Writing in today's WSJ, former Senator George McGovern decries the growth of paternalist government policies.
Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics, including calls to regulate subprime mortgages. . . .
Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.
Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.
The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.
It's also kind of fun that you and I picked out exactly the same quote....
I'm glad I don't have any plans to move in the next couple of years, and I hope nothing in my life situation changes that.
I just can't see what was wrong with the older regulations that required a reasonable downpayment and proof of income that you'd be able to pay the loan throughout its lifetime, given that it's already clear that this wave of defaults will affect pretty much everyone--even people like me with a standard fixed-rate loan within their means.
I wasn't sure what was so horrible, since that was my personal experience for the homes I've purchased - i.e., I've never put down a down-payment of over 50%.
Then she asked an expert to explain how that meant that owners in that situation would be forced into an inability to meet the mortgage payments. (He didn't correct her at all, but instead talked about the problems with people who were "upside down" in their loans - a different problem.)
My conclusion is that many people still don't understand what's going wrong - and I think that results in some of the problems Chimaxx mentions.
Re: McGovern's opinion piece - I wonder if he carries the same laissez faire attitude over to other areas, e.g. the RKBA?
I bet she meant that the average home value was less than the average home mortgage.
Nope, I heard it too. The average mortgage is now (slightly) more than 50% of the average home's value.
*****
My property value had been appreciating strongly but has dropped slightly in the last year. I'm not moving anytime soon, so this is not a problem. It has in fact has been beneficial since my property tax bill actually decreased this year. Not only the appraised value, but the size of the check I will have to write.
(Name withheld to prevent the assessor from realizing their mistake)
Yes. McGovern, for whom I voted in 1972, got an unfair reputation for being a lot more leftist than he really was. (And his opponent, Richard Nixon, was not a conservative in any "libertarian" sense.)
Why, they kept the poor out! It was horrible, horrible.
The one set of people you never get the blame for this was those who criticized the banks for only lending to people who didn't need the money.
Nope. The actual news is that the average homeowner owns less than 50% of the equity in his home.
That includes people who got a mortgage yesterday. People who got a 30-year mortgage twenty-five years ago. And people who paid off their mortgage entirely.
Things would have to get really bad before this happened. That would be almost impossible.
I'll state it differently. If you take the sum of all mortgages owed, and divide it by the sum of all property values, the ratio will come out just over 1/2.
Either way, I don't see this as an important milestone. For ugly stats, how about this?
The percentage of interest-only mortgages in the San Francisco Bay Area jumped from 20% in 2002 to 67% in 2005. Sorry, I don't have a cite, the numbers come from recollection of S.F. Chronicle articles. May not be exact but close.
Jmaie's interpretation is correct, and not very remarkable:
All this really implies is that most homes are mortgaged for long terms with low downpayments. In such a loan, for many years most of each payment goes to interest, and only a little to paying down the principal, so the principal stays high (and the homeowner's equity low) for most of the course of the loan. In the last few years, with the principal and interest greatly reduced, most of each payment goes to principal and the loan is paid down quickly. Therefore in an average of many such loans in many stages, most will be in the high principal/low equity part.
That's without considering that many (perhaps most?) families buy a more expensive house and assume a new mortgage before the first one is paid off, variations in the value of the house, adustable rates, etc.