10 ms·

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if the

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. The contractor was able to sell her the loan because she needed to reduce heating/utilities/energy costs in her massive (for one or two people living on SS presumably) home, and she thought the savings from the PACE program would pay for the solar panels, smart lightbulbs, etc. I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family. Unfortunately it seems like the loan was misrepresented to her by the contractor when she agreed to go into debt, and obviously many will do anything to avoid moving out of homes/communities they've been in for a long time. Others have no family to rely on or go to even if they do want to move. I'm not a huge fan of Wall St. and big bank loan & derivative making and selling culture, but it's not entirely to blame, nor was it entirely to blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on (maybe there was some fraud/misrepresentation on the part of the contractor in this case, maybe not). People have always been greedy since the beginning of time - we are just struggling overall at the moment to raise financial literacy and strengthen altruism: family/community/country-wide ties (patriotism) due to poor economic conditions for the majority of Americans.

John23832 10y ago
> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used on targeted groups (I'm looking at the elderly, minorities and groups that are generally less financially sophisticated). Most people generally aren't in a position to "vote with their wallet". This is because most people are leveraged to their eyeballs with rents. This is a problem with Wall Street that trickles down, not a problem with the consumer that worked it's way up. > many consumers took on home loans they had no intention of ever making good on I disagree with this as well. People generally are not scam artist. On the contrary, most people like paying off their debts. Were people probably overly confident in their ability to repay, sure. Saying that people intended to default however, is not true. --- Wall Street (and it's derivatives... I'm looking at you, ad funded Silicon Valley) is full of fraud. The fraud stems from the fact that the only people who can realistically perform checks and balances on this group(s) are the groups themselves. You may be able to blame the consumer when they have full and clear knowledge of how the system works, but that's not the case. Wall Street is full of so many obscurities and 40k ft descriptions that the average consumer really has no chance. A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all.
- fisherjeff 10y ago
  > If they don't understand what they're selling (and I'm sure they don't) Moreover, why would they even want to understand? The loan disbursement will be going directly into to their pockets. The incentives are shockingly perverse all around.
- curun1r 10y ago
  > Saying that people intended to default however, is not true. I'm not sure if it's what roymurdock meant, but there's a nugget of truth to what he said. People did take on loans that they never planned to pay off personally. They saw the relentlessly upward trajectory of home prices and wanted to benefit. They took on loans with the intention of refinancing or selling the home a few years down the road. It wasn't an intention to defraud anyone, but it was definitely an attempt to get something for nothing. Just because they were trying to copy others who'd made large profits buying and then later selling their homes doesn't make it not greedy behavior.
  - taeric 10y ago
    You can just as easily say that banks were giving out loans they expected to refinance in the coming years. That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance. The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system controls would be nice.
    - curun1r 10y ago
      > You can just as easily say that banks were giving out loans they expected to refinance in the coming years. Can't it be both? There's enough blame to go around. My only point was that the narrative of victimized homeowners preyed upon by evil lenders, put forth by a surprisingly large number of people, is misguided.
      - taeric 10y ago
andrewclunn 10y ago
I am incentivized via the tax code to put money into a 401k, which I can take out early only as a down payment to purchase a home, and rent costs more than monthly mortgage payments, especially with the tax breaks for having one. How am I not being pushed to put my money in investment banks or a home?
- djrogers 10y ago
  > How am I not being pushed to put my money in investment banks or a home? You're being 'pushed' to save money for retirement. The fact that you can take $10k out one time for a first home is a nice little bonus, but it's a rarely used benefit and isn't exactly evil.
- aianus 10y ago
  Rent costs less than (mortgage interest + taxes + condo fees + maintenance) where I live. This is extremely dependent on location.
a3n 10y ago
> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. But they don't, and they won't, and that's why this wealth transfer works.
FireBeyond 10y ago
"blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on" Citation needed - for the number of consumers who "took a mortgage they never had any intention of paying" (your example), versus "people who took on a mortgage they couldn't keep paying (after the ARM bubble, which, let's not forget, all the banks were promising would be a matter of "refinance at the lower rate we'll have then"). I think the number of people who had no intention of paying a mortgage they took is probably vanishingly small.
- djrogers 10y ago
  > people who took on a mortgage they couldn't keep paying (after the ARM bubble Citation needed - most of the indexes used for anchoring ARM rates either dropped or stayed steady leading up to and through the sub-prime mortgage crisis. An ARM fixed to LIBOR for example would have dropped in rate when it adjusted. Problems did occur with non-standard loan types - Interest only, balloon payment mortgages, etc. however the biggest problems occurred because many people had borrowed too much $$ to have any equity in their homes if the values dropped at all. These borrowers found themselves 'upside-down' on their mortgages, unable to sell their homes to move as they owed more than they'd get from the sale. Some of those owners walked away from their homes, some ran in to balloon payments or the end of their interest-only terms and some rode it out. The ones that didn't ride it out got foreclosed on and we're still recovering from the mess.
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  - FireBeyond 10y ago
    I'll stand corrected, your example is more accurate and more specific than mine - those non-standard (non-conforming?) loan types are more what I had in mind than the simple divide between fixed and ARM.
BlackjackCF 10y ago
Agreed here. It's kind of a dog-eat-dog world when it comes to finances. Everyone has to watch their own backs, because big banks are going to do what is most advantageous to them, even if that means screwing over other people. There's a wealth of information out there for people to self-educate. Unfortunately, people just don't seem to know where to look. It's a travesty that we don't teach basic finances in high school to students about to graduate and go into the real world. We can sacrifice mandatory PE for a semester or a year to make space in the schedule for everyone to learn how credit, loans, and taxes work.
- aianus 10y ago
  There's nothing special about credit, loans, and taxes. It's 7th grade reading comprehension and math. The problem is not financial illiteracy it's general ignorance, illiteracy, and innumeracy.
Florin_Andrei 10y ago
> Consumers can say no In a pink unicorns and sunny meadows theoretical scenario, that is correct. In reality, when that whole part of society is corrupt and dishonest, saying "no" to an important instrument (money loans) is a heck of a lot harder.
mrbabbage 10y ago
> I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family. In California, this can be difficult to impossible due to Prop 13, a voter initiative from the 1970s that caps the rate at which property taxes rise. Doing some back-of-the-envelope math, given that Inglewood has a median house price of about $450,000 [1], if Ms White were to move to a median house in Inglewood (probably a much smaller house since she has a five bedroom right now), her new property tax bill would probably be about $5220 [2], compared to the $1215 she's currently paying. This isn't quite as high as her property tax bill post PACE loan, but it's pretty close. In other words, Ms White can't really move; it would wreck her cash flow nearly as bad as this PACE loan. The flip side of this story is that Inglewood's (and the rest of CA's) home values are probably inflated due to Prop 13 -- lots of people like Ms White become trapped in their homes due to the massive property tax increase they would realize by selling and moving, which reduces the supply of available homes, driving up the price of those that do sell. In a sane world without property tax caps, Ms White and other landowners wouldn't be insulated from rising property values and probably would have worked with their government to temper rising property values with new housing units. Inglewood (city of about 100,000) only added a meager 1000 units of new housing [3] in the 13 years to 2012. [1] http://www.zillow.com/inglewood-ca/home-values/ http://www.zillow.com/inglewood-ca/home-values/ [2] property tax rate of 1.16%, which is probably about right -- in CA there's typically a 1% county assessment baseline plus any bond assessments. [3] http://www.southbaycities.org/sites/default/files/city_profiles/Inglewood.pdf http://www.southbaycities.org/sites/default/files/city_profi...
- dcldcl 10y ago
  California also has Proposition 60 (the property tax one, not the porn one) and Proposition 90 [0]. These allow a one-time transfer of the base year property tax values within the same county (and between some counties) for homeowners over 55 looking to change properties. The rules are a bit more complicated, but it seems like it would apply to Ms. White's situation and prevent the issue you've brought up. It seems very few people know about this. [0] http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm

John23832 10y ago

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used on targeted groups (I'm looking at the elderly, minorities and groups that are generally less financially sophisticated). Most people generally aren't in a position to "vote with their wallet". This is because most people are leveraged to their eyeballs with rents. This is a problem with Wall Street that trickles down, not a problem with the consumer that worked it's way up. > many consumers took on home loans they had no intention of ever making good on I disagree with this as well. People generally are not scam artist. On the contrary, most people like paying off their debts. Were people probably overly confident in their ability to repay, sure. Saying that people intended to default however, is not true. --- Wall Street (and it's derivatives... I'm looking at you, ad funded Silicon Valley) is full of fraud. The fraud stems from the fact that the only people who can realistically perform checks and balances on this group(s) are the groups themselves. You may be able to blame the consumer when they have full and clear knowledge of how the system works, but that's not the case. Wall Street is full of so many obscurities and 40k ft descriptions that the average consumer really has no chance. A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all.

fisherjeff 10y ago
> If they don't understand what they're selling (and I'm sure they don't) Moreover, why would they even want to understand? The loan disbursement will be going directly into to their pockets. The incentives are shockingly perverse all around.
curun1r 10y ago
> Saying that people intended to default however, is not true. I'm not sure if it's what roymurdock meant, but there's a nugget of truth to what he said. People did take on loans that they never planned to pay off personally. They saw the relentlessly upward trajectory of home prices and wanted to benefit. They took on loans with the intention of refinancing or selling the home a few years down the road. It wasn't an intention to defraud anyone, but it was definitely an attempt to get something for nothing. Just because they were trying to copy others who'd made large profits buying and then later selling their homes doesn't make it not greedy behavior.
- taeric 10y ago
  You can just as easily say that banks were giving out loans they expected to refinance in the coming years. That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance. The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system controls would be nice.
  - curun1r 10y ago
    > You can just as easily say that banks were giving out loans they expected to refinance in the coming years. Can't it be both? There's enough blame to go around. My only point was that the narrative of victimized homeowners preyed upon by evil lenders, put forth by a surprisingly large number of people, is misguided.
    - taeric 10y ago

andrewclunn 10y ago

I am incentivized via the tax code to put money into a 401k, which I can take out early only as a down payment to purchase a home, and rent costs more than monthly mortgage payments, especially with the tax breaks for having one. How am I not being pushed to put my money in investment banks or a home?

djrogers 10y ago
> How am I not being pushed to put my money in investment banks or a home? You're being 'pushed' to save money for retirement. The fact that you can take $10k out one time for a first home is a nice little bonus, but it's a rarely used benefit and isn't exactly evil.
aianus 10y ago
Rent costs less than (mortgage interest + taxes + condo fees + maintenance) where I live. This is extremely dependent on location.

a3n 10y ago

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. But they don't, and they won't, and that's why this wealth transfer works.

