Here’s some financial facts, tips, and hints for Americans during the coming days…
Recession is normal. It’s healthy. It’s a correction. You can’t live in an economy that grows at a constant rate without receding at some point. Fact of life. Better yet, scientific fact of economics. The key thing to look for – and hope for – is that you don’t recede past your most recent surge.
Stop panicking.
Mortgage recovery… holy shit does this piss me off. How can I be so cut and dry about it? It’s easy, but the truth is that my reaction is hit and miss. Obviously people are having trouble keeping their roofs over their heads for a variety of reasons, but the majority of them have little to do with “hard luck”. It has to do with stupidity, plain and simple. For the people that have lost their homes due to job loss or some other unforeseen reason – disaster, fire, lost gobs of money by financing Rudy, whatever – they should get aid. The fact that our government is offering support at all is good; I hope that people like this get the biggest chunk of it.
For people that planned poorly, however, you shouldn’t get a dime. How can I be so “heartless” about it? That’s easy. When I had to get a mortgage, I considered a lot of things… what could I afford, what did I want to spend, etc. I did my research. I came up with a number. The mortgage broker asked me if I wanted a fixed-rate mortgage or an ARM. I asked what an ARM was. She told me that it was currently a mortgage with a lower rate, but that rate could go higher or lower, over time. Now, since the mortgage for my first townhouse taught me that it is legal for a bank to legally extort three times the amount that I originally borrowed over 30 years, I knew that the rate on an ARM would never go down. It might stay the same; odds are it would go up. How high up could it go? The broker was kinda hazy about it.
So, I went with the more expensive fixed-rate mortgage. For the last three years, I’ve been making my mortgage payments. Yay for me.
Of course, during that same period of time, the economy changes – as it always does – and the ARM rates have started to go up. A lot. People that gambled on the ARM reacted in shock. Disbelief. Statements like “my rates went up!” were heard on many levels of society. They pestered the government, whining, screaming, and crying in their beers… reminded me of people in the 80’s that racked up mounds of debt on credit cards and then were shocked that they not only had to pay it back, but they also had to pay more due to interest. Same exact mindset…
But this time… this time, the government acted. Much… To my… Chagrin.
The people that gambled on an ARM – and have been paying a much lower payment than me these past years – are now being rewarded for their irresponsibility. They overextended and now they get a pat on their heads for it. Does this mean I should have gambled with an ARM? I don’t think so: it was a losing proposition. Who ever heard of a bank taking action to give people more money? The only rate a bank has lowered on their own accord is the interest rate on savings accounts. They simply do not lower mortgage rates – not without the Fed getting involved and certainly not once they get your business. Now, here’s the funny part: the money that I’ve paid in taxes… at least a part of that is going to be used to help bail out these people… because that just makes sense.
Gas, at $4/gallon, is still cheaper than what Europe has been paying for years. Sorry to say it, but, in a word: deal.
Don’t get me started on the “stimulus” package or the fact that we’re still paying people to have kids…
AMEN! I too went with a fixed-rate mortgage and with this being my first house, I am extremely happy my lender was bright and honest enough to say “you may save money now, but my gut says that a lot of people are going to get screwed with an adjustable rate”. I didn’t understand this at the time, but it is really sad that people have no sense about money in this country. We don’t need to be handing out 600 dollar checks, we need to teach people on proper financial planning!
Gosh, Randy … you sound like one of those retirees in Florida who wears his pants too high and complains about the government all day. :-)
“Hey you kids! Get off of my lawn!”
Maybe, except my points are valid :)
Yes, I agree. They are valid.
Stupidity can be avoided with some basic research. When I started house hunting for the very first time two years ago, I avoided a lot of pitfalls by reading books aimed at first-time homebuyers who have never gone through the process before. As to why many other people got suckered? They were probably too headstrong and gullable. Or perhaps there was some reality distortion field from inside the real estate bubble that clouded the minds of these people? Only the shadow knows. :)
However, one of the hard luck cases you mentioned actually happened to my brother. He bought a brand new townhouse in Endicott NY, and then lost his job at IBM five months later. Since Endicott was and still is a one company town, he was worried he wouldn’t find another job locally and lose his new townhouse to foreclosure. He eventually found another job in LA, relocated and sold his townhouse for less than what he paid for it and avoided foreclosure. That’s why living in places like Seattle or Silicon Valley is so great. Since there are so many companies around, a geek can easily find another job within commuting distance by just walking across the street to another company.
Here’s a story of a real person who is facing foreclosure.
http://www.nytimes.com/2008/01/15/us/15mortgage.html
“He said the rate was adjustable but in six months you can refinance,” she said. “But I never did. I didn’t ask why I didn’t get a fixed rate from the beginning.”
I admit it’s probably her fault for not refinancing after six months, but I wonder if subprime lenders deliberately steered people into getting adjustable rate mortgages??? These lenders kind of remind of me of Art Fern: “Got no job? We don’t care. Got a bad credit rating? We don’t care. Got a prison record? We don’t care. Don’t expect to pay us? THAT’S when we care!”