how much available cash does a person have, how much do they make, how much are their monthly obligations, etc.

Capital, how much of a down payment is the borrower making, what assets do they have.

Conditions, the current lending enviroment and availability of money.

If a borrower is rock solid in every category but down payment.. well down payment could be reduced and require insurance or up the interest rate a bit. That would be smart lending. What is dumb lending was what happened during the boom where they threw out everything and thought they could model everything off of FICO (which can be easily gamed) and collateral value (which they clearly don't have a handle on).

I personally believe that if you are going allow low down payments the lenders really need to have a low front end ratio (how much in total the borrower will be paying towards housing). The reason for this is because buying a house for many is an incredibly emotional decision. And quite simply large financial decisions do not go well, once the emotions fade the bank is in a very risky position so they should make sure they have limited their exposure. Putting large sums of your own money on the line has a way of sobering people up quickly and if for someone reason it didn't it would still protect the banks interest.

[Digitalian]

"Just because you can't make a 15-20% downpayment doesn't mean you can't afford the house - I am about to graduate from law school, so I don't have the cash for a down payment - but I do have a job that will pay be 160,000/year to start (with bonuses and annual raises) why shouldn't a bank be able to give me a 0% down loan?" ~WhyNot |

LOL. Throw another one on the endless pile of knuckleheads with law degrees that plague this country. The fact that someone can on the one hand have so little common sense and understanding of basic financial matters and on the other hand be entrusted with legal matters that potentially affect the lives of others is appalling and one more reason for people to view those in the legal profession with skepticism and contempt.

[Milla]

Laker: i'm talking about middle-class first-timers, not the folks who can afford that $800K house. it'd be nice if middle-class folks can "collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment," but when that range encompasses one's yearly salary and there is another mouth to feed, saving such a down payment in a few years just ain't gonna happen, no matter how frugally one lives. renter or owner, LA is still a pricey place to live.

sure, the borrower should meet some stringent guidelines and be a good credit risk, and folks who are trading up should have that 20% down from the equity of their last house, but to say that all of LA's first-timers should cough up 20% would make ownership available only to an exclusive few. that's why 5% makes more sense.

[Cal]

The more down you require the cheaper housing becomes. So the effort of bringing housing to lower income people you then make it more expensive making it harder for lower income people to afford. Then the government starts to subsidize housing because it become unaffordable.... which makes it more unaffordable! Requiring a solid down payment ensures stable homeownership. People sacrificing to save won't take lightly the sacrifice they made to get into a home.

[E]

Milla said

"but when that range encompasses one's yearly salary and there is another mouth to feed, saving such a down payment in a few years just ain't gonna happen, no matter how frugally one lives"

well...they should save more. they shouldn't have popped out that snot nosed kid that they felt "entitled" to just like a 5% down loan.

People who think like that shouldn't breed.

[shockg]

to be clear, the $7,500 tax credit is for YOU GUYS - THE NEXT CROP OF FIRST TIME HOMEBUYERS, not retroactive for the people who were first time homebuyers and got stuck. Why aren't you guys in favor of this?

Posted by: sheila | May 09, 2008 at 05:39 PM

Sheila, its very simple. Many here own or have owned before. Very few of the posters are first-time buyers.

[shockg]

"It will not deprive you of your god-given right to a super cheap house in an amazing neighborhood in a very competitive part of the world - because that right does not exist. "

Well said Shiela

[Milla]

if you consider your average starter home in LA county to be $500K, then 5% down is $25K -- quite a substantial sum for the working-class folk, enough to get some "skin in the game" as y'all say. and when weighed against one's credit score, employment history and those super Cs, a stable homeowner can be born.

[Red]

Laker- Let me first say that I am someone who bought that small starter home with a 30 year fixed and drove an old Honda when everyone else was using their homes as an ATM, so, by and large, I agree with everything you're saying, HOWEVER....when you said: "If you think families with children don't have the money, then they need to rent and save. They will collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment" ....What world were you living in??? Have said this before...sorry for the repeat...but, Ivy League education, followed by law school and 25 years with excellent job in Finance....ZERO debt....that includes NO credit card debt, and no car debt....Honda's paid off loooong ago. Wife had a lucrative career as an Art Director in LA before we had our children. We wanted her to stay home with the kids, but the truth was that daycare in Thousand Oaks was more than she would have been making at her job after taxes!

