Lately in the News, the Bush Administration and Congress has been proposing various measures to address the SubPrime crisis in the Housing Industry.

Among these proposals is a "rate-freeze" which would essentially force the companies holding sub-prime mortgages to freeze the rate for several more years so that the people who signed up for those would be able to make their current mortgage payments and stay in their homes. Many critics content that this proposal is only too small of a measure to fight a much bigger problem. The other problem with this proposal is that it would hurt the credibility of Financial Institutions to make contracts down the road.

Another proposal that many people in the general public are downright opposed to is an outright bailout of the entire mortgage industry. If such a bailout occurs, the general public could be faced with either much higher taxes or unprecedented inflation. And then there is the moral hazard of making more financially responsible taxpayers like myself to subsidize the fraud and financial recklessness of others.

None of this is to say that America should let the Con Artists and Speculators off the hook. Those people should be held responsible for the cleanup of this SubPrime mess. That includes the demolition of vacant houses, restitution to the investors, and relocation assistance for those who recieved eviction notices.

To prevent such a mess from occurring in the Future, here are some things that the Government, and the Public can do differently. First off, we have to occupy our landscape differently. With 5% of the world's population, the rest of the World is not going to let America get away with consuming 25% of the world's oil production. That means that the days of the 30 and 50 mile commutes to work will have to end at some point. Also, the excessive Suburban Development has led to severe water shortages in the SouthEast. The local city governments are going to have to figure out a way to build affordable apartments inside the city borders so that people don't have to choose between a 50 mile commute or an overpriced apartment on Park Avenue.

So the question for debate is
Should the Federal Government intervene in the SubPrime mortgage mess?
Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?

Should the Federal Government intervene in the SubPrime mortgage mess?
No. Let the market correct itself. I have sympathy for people who got stuck, but there never has been, nor likely will be, a cure for irrational optimism. People need to understand that over the last 50 years there has been a dramatic decline in the affordability of homes, and reason needs to exercised when making (what for most people is) the most expensive purchase in their lives. Instead of a bailout they should encourage the correction by also doing away with the mortgage interest deduction at this opportune moment. Increasingly, many people won't benefit from it as much any more anyway because of the AMT. Perhaps if they got rid of those deductions, they could also get rid of the AMT. Now that would be real tax simplification.

Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?
I am unaware of the rent crisis you refer to, but if there is a high-cost issue, it would be tied to real estate prices generally, and although in the short term, a real estate correction might actually escalate rents, in a protracted correction I would expect rents to also eventually fall.

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People seem to forget that although home ownership per capita has remained stable or grown slightly over the last few decades, it has persisted by squeezing buyer lifestyle and finances to the limit: (1) there are dramatically larger numbers of multiple income buyers needed to afford a purchase today than 50 years ago, (2) the number of owners who are simply investors has risen from 6% of the market 20 years ago to 25% of the market today, (3) banks continually introduce new financial products which deftly obscure rising unaffordability, allowing more and more people to get into homes who would otherwise not be able to buy. Ultimately, the basis of affordibility now is increasingly pegged to expected appreciation as well as new financial instruments which can harness two or more incomes to both dilute the burden of the cost of real estate appreciation, and ironically, also fuel the growth of that appreciation.

As you can probably tell, I view affordability as not just the ratio of monthly payment to monthly income, - it makes more sense to me to look at the the total purchase price as a ratio to one's income and compare that to historical norms. If the median cost of homes in the 1950's is compared to median income then, homes were only about double the median income. Today, the median cost of homes is 4 times median income, and in major urban areas that difference has grown to a staggering 5-15 times median income.

As I pointed out, part of the problem grew over the years from the increasing numbers of two-income buyers, emerging mostly from the natural coupling of people in matrimony, bidding up the market. In the 1950's two-income buyers were much rarer. Now, the cost of housing builds that statistical reality into the cost, making it nearly impossible for all but the wealthiest individuals to buy, or at least buy rationally. One has to ask though, now that two-income buyers are the new norm, where is the next step in "multiple incomes" to come from that will continue fueling housing appreciation? Polygamy perhaps? A joke of course, - more likely banks will devise yet more financial products allowing couples to partner with other investors, thereby insuring individuals are served smaller and smaller shares in equity and sense of ownership. In very expensive locations like New York City or San Francisco, such experiments already exist.

Here is a longitudinal example of the basic affordability problem: my father immigrated to the U.S. in 1950, and within three years bought a 4 brm, 2 bath, 3 level detached home with large yard for about $12,000 on an income of about $5500 (close to median) in a suburb of Washington, D.C. That same home now is estimated to be worth $640,000 in a suburb where the median income is about $53,000, (most improvements were minimal, and mostly maintenence). The home is valued at 12, not 2, times the median income. I would argue that represents a large decline in affordability, despite the fact multiple incomes and financial instruments may create the illusion of affordability by keeping monthly payments within monthly income for a potential buyer. Home affordability has been steadily declining, not rising over the decades.

Bailing out buyers and banks to try and stabilize a bubble only delays the inevitiable.

Other than a rate freeze, I would have to say no. As metropolitical pointed out, these people got themselves into it, they can live with a market adjustment. If we are to truly live up to our economic ideals, we will let this thing play out and who knows?, there might just be a business or two that prospers from helping folks put things back together again.



I had no idea there was a rent crisis. If rent is too high, buy a run down building, have it renovated, and load it up with renters so that you can live in a high rent area. If a person is young and single, I see no reason why a few workers couldn't split the cost of a given place if the commute is a long one. The suburban home might not be everyone's desire in life, folks will choose what htey want. If a suburban home makes them happy-great!. If they want a high rise loft in an old industrial building-more power to them!.

On a different note, we are in a big crisis mode here. The banks know it, which is why they are coordinating a multi-billion dollar propping up of the industry. Heck, gifts from the Fed can't even make things look good.

I don't think there is one. It's my understanding that one of the ways to identify housing 'bubbles' is the price to earnings ratio, determined by the cost of ownership over the cost of renting. When the price of ownership gets much higher than the cost of rent it can be a sign of problems (too high housing values). We've been in that bubble for a while now.

I fully support the rate freeze myself. Something must be done to ease the impending pain. Look at the lost decade of recession that crippled the Japanese economy. It didn't effect only the speculators. Only very myopic vision can conclude that only those who are 'stupid with their money' will be effected by this. The decline in wealth from a housing crash will hurt the banks, the dollar, and almost certainly hurt consumption as well....and the effects of that might even be worse here than in Japan, because consumption accounts for a greater part of our economy than Japan's. And U.S. consumers are also the driving force of the world economy, so hold on tight I think we're in for a bumpy ride.

There isn't a rent crisis per sé. Certain urban areas, such as San Francisco, are seeing a tight rental market and prices are going up. However, I anticipate this being temporary as the housing market retreats. The outlying (read: suburban) areas are already seeing significant declines in housing values; this will act as a draw for both renters and potential buyers in the urban areas when the P/E ratio is low enough. People who bought into the suburban market who are over-leveraged anticipating increasing valuation will be the losers.


I don't support the rate freeze at least not without significant strings attached. People should not get a free ride after committing irrational financial speculation. If the goal is to ease the impending pain, then forcing these speculators into some sort of bankruptcy plan would be appropriate. This will force the home owners to create a budget and a savings plan; it will show up on their credit report.


But, recession may be just what the doctor orders: at least a mild recession. US consumption is, perhaps, driving the world economy but debt-based consumption (which is what we have) is untenable. Growth for its own sake is not necessarily good; at some point, the debt will need to be serviced. The longer we postpone, the worse the inevitable crash will be. Applying band-aids on top of band-aids is not a solution.

Should the Federal Government intervene in the SubPrime mortgage mess?

Unfortunately, the federal government will probably have to intervene. Clearly, the industry has created a system allowing irrational behavior to occur in the market. The first step should be to investigate the collusion between brokers, assessors and mortgage holders to artificially raise the values of housing. I believe once this rock is up-ended we will discover a vast amount of criminality. The second step may be to introduce some sort of...shudder...market controls.

Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?

I don't know how this is related. Most of the speculation seems to have been in the suburbs and in vacation homes.

The Government is generally not concerned with the individual but with groups. While many of us feel that people who were stupid about/with money are simply getting what they deserve the truth is that people who have done nothing wrong will be getting what someone else deserves as well. The housing crash will hit all sectors of the economy from people losing their homes to businesses buttressed by home equity closing. As such the Government caring for groups as it will it must intervene to soften this blow.

As for the second question which seems tied to your yearning to make cities even more crowded than they already are. No.

Should the Federal Government intervene in the SubPrime mortgage mess?

Um, yes, simply because, left unchecked, we could very well end up in a great depression style economic event. Poeple weren't "over exuberant"- they were desperate- HUGE difference. I took a sub-prime simply because it was the ONLY way to save my house, and my family, after my ex walked out. Blaming the homeowner is really like blaming the rape victim for wearing too revealing of clothes.

This reminds me very much of the debate a year or so ago on personal bankruptcy- we were all talking about "folks running up credit card debt for parties and caviar"- when it turned out that over 80% of personal bankruptcies are from runnaway medical bills.

Sure, homeowners have some of the blame here- but who blames a person for buying a home instead of renting?

I would have refinanced with good credit a year ago if not for a divorce which pretty much always kills your credit.

What really torques me off is how they are allowed to keep selling your debt, and you are never with the same institution for very long.

I am more in line with liking a home-owner bailout, rather than a direct mortgage industry bailout- allow goverment backed loans to homeowners in distress, on a fixed low rate, that allows them to keep thier homes, and then pass laws against sub-prime loans in the future.

I don't have credit card debt or any other kind of debt for that matter, other than a small truck payment- but I am still afraid of sub-prime coming up to bite me in the butt.



Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?

I think this is pretty much been out of control of the average homeowner- and the idea that this is for speculative investors needing a wake up call in regards to owning income property- that is a straight up lie. Anything over a four plex you have had to have COMMERCIAL lending- NOT homeowner lending- you need 20% down and you must base your income on an 80% vacancy, or even lower, to obtain the commercial loan funding- it is much more safe than sub-prime single family home buyers, for the lender or underwriter as they call them today.

There is going to be a MAJOR rent crisis if we have a homeowner blowout, and folks need a place to live. Where are all those units going to come from?

I'm sorry about your troubles, CR. I must wonder at how you financially justified getting the ARM when you knew the teaser rates would time out. If you couldn't afford the loan, then you really should have found another way. However, the loan market offered an "easy" way out: this easy way out should have never been available.

Still, because the valuation of the real estate itself was artificially inflated, you cannot be held entirely accountable. You were a cog in the wheel of the runaway market.


Property is an investment vehicle: nothing more, nothing less. Treating as anything other than that is part of the reason why the housing bubble...well...bubbled.


I don't understand why that's a problem for you.


I'd hate to pass laws preventing subprime loans. Instead, make so you can't offer teaser rates to high risk borrowers.

As for a "bail-out"... Even if you refinanced these homes to be fixed, low interest loans, you will still have two problems. (1) The houses are not worth what they are valued at: it'll take years for real property values to catch up. Thus, the home owner is locked in (no changing jobs). (2) Payments will go up for that loan. The teaser rates are often interest-only (or even below interest-only); a fixed loan will have no teaser rates meaning payments will be based on both interest and principal. Thus, a subprime borrower may be unable to afford the new rate.

I was only using myself as an example, not neccesarily because I am in a bad way- I have hedged my bets in other areas, so to speak, without going into tons of personal details.

It is just this notion that somehow it was irresponsible behavior on the part of the homeowner, that really chaps me.

Real estate is possibly the most complex deal that a non-investor or non-market educated consumer will ever face. There are catch and buzz words that most don't know the lingo for, and are mostly needlessly complicated just to confuse. How many poeple really know what "points" are when it comes to loan origination costs, or know the fine print regarding penalty for early payoff (which I think should carry hard criminal penalties for even TRYING to do) -

So, with all the huge volumes of info and real estate buzz words- it is very easy for a person, thinking it is not much more complex than a car loan, to get into something they had no idea they were getting into.

IT IS NOT "speculators or investors" that will be needing to have some sort of remedy here- they have much stricter controls for commercial lending- it is the typical single home buyer that didn't realize that his mortgage will go up 500 bucks a month or more in two years.

So, you have basically two options

1) allow the market to tumble, and "reset"- however- this is the kind of large scale problem that could literally lead to a global depression.

2) Freeze the rates, or better yet, allow goverment backed refinance to anyone that has this problem, and has lived in the home more than two years, but perhaps make it very conditional, that they can't pull out new credit cards or something along that line. +

I have been arguing the option (2) won't achieve the result you wish it to.

Perhaps not- what is the alternative?

I have been through one housing bust- not pretty, and if on a national scale, could actually be a big time national threat, no foolin'.

Poeple get real freakin' edgy, dangerous and sinister when faced with no work, no place to live, a crashed economy, and hungry kids.

This housing downturn is significantly different from any other in recent history. Most housing downturns are "local", that is, they are job market related. This downturn on the other hand has little to do with the job market and is national (even international). We are seeing the results of (likely criminal) over-speculation in the housing market due to unsecured credit.

If people default on their loans, it will be bad but it doesn't mean that people will lose their jobs. It doesn't mean they won't be able to find alternative housing. There will be a lot of housing available after all.

Some solutions:
1. Allowing people the protection of bankruptcy -- chapter 7 and 13 -- will greatly lighten the load. This will force people to get out of debt and commit to some sort of savings plan.
2. Reassess the property at its real valuation and force mortgage holders to write off the loss. Once the property is reassessed, allow the debtor to determine whether if keeping the property makes sense and if not, bail.

The reason that I brought up the idea of a possible rent crisis in the cities is because in many cities, apartment rent is unreasonable as in a 1-bedroom apartment going for $1000/month. Just look at the homeless epidemic in our cities. Why were Real Estate Companies putting up McMansions instead of affordable apartment complexes? I'm not advocating making the cities more crowded. I'm advocating that America chooses more sensible development patterns than this illusory pipe dream of Suburban Sprawl.

And a Global Depression will probably come regardless of what we do. The Chinese and the Japanese chose to systematically destroy American manufacturing by undervalueing their currencies. Now that the Dollar is falling, their decision to help destroy American manufacturing jobs will bite them in the rear. I have no pity whatsoever for the Chinese or the Japanese.

didn't GW and co already tighten up the bankruptcy so you pretty much owe the rest of your life anyway?

I am not sure if bankruptcy will be an option for many of these folks.

I can sympathize with your situation, but I'm not sure where you're coming from, CR.

People took out loans on homes bound by certain rules on a contract. The time to question things would be when you're signing them. I mean, buying a car sucks too, but the last friggin thing I want is regulation from the federal government. I have a right to research it, ask questions and get answers. And look at the competition. BEFORE I sign.

Hire a real estate attorney. That's what they do - they make sure you don't screw yourself.

I can't defend myself in court worth a darn, and a non-lawyer or a non-court educated guy would greatly profit from consulting an expert in the field.

What kind of person takes what we both agree is the biggest financial decision in their lifetime so senselessly that it breaks them in two years? I could make a decision like that in 10 minutes, cross my fingers and hope for the best.

Shiesty loan officer: This is the best loan EVAR! I SWARE!!
Me: Really? Why?
Shiesty lan officer: You'll save TONS of money
Me: For how long?
Shiesty loan officer: Well probably....
Me: Sounds like you should go through all the different loan programs available. And they better be good, because I'm going to go to your competition as well. So whoever gives me the best information, and can offer the best program on MY needs. And since you didn't ask what MY needs ARE yet, I have a feeling we may have a very short conversation.

Or even ONE question!! During ANY part of the application process. Especially since you carve out an hour of your life SIGNING the stack of papers.

Shiesty loan officer: Your payment will be $500.00 a month
Me: Really? For the whole loan?
Shiesty loan officer: Welllllll..... you see....

Do you see why, while some people looking for the cheapest loan obviously didn't care about risk? They FELT like gambling, and they lost. Badly. Because they couldn't afford a penny more THEN, then act surprised NOW?!

I blame the person who signed a contract they didn't understand. Or a contract that might have the possibility of bankrupting them.

You told your story, which was pretty noble, so let me tell you one that's going on here in Arizona. I wouldn't mind the government passing rules by your situation, but what YOU went through CR is not what I think is typical.

've read about several true stories of bad-credit deadbeats who "bought" homes on subprime loans, simply because they couldn't pass credit on a rental house or apartment. In other words, we've gone from a situation where, in the old days, if you had bad credit, you were excluded from buying and were forced to live in an apartment. In modern-day Arizona, we have a very ironic situation where bad credit excluded people from renting but allowed them to "buy" on sub-prime loans. Yeah. Wait... what?

Of course, the money they saved initially allowed them to afford the minimum payment on their "no money down" BMW, and continue their luxury status filled life until the Market changed. Then OH NOES!!! We'll be HOMELESS!!!

Bye bye, house. Bye bye, Beemer. And people can't cope because their identity is in their possessions. And this, of course, is so unfair that we have to involve the cone-headed government officials to 'fix this'.

So when I see the question;
I think to myself, HECK NO. A bunch of fake "rich" people got strung up in their own business deals and desire to have a status they clearly didn't deserve. Remember, a bunch of people flipped houses in two years and made a nice profit on those sub-primes, so should the government take from them?

I have "meh" credit, but even then, I got a fixed APR that doesn't change, and I drive a crummy no-frills Honda Civic. My house is modest, and every week, I'm scrubbing graffiti off the walls from the delinquents who live around here. But my payment is on time, and it changes every year to reflect the taxes which are taken out, as well as my insurance which is built-in. So when I see someone whine about not being able to suddenly afford their home, my give-a-crap breaks. I did my research, I was honest with myself and I settled for something that maybe isn't a "dream home", but it's ideal and I can make the payment.

No, the Federal government doesn't need to get involved with business. It's not like the loaning institutions are oil companies here. I'll bet they wish they were about now.

And a chicken in every pot!

I do agree that while my salary goes up a paltry 4%, gas prices have doubled. Cost of living is getting outrageous, but that's Capitalism. It's worth it if someone is willing to pay it. Unless you think the federal government should regulate rent prices also.. because if I made an investment in a building, I sure as heck don't want some government agent to tell me that I'm "charging too much".

In fact, since I took the time to research my loan and faithfully pay it every month, I think the Federal Government ought to intervene and give me an extra tax break for being responsible in not biting off more than I could chew.

But if we need government bailouts, I *could* get a nice $10,000 credit card, rack it up, watch the interest and penalties grow, claim "I'm a victim of my bad decisions" and then let the Federal Government intervene in THAT, since it makes just as much sense.

If the rent is high, and the person renting, then it is unlikely that person would have the down payment or resources to buy, and no lender is going to qualify someone on the promise of getting roomates or third party renters unless the property is zoned for such. Moreover a renter as such won't have the cash flow to improve the place properly, unless you are suggesting the next big thing in real estate is to become a slum lord. I'm not saying it's impossible to pull off, it is just becoming statistically problematic as fewer people can qualify to do it. Also, typically in hotter markets, run down places sell at premiums because "fixing up and flipping" is so common. Although the national average for investor ownership (second homes or more) is 25%, in the hottest areas investors make up to 50% of the market. The bailout won't help them directly.

Maybe that is why I just heard middle-age suicides are at a 25 year high in the U.S. If that keeps up maybe the housing crisis will ease

Should the Federal Government intervene in the SubPrime mortgage mess?

I think they believe they don't have much of a choice because this is much bigger than just personal debt, it has much more to do with global investment and our banks commitments than it does with domestic home ownership. If you believe that it is to save the hard working American families homes then you are being scammed.

Personally I would rather see people held accountable for this mess, don't try to hide it, or put it off. Allow all the fraud, bad business and poor investments come to the surface make the banks who sold this junk buy it back and make those who did so with ill intentions go to jail.


Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?
Rent crisis? When I lived in Switzerland I remember a year where there was a good number of families in my city who could not find a home to rent, as in there was none available as the amount of renters in certain price ranges exceeded the amount of rentals, and that was in a country where over 60% rent. That is a crisis.



Again to use the Swiss example, this is where I learned of loans that outlive the borrower, meaning home prices were so high that you had the option to take out a loan that would outlive you and become part of your inheritance. Lending is far less liberal tho then it is in our country.



But that is exactly what they are hoping for, to delay long enough to place things more legal, then request all to refinance with the defrauded borrower's info, also to refinance before the big plunge and tada! avoid jail and a monetary loss, and guess who gets to pay for it all?
Paulson, the current US Treasury Secretary and the inventor of this "freeze" is one of the main players of all this nonsense and now we are going to ask for his solution?

Some are making the argument that this is our generation's "New Deal" and that in order to keep our free market systems just alive we need to allow a little more central government control, some even claiming nationalization. Basically us little homeowners are expendable, but have to be appeased in order to agree to government based solution, and the financial systems themselves are seeking self preservation.

Should the Federal Government intervene in the SubPrime mortgage mess?

It's too late. Should have better regulated this free market to begin with. But of course the feds will be more than willing to bail out the industry, similar to bailing out the S&L mess of the late 1980s. Seems like if you get rich enough you never have to suffer losing your shirt. This shouldn't be the case, but it keeps on happening. Free-marketers on one end, communists on the other. Well, that's an exaggeration, I think.

Is the Subprime Mortgage mess a wakeup call to fix the rent crisis in the cities or should the suburban dream be for everyone?

Yep, rents are real high on either coast. Those housing markets have been overheating for decades. This is why I never bought a darn thing until landing on this mountain in this fixer-upper. Had to chase the jobs around, you know?

Thinking back on this, I should have bought a used camping rig and done the trailer park gig. Maybe next time

Actually, that might become the new American Dream: Families on Wheels. Certainly there will be more renters, so we might be looking at a refurbishing of credit somehow to allow people who have had to leave houses to foreclosure, done bankruptcy and all that to become renters. What I remember was that if you didn't have decent credit, places wouldn't rent to you. I suppose you could pay six months in advance or something. Or buy a tent.

Here's a link to the middle-age suicide jump from 1999-2004:

45-54 year old suicide jump

Note that the experts have no idea why this is going on. Tells me that the experts have not been paying attention. My guess is that massive layoffs, difficulty of finding new employment, the resulting money crisis and being treated basically as pariahs are pretty obvious things to look at. I could give an expert an earful, possibly a knee to the groin area. You know, just to gain attention.

It is sad and disappointing to hear about people committing suicide in their prime years just before retirement.

Loss of a job can drive one over the edge for sure. But I think there is another underlying cause, something that a Mortgage Bailout will not fix. The Suburban living arrangement, with the endless housing developments, strip malls, and 50 mile workday commutes is an environment that breeds isolation and depression. In such an environment, people are forced to find solace either in the TV set or by smoking pot in the basement. The Suburban living arrangement does not create sustainable communities where neighbors can look out for 1 another.

My impression is it was all “legal” and that is part of the problem AND the reason we should, as you say, let it all work out (with rare exceptions). Let the stupid lenders who did this pay the tab – NOT the taxpayer.

Then let’s get some regulation in the industry to prevent this stupidity from happening again.

Ted, I was referring to the investor side of the mortgage business, mortgage securities. These are sold with contractual agreements in regards to fraud and if borrowers' ability to pay or home value was found to be fraudulent, well then they gotta pay the investor for face value. That is why I believe they are attempting to encourage these holders of high risk and likely fraudulent loans to re-mortgage and hopefully re-cleanse the loan. All at taxpayers expense.