I'll skip over her solipsistic little intro in which she explains her own sacrifices to live within her means. What she is setting up very obviously is: I was smart and even noble to suspend my gratification and avoid this fate; hence anyone else who has to suffer it must have fallen into the temptation I avoided because they are simply not be as smart or noble as me, so screw them. I hate this argument. It's a suitable kind of argument for adults to use on children so long as they have all the facts. But to treat another adult with such disrespect based on casual assumptions, that's just lousy.
She lays out the problem starting in the fourth graf:
Metro Milwaukee, like many parts of the country, is experiencing a rash of home
foreclosures. More than 4,000 area homes already have entered foreclosure, and
more are sure to follow. Experts predict that this month will see a tidal wave
of foreclosures...
Okay, so that's the issue: a "rash" and expected "tidal wave" (neither assessment controverted) of people losing their homes, evicted, and sent looking for substitute housing. There are numerous aspects to this she does not mention: some are losing long-term, even multigenerational homes; many will be unable to shift to a new site without substantial loss of personal property stored in their homes; many are innocent children; many are old and infirm; also innocent will be the neighbors, who see their neighborhoods fill with foreclosed board-ups and see their own home values and quality of life crash. So it's not just, I have to relocate to the smaller home I should have had all along. It's more like a hurricane hitting the inner city. Oh yeah, she does not mention that the people she is calling worthless and stupid are largely black.
Continuing:
...as $50 billion worth of adjustable rate mortgages will reset at a new, higher rates.
President Bush waded into the fray in late August with a series of proposals designed to help homeowners avoid foreclosure. Among them is an initiative called FHASecure, which will, according to a government Web site, "help people who have good credit but who have not made all of their payments on time because of rising mortgage payments." Bush also vows to strengthen mortgage lending standards because some borrowers were placed in "sophisticated products they could not afford."
True as that may be, the problem, in my opinion, doesn't lie with predatory lenders.
So we get fact number 2: Predatory lenders peddle sophisticated financial products that involve escalating mortgage payments. The mortgages go up because the interest rates adjust. The new products include things like the "Option ARM" an adjustable mortgage that doesn't just kill its host parasitic and usurious rates that blow up bigger and bigger as they consume their victim. This evolutionary offshoot hooks its victim with the lure of low optional payments that do not even cover the monthly interest, so the amount of the loan increases every cycle. Then, when a pre-set limit is attained, the monthly payment suddenly and violently expands. Of course one of the reasons black folks are so readly preyed upon by this invasive species is that the predatory lenders are now engaged in reverse redlining. Instead of denying financing to low income minority neighborhoods for fear that the loan will be too risky, they fish particularly in these waters, recognizing the potential to reap windfalls from foreclosures.
Then we get:
...The problem rests squarely on the shoulders of homeowners who bought homes
beyond their means. It's your job, not the bank's, to make sure you can afford
the house you buy. To check and recheck the numbers. To have a backup plan, just
in case.
So, it's the buyers who did this to themselves in the buying. Except that's not where most of this comes from at all. Many homes are acquired in probate court or in a divorce proceeding, or are financed reasonably when first sold, but get into problems after a refinancing. The refis are often designed to withdraw some of the equity because of an unforeseen crisis, maybe that aforementioned death or divorce, which led to a diminished household income. This may be abetted by an ex-spouse's failure to pay child support or required maintenance, or by legal or medical bills. The largest number of people who lose their homes have some medical issue at least contributing to the loss. But of course, Ms. Fink's stern analysis is drawn from the same ideological greasetrap as George Bush's statement that sick and dying children can always report to an emergency room, so no one really lacks for health care.
How many people "check and recheck the numbers"? How many people know how? Ms. Fink posits an unrealistic ideal world in which capitalism always works, in part because the consumers are always perfectly informed and the cost of becoming so informed is zero. It is absurd to imagine that the best system would actually be one in which the consumer, who engages in these transactions rarely, would have absolute responsibility for his or her choices and should be required to read and understand what are often dozens or scores of pages of legalese, recognize their consequences, and master the market well enough to know when a better deal will be available, as opposed to being entitled to rely on the representations of the other party, who is a sophisticated, repeat player, without discovering later that he or she was misled. The freedom to make necessary decisions without weeks or months of research is simply more important than the freedom of either winner or loser to make grossly unfair deals.
In fact, the law is not buyer beware, but that contracts may be set aside when the consumer is tricked or pressured. Lawyers who deal in this area frequently encounter the octagenarian widow who was tricked into signing onto an unconscionable refinancing arrangement. Her fault, we are to suppose, that she had no back up plan.