We are SAVERS and saved every penny. STILL...with rents what they are in LA???? Who are you kidding that a FAMILY with KIDS can save $100K in a *couple of years* for a 20% down??? Our first house was $300K in 2000. That would have meant a $60k down payment, which we NEVER could have saved AFTER TAXES in a *couple of years*, and we had been married and saving for over 10 years when we bought our house! After extremely high rents in SF and LA for 1 bedroom apt.'s, and other bills forget it! ...and we didn't have children until late 30's and then it became even harder to save. We put down 15K and lived WAY within our means, refinancing ONLY to get a lower rate. Thank God it wasn't more, because that tiny 50 year old house just about wiped us out with repairs and *surprises* those first few years (despite a thorough inspection process)!
Always paid mortgage on time and have excellent credit.

And that house in North Carolina that you're talking about?? Well we sold at the top of the market and moved to NC last year, and houses here are more like $400k not $100k!! And don't believe what they tell you....the cost of living is EASILY just as expensive as CA. In fact, I have found most things like getting my hair cut and food, to be MORE expensive. The ONLY difference is that you get a lot more house for your money....but you also don't make as much here as in CA. For people who aren't coming from the N East or West with a boat load of equity, it's very expensive.

For the record...I am a left wing Democrat, but was one of the *responsible people* and I am disgusted that now my tax dollars are going to bail these people out. While I was changing the oil in my own 12 year old Honda, my neighbor was driving the SUV and taking trips to Hawaii. Now that the bank won't finance their living above their means...I get to??? No thanks!

[Red]

When we sold our house in CA and moved to NC last year, we bought just about cash. We wanted a TINY loan so we could keep more of a *cushion* in our savings in case of emergency...

Even with an excellent credit history and score, and a 99% down payment on our house, we couldn't get a loan to save our lives...and this was BEFORE the credit melt down.

We were told, LITERALLY - I'm not making this up - that they wouldn't give us a loan because we (quote) "DIDN'T HAVE ENOUGH DEBT" !!!!!!! We had about 6 banks and major lending institutions tell us that they would ONLY give us our loan if we (QUOTE AGAIN>) "Went out and bought 2 NEW CARS"!!!!

I was HORRIFIED and told them that we'd worked VERY hard not to have no debt and weren't we a much HIGHER RISK if we had two car loans to pay off as well?? Didn't the fact that we didn't have any debt make us a safe bet?? You KNOW we'll be able to come up with the monthly payment! NOPE.

The bottom line...Corporate America, the Banks and our Government WANT YOU TO BE IN DEBT! The deeper the better!! You will have no leverage, you will be chained to their system and you will be POWERLESS.

We were able to say *screw you*, we won't do it, but how many people can do that??

Now, as a saver...my savings acct. has dropped to a .70% interest rate....thanks...punish the savers and reward the people who live above their means.

[shockg]

Milla, I agree that 20% is too high for pricier areas like SoCA. 5% might be too low and expose the lender to too much risk. 10% is more reasonable. $50K is alot of money but the road to home ownership is long process. If you start saving at 25, after 5 years or so it's possible to save $50K. That would put you in your first home at 30 which is a reasonable age.

[jb]

Great Milla - you make the loan. As long as the banks take the risk I dont care if it is 0%. But I sure as hell dont want to have to rescue them when prices drop and they claim to be "too big to fail". The banks had army of highly paid risk assessment professionals and floundered. Politicians take note, we are watching, this will be your last job if you back a bailout.

Milla - go ahead and verify (we already know it), you work in real estate.

[Bartletto de Carmel]

20% down was a rule of thumb for lenders but somewhaere along the way this changed - perhaps enforcing good practice by making it mandatoey is the only answer - yes, government telling the market that they can't ruin the economy in the name of yet another short lived golden egg.

[Laker]

Milla,
$25,000 is nothing. It is the price of honda civic....
If the house you buy cost $125,000, then i agree that $25,000 is a nice payment. However, when you want to buy a HALF million Dollars house....you better have $100,000 cash in the bank. If not, you have no business buying HALF MILLION DOLLARS house.
Why then most of buyers prior to 2001, where putting 20% on average??? even in LA....why?

[1st time buyer]

write your representative to put the pressure on to stop the madness - I just did - it takes 5 secs:

https://forms.house.gov/wyr/welcome.shtml

[Milla]

Lakes: $25K might be nothing to YOU, but you are someone who sold your house at peak. understand that $25K could be a boatload of money to a first-time homebuyer.

i know a couple saving for their first home. she's a school psychologist; he's a public defender. they make a modest living. they love their jobs. they pay their bills on time, some of which are student loans for his law school. they would be well into their forties by the time they saved that $100K for their first home. i'm talking about people like these, who are good credit risks.

i certainly didn't have 20% when i bought my home (though i did have a down payment), and i can assure you that my current attitude toward homeownership would not have been more "invested" had i had that 20%. i would venture to guess that creditworthiness is a greater indicator of a stable homeowner than down payment.