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Tuesday, December 04, 2007


Dubious homeowners and the Congress

No doubt, most of us are aware of the crisis (both present and impending, evidently) in the mortgage business, and its probable disastrous effects on the economy. As the son of a realtor, this topic is particularly interesting, since I have seen the negative side effects of this development.

But now I have been made aware that Secretary of the Treasury Henry Paulson is pushing the Congress to do something about it (effectively shifting the blame for anything that may happen). I'm not sure about the details, but I know that both Paulson and the Congressmen on Capitol Hill think it a good idea to further regulate the mortgage industry.

But I gotta ask, what's with the regulations? Didn't the people who signed up for these dumb loans read the fine print?

Oh, that's right, they didn't. Because most of them weren't responsible enough and didn't possess the means to purchase a home. And now they're paying the price. Beefing up regulations is not going to make things any better, either. Consider the following: In the 1990's, the wonderfully benevolent Congress set their attack dogs (regulations) on the mortgage industry and 'encouraged' them (yes, through regulation) to not 'discriminate' against those who borrow at the subprime level (in other words, those who probably shouldn't be buying a house).

So that's why they gave so many loans to unworthy borrowers. In any case, we know that the borrowers shouldn't have accepted the loans in the first place by the simple fact that most of them are defaulting on loans before they have even readjusted. That means the 'initial' rate that the sneaky mortgage people tricked these unwitting, poor people of the lower classes into signing off on were not affordable in the first place.

But what will regulations do? Hard to say, really. My guess is that, as usual, they probably will increase the cost of doing business, and maybe prevent mortgage companies from giving out as many loans, thus diminishing their capabilities of making profits. Mortgage companies will undoubtedly raise interest rates on their mortgages (or perhaps the initial fees they charge-again, hard to say). Either way, the Congress will probably see to it that not nearly as much borrowing happens in the coming decade, and less homes will be bought, at least in this lower income level.

Well, maybe since all the poor people will be moving back into apartments, we'll see increases in density. That should keep the anti-sprawlers at bay for a while.

Maybe the realty business 'needs' something like Sorbane-Oxley to dampen the likelyhood of passing inappropriate debt onto government insured organizations?
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