But even average consumers make costly mistakes. They don't sell insurance against the inevitable bouts of fleeting stupidity that most of us suffer. But it would be nice if people were protected against making mistakes that were too stupid. In most areas of life we do this and it's for the better. The friends and relatives of stupid people, and those of smart people who experiment with occasional stupidity, are usually thankful that some rules, social or legal, stand in the way of letting their friends injure themselves too badly. It's the friends and loved ones who have to worry, and who are going to be called on to bail out the unfortunate one whose foolishess leads to a loss.
(And in an ARM, what is it that you are supposed to check? Nothing more than the fact that it is an ARM. You sign up at 7% and the increases begin and soon you are at twice that. Rates that were once illegal. There are no numbers to check in the original deal. It is a provision that is bad.)
Then we get to the part where Fink finally says, I'm better than you; you deserve to lose:
...Economic reality isn't always easy to swallow. By all rights, we should be able to buy a nice home in a new subdivision. ...But while we're content to remain in the home we can afford, many people are not. They see nice homes and think they should have one, too. More often than not, home-buyers stretch to reach some unobtainable version of the American dream.
As a nation, our expectations have changed tremendously over the years. We used to need a roof over our heads; now, we need a roof, a media room, a master suite and a three-or four-car garage. The average new home is now 2,459 square feet, up from 1,695 square feet in 1974. Families, meanwhile, have gotten smaller.
Stretch if you want to for your dream home. Just don't come crying to me when the mortgage
turns out to be more than you can afford...
Now in this last turn, the errors of Ms. Fink are finally exposed as being a full-blowin psychotic break. Apparently, she thinks the inner city where the foreclosure crisis is destroying already fragile neighborhoods is populated by people who each made the mistake of building his or her "dream home" in "a new subdivision." I guess then they just woke up a while later and discovered that their "four-car garages" were suddenly in the zip code of Milwaukee with the highest crime rate, surrounded by run-down $50,000 houses.
This isn't about subdivisions or newly built homes. The only new houses in my area were built by Habit for Humanity and they are not too much more than a roof. None have garages. The fact that people who have the money are building larger homes does not say anything about the people near me. All it means is that the as smaller homes in my area get boarded up or burn down, the housing supply shifts in favor of larger homes. The disparity in wealth is increasing, and it is the rich more than the poor who build homes. This trend presses buyers to find something larger than they need because that is what is available. (The alternative, sharing, is just not palatable to or really feasible for a lot of people.)
They are, true, taught to expect better for themselves. They look at their neighbors. They are told incessantly be optimistic. They do not often hear the truth about how limited their expectations should be. And once in a deal they are stuck there.
But it is not so much that those expectations are unrealistic as that prices are. One may think of a person only able to afford a $50,000 home who foolishly buys an $85,000 home. Another way to view this is a person who can afford a $50,000 home, finds what is really a home worth $50,000, but is told that it now costs $85,000 due to a runaway market. Not to worry though, financing is also easier. By the time the person faces foreclosure, they have already strained and sacrificed to pay excessive interest. They are being milked dry. So they have given enough, and the predatory lenders have gained enough. Why is housing overpriced to begin with? Because of speculation, and the fact that lower income people are economically unsophisticated as a class means that it is not economically advantageous for those who could develop the stock of low income housing to actually do so. They can usually be sold something worse and drained the limit of what they will bear anyway.
Anything else I have not covered?
1 comment:
Yup. Not that it will cheer you up. We talk about the purchase mortgages, for which defaults which are pretty much allocated by income (although the ability of rich folks to get overextended is impressive; count the number of expensive houses in Waukeshaw and Ozaukee Cos. that are furnished with a few bits of lawn furniture).
But there are also the home equity loans, which have been enormous. Now, what's the cap on a HEL? Why, the equity in the house. So for most middle-class whites, that's value-mortgage=equity. But blacks, for a long time, couldn't get mortgages. So they were far more likely to own houses free and clear. Value= equity. Places like Detroit had very low mortgage numbers until the mid-1990s.
Once the originate-to-sell model caught on, it didn't take a genius to realize that you could do huge HELs on unencumbered houses...owned by African Americans. Voila. $1bn into Detroit, at least half HELs. Much of that $1bn is going to be extracted from Detroit soon, because it's not like it needs it or anything (looking at it and thinking: this just got $1bn in fixing up...is a depressing thing to do). We are going to disproportionately extract this from blacks.
What I wonder- and have never been able to get answered- is what the anti-redlining policies did to contribute to/ block this. I have the awful feeling that all those bad HELCs were getting counted as community investment.
Post a Comment