FireBeyond 10y ago

"blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on" Citation needed - for the number of consumers who "took a mortgage they never had any intention of paying" (your example), versus "people who took on a mortgage they couldn't keep paying (after the ARM bubble, which, let's not forget, all the banks were promising would be a matter of "refinance at the lower rate we'll have then"). I think the number of people who had no intention of paying a mortgage they took is probably vanishingly small.

djrogers 10y ago
> people who took on a mortgage they couldn't keep paying (after the ARM bubble Citation needed - most of the indexes used for anchoring ARM rates either dropped or stayed steady leading up to and through the sub-prime mortgage crisis. An ARM fixed to LIBOR for example would have dropped in rate when it adjusted. Problems did occur with non-standard loan types - Interest only, balloon payment mortgages, etc. however the biggest problems occurred because many people had borrowed too much $$ to have any equity in their homes if the values dropped at all. These borrowers found themselves 'upside-down' on their mortgages, unable to sell their homes to move as they owed more than they'd get from the sale. Some of those owners walked away from their homes, some ran in to balloon payments or the end of their interest-only terms and some rode it out. The ones that didn't ride it out got foreclosed on and we're still recovering from the mess.
- deleted 10y ago
  [deleted]
- deleted 10y ago
  [deleted]
- FireBeyond 10y ago
  I'll stand corrected, your example is more accurate and more specific than mine - those non-standard (non-conforming?) loan types are more what I had in mind than the simple divide between fixed and ARM.

BlackjackCF 10y ago

Agreed here. It's kind of a dog-eat-dog world when it comes to finances. Everyone has to watch their own backs, because big banks are going to do what is most advantageous to them, even if that means screwing over other people. There's a wealth of information out there for people to self-educate. Unfortunately, people just don't seem to know where to look. It's a travesty that we don't teach basic finances in high school to students about to graduate and go into the real world. We can sacrifice mandatory PE for a semester or a year to make space in the schedule for everyone to learn how credit, loans, and taxes work.

aianus 10y ago
There's nothing special about credit, loans, and taxes. It's 7th grade reading comprehension and math. The problem is not financial illiteracy it's general ignorance, illiteracy, and innumeracy.

Florin_Andrei 10y ago

> Consumers can say no In a pink unicorns and sunny meadows theoretical scenario, that is correct. In reality, when that whole part of society is corrupt and dishonest, saying "no" to an important instrument (money loans) is a heck of a lot harder.

mrbabbage 10y ago

> I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family. In California, this can be difficult to impossible due to Prop 13, a voter initiative from the 1970s that caps the rate at which property taxes rise. Doing some back-of-the-envelope math, given that Inglewood has a median house price of about $450,000 [1], if Ms White were to move to a median house in Inglewood (probably a much smaller house since she has a five bedroom right now), her new property tax bill would probably be about $5220 [2], compared to the $1215 she's currently paying. This isn't quite as high as her property tax bill post PACE loan, but it's pretty close. In other words, Ms White can't really move; it would wreck her cash flow nearly as bad as this PACE loan. The flip side of this story is that Inglewood's (and the rest of CA's) home values are probably inflated due to Prop 13 -- lots of people like Ms White become trapped in their homes due to the massive property tax increase they would realize by selling and moving, which reduces the supply of available homes, driving up the price of those that do sell. In a sane world without property tax caps, Ms White and other landowners wouldn't be insulated from rising property values and probably would have worked with their government to temper rising property values with new housing units. Inglewood (city of about 100,000) only added a meager 1000 units of new housing [3] in the 13 years to 2012. [1] http://www.zillow.com/inglewood-ca/home-values/ http://www.zillow.com/inglewood-ca/home-values/ [2] property tax rate of 1.16%, which is probably about right -- in CA there's typically a 1% county assessment baseline plus any bond assessments. [3] http://www.southbaycities.org/sites/default/files/city_profiles/Inglewood.pdf http://www.southbaycities.org/sites/default/files/city_profi...

dcldcl 10y ago
California also has Proposition 60 (the property tax one, not the porn one) and Proposition 90 [0]. These allow a one-time transfer of the base year property tax values within the same county (and between some counties) for homeowners over 55 looking to change properties. The rules are a bit more complicated, but it seems like it would apply to Ms. White's situation and prevent the issue you've brought up. It seems very few people know about this. [0] http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm