The Real Story Behind Sub-Prime Borrowing and Lending

[Yavin4]

A generation or two ago, workers knew that they had to form unions in order to get decent pay and benefits. Once they got them, they were financially stable enough to own a home by getting a mortgage over time. They had jobs where it was not easy to lay them off. Jobs that offered full health care. Jobs that paid them ahead of the rate of inflation.

Having grown up in those homes and wanting the American dream, today's generation is putting the cart before the horse. They are going at home ownership backwards. They believe that owning a home is in itself being financially stable, not the result of being financially stable.

There's a litany of arguments as to why owning a home makes good sense, the tax deduction, owning a real asset, space needs, and not paying rent. However, owning a home without having the steady flow of income to do so is folly. We are being pushed into doing whatever we can to own a home because the economy depends on us to not just consume, but over-consume, and owning a home is the best way to get us to over-consume.

You have to pay for it to be built, which creates jobs in the homebuilding industry. You have to furnish a home. You have to pay property taxes on it, etc. All of these things force us to spend and consume.

The true story behind these sub-prime loans is to fool the working class that they're indeed middle class even though they do not have nearly enough financial stability than the generation did before them. Also, home ownership, obviates the needs for forming a union or fighting better wages and better benefits.

[Roland99]

1. Friend of mine worked for a mortgage broker for a while....

I kept telling him about a year ago to look for a way out as it's going to come crashing down (he did get out a few months ago).

Anyway, he told me stories of how they would hook people into paying 2-3 points plus higher interest rates and zero-down and interest-only and all other sorts of things in order for someone with a FICO score of, say, under 620 to get a mortgage.

There are so many people in credit trouble in this nation. It's a fundamental problem for consumers and most are not aware of the depth and breadth of their bad credit. It needs to be ingrained in our children from middle school on as to how to manage money. Our high schools need to teach our children (as well as us as parents) on how to manage their money and keep their credit clean.

We, as a society, need to start dumping the desire to consume and purchase and focus on living within our means and, *gasp*, saving money!

[MannyGoldstein]

3. Income is The Problem - Not Outgo

Adjusted for inflation, the typical working stiff's wages peaked in the early 1970s, and are significantly down from then. At the same time, taxes on the Middle Class have been jacked up (in the form of Social Security), and housing costs have exploded.

Young working people are utterly and insanely fucked - they get less, pay more in taxes, and have to put into housing that is 4x what it used to be even after accounting for inflation. And their jobs are being outsourced, thanks to Republicans/DLC.

[Yavin4]

4. The Easy Availabilty of Credit

is the prime reason why workers in the U.S. won't ogranize unions to fight for better wages on the job.

[AwakeAtLast]

18. I am commenting on the part about teaching money management in school

Until NCLB gets booted and until teachers are paid enough to stay out of money trouble themselves, that will not happen.

The state mandated tests don't exactly cover money. Intersting, isn't it?

I would also say that credit card companies should be banned from college campuses.

[Roland99]

20. Sadly, I agree with both of your points.

[wicket]

2. I'm glad to be a renter right about now

Living in an area with an obscene cost of living (Boston), I don't know how I'll afford a house any time soon. I worry greatly about those who are in my financial situation but have taken on a mortgage that they can't afford. So many people are going to be ruined. :scared:

[Eurobabe]

5. We put off our decision to buy until later this year or next spring

[Roland99]

7. I'm looking at next spring myself. Might look at the foreclosed listings, too.

[rox63]

12. Check in the cheaper areas of Eastern MA

Lowell, Lawrence, smaller cities like that. I was able to afford a condo in Lowell a couple of years back. The mortgage payments are about what I'd be paying for rent for an apartment. And the tax deduction is very nice.

[connecticut yankee]

6. I'm an Appraiser

and I am constantly being pushed to raise appraised values so people can get their loans. The Loan Officer gets his/her commission, but they don't think about what might happen down the line.

That's why the banks got in trouble in the late 1980's and why I expect something like it very soon.

[theoldman]

8. I think the problem is greed on the part of the home buyers.

50 years ago the average home in my area was 1000 square feet. Today it is 3500 square feet. Two people with no children do not need such a large house. It's called keeping up with the Jones. If people were satisfied with what I call good enough they would not have a problem.

[raccoon]

13. I agree with you totally. But I also think the developers bear some

responsibility for this. They can get much more for a 3500 square foot house than a 1000 square foot house.

[AnnieBW]

21. Even people with kids

don't need that much space. Okay, my husband and I have about 2200 square feet of house for just ourselves. But it's comfortable. We can barely keep what we have clean, let alone a McMansion. We were both raised in smaller houses, and turned out okay. I did have a big backyard to play in, though. Most of these McMansions are all house and no yard.

[Atman]

9. The best thing that ever happened to me was losing everything.

Everything. I started a business several years back -- a big one, raised half a million dollars in Angel money, rounded up some Wall Street heavy hitters for backing. But I was in way over my head. They ate me alive, and I eventually lost everything. My house, my BMW (kind of a godsend in itself, but that's another story), everything. And I really found out who my friends were.

When it was all said and done and we got on with our lives, everything was different, and I'll always be thankful for it, in an odd way -- It forced us to live a cash existence for a few years. No credit cards, no car payments, not NOTHING unless we had the pesos in pocket. You learn a lot about yourself (and others). We still "vacationed" with the kids, but instead of flying to Florida or wherever, we bought a $15 Massachusetts State Park pass and we went camping and "exploring" with the kids. It brought us all a lot closer, and it taught them some appreciation, too. We learned the value of lots of things, as well as the price of lots of things.

Our only debt now is a car payment.

Simplify. Words to live by.

[Roland99]

11. I was in a very similar boat (just not quite as large)

I was self-employed and had two employees. I was making well over 6-figures. Had a nice house, two new cars, shopped for clothes often, went out to eat, ran up credit cards, traveled, went to concerts, bought consumer electronics, etc.

7 months of unemployment woke my ass up in a hurry.

Now, I, like you, have only a car payment as a debt. Well, I do have about $1000 in credit spread over 3 cards that I use to pay for my monthly expenses like gas, food, car ins., etc. and just pay them off each month.

I'll be back in a house again in about a year or so and that will likely be my retirement (the equity in it in about 20-25 years).

[AwakeAtLast]

19. My daughter loves the State Park!

There are some really terrific ones in just about every state. Let's hope state legislatures keep up the funding!

[ThomWV]

10. OK, then is it correct that when the bubble bursts unions will once again flourish?

Nt

[Virginian]

14. Just as people need to re-learn the value

of collective bargaining, women need to learn that our rights can be erased if we don't protect them.

In both cases, the rights we have enjoyed for the past half century or longer are not permanent if we let them be eroded over time.

Just recently, in the past week, I have seen commercials against unions. I want to see some pro-union commercials. Unions protect workers' rights. If American computer professionals had a union, there wouldn't be so many H1-b visas given to foreign IT workers.

[eridani]

25. Enjoying your weekend?

Thank a union member.

This needs to be plastered on bumpers and walls everywhere.

[Yavin4]

15. Probably Not

When the bubble bursts, the Fed will just lower interest rates again, and the cycle will start anew.

As long as China and Saudi Arabia keep buying our Treasuries, then we can play debt games forever.

Debt controls millions of Americans.

[bighart]

16. Personal Responsibility

I firmly believe we are headed for a MAJOR credit crisis
sometime in the next few years.  No one seems to be taking
personal responsibility for their finances and all of the over
spending is gonna CRASH the economy one day soon.

[Yavin4]

17. Not Necessarily

It all depends on whether China and Saudi Arabia will keep buying our debt.

[newyawker99]

23. Hi thebighart!!

Welcome to DU!! :toast:

[DaveJ]

22. I don't think the 'economy depends' on people buying homes...

At least with subprime loans. If half their mortgage is going toward interest and not spending, it's not leading to economic activity that we know about. Instead the interest is just making billionaires richer.

Where I live it is much cheaper to rent than to pay a mortgage. With the savings in renting one could put the difference aside and make more than in the equity from owning a home... and still be free of some ridiculous 30-40 year enslavement to a mortgage.

Personally, I feel people should boycott buying homes until the costs become sane. It should be possible for anyone to find a home that can be paid off in 10 years. That is my mantra and I'm sticking to it.

[Yavin4]

24. Think About What's All Involved With Owning A Home

First, there's home building which creates jobs for electricians, carpenters, cement layers, and they in turn buy tools, equipment, trucks, etc.

Second, once the home is purchase, the owners will need durable goods, cars, washing machines, television sets, furniture, appliances, etc.

Finally, now that you're in your new home, you have to pay property taxes on it to your local govt which uses that money to hire teachers, fire fighters, etc.

As you can see, home ownership is a major key in our economic food chain, esp. now that mfg and IT growth are all overseas.

[tom_paine]

26. Yes, quite so.

I am fond of a saying, "Water seeks it's own level." (I have no doubt that someone or many someones said this long before me)

What I mean by that is essentially what the OP is saying:

People believe in the American Dream, the Middle Class.

In practicality, the Middle Class is be atomized and crushed...re-serf-ized, if you will.

People born of Middle Class parents wish to be Middle Class (or better), as well. However, the Loyal Busheis have restructured the "airplane's seating". Now First Class extends to Row 15, and there is a new 2-row front called Emperor's Class in which the stewardesses all offer sexual favors.

Meanwhile economy class is now less that a third of the seating because in the tail now, with unpressurized cabin, no heat, no lights and no fans, is the Cattle Car, where the growing poor and underclass must sit in moth-eaten chairs.

So those now stuck in the Cattle Car in the tail who's self-image and self-worth is tied directly to having what their parents had, being Middle Class, and not losing ground for their children and grandchildren.

They cannot be what they were, thanks to outsourcing and the dozen of other petty thefts the Busheviks have perpetrated on America.