What is your "Debt Free Date"

[Creemore]

Tell me where you think the blame belongs:

Government adopts a cheap money policy, believing it will encourage economic growth.
Citizen borrows the full value of a house he wants to buy - or more - reasoning that the appreciation of the real estate will exceed the cost of borrowing. He sees a chance to beat the wealth game.
Mortgage brokers lend him the money on behalf of banks, often not even requiring proof of income and almost never worrying about his debt/equity ratio.
Banks take the broker's mortgage and turn a blind eye to the way it was written. The government allows them to put the mortgage on their balance sheet at, say, 70 cents on the dollar. Still, nobody questions the underlying value.
Then, the banks sell those mortgages to investment banks, which roll up a bunch of them together and turn it into an investment product to be resold.
Credit rating agencies give these 'mortgage backed securities' great ratings, almost as good as what bonds get.
Institutional investors buy up the mortgage backed securities, seeing a way to beat the sideways performance of equity markets and taking the ratings agencies assessments at face value.
But houses stop appreciating, and the folly of easy money rears its head. Some are foreclosed, but many other buyers walk away just because they now have negative equity on paper, rather than honor their obligations to repay those loans.
The underlying value in the mortgage backed securities implodes. Big institutional investors are suddenly on the edge of solvency. The government writes down the value of the assets, maybe more than they needed to, putting financial institutions now under water at the stroke of a pen.
To solve this new problem, the government lets them use some taxpayer money to shore up their balance sheets for a while (the TARP money).
Now, up to their eyeballs in debt, the government has no choice but to keep borrowing costs low and keep printing cash.

So, whose fault is it? Everybody's, as far as I can see. The belief in easy money is the most dangerous drug there is. But if I was going to send the FBI in, I'd start with the ratings agencies and go from there. Most of the culprits are guilty of wilful ignorance and blind optimism, but the ratings agencies were somewhere between negligent and fraudulent.

 

[ultrarunner]

Clearly it is our own behavior and NOT congress that is at the root of our problems today. Congress is US.

If I sign a loan that I do not have the means to service who's name is on that loan. If no guns were used to get me to sign than who is responsible in the end.

Blamers of the government are buck passers. We elect and we own the results pure and simple.

If I only act right because of laws passed I have a heart problem. If I act within the law and the law permits something that is not financially smart then I am still responsible for the results. Not everyone spent beyond their financial means the last 50 years.

I'm sure it is different elsewhere... here is what happened in my city of 450k +/-

Almost every home sold in vast areas of the city circa 2005-07 went to first time Hispanic buyers... on one city block 7 homes went this way.

Homes that had sold for 80k 20 years ago and 180k around 2000 were breaking the 500k mark (1920's craftsman bungalows with 1200 square feet)

All 7 of the Hispanic families have moved... some tried to sell, none were successful, they owed more than the home was worth... the one next to my old home that went from 80k 20 years ago to 510k in 2007 was sold by the bank for 80k to an investor who later resold it for 135k.

Not making any excuses... just saying what happened.

I think it is important to point out that Jose and his family got caught up in the wave if you do not buy now... you will never be able.

Property taxes came as a huge shock. Jose showed my his tax bill and was almost in tears... $8000 and change.

He worked for a landscape company along with his brother... they were doing new subdivisions and had work 7 days a week... that all stopped.

Jose, his family and brother returned to Mexico... he had a green card and was not a US citizen. Didn't have any trouble getting the loan and he could not read English.

The schools district is closing 5 schools due to declining enrollment... 6 years ago they were adding because of all the new families moving into the area...

Some would call it a perfect storm...

I also know others living 1.5m homes that walked away... making the payments was not at issue. It was a simple business decision... at least that is what one lawyer told me that had bought a similar home for 40% less then he owed on his first home... once he was settled, he let the first home go... California is a non-recourse State so the lawyer maximum risk was a hit on his credit score and he was not worried because he said he is just one of the many and if he had to, he could have paid cash for the replacement home.

As to the Hispanic first time home buyers... the local banks agreed under the consent order to specifically do community outreach... there were monthly first time home buyers seminars at the auditorium tailored in Spanish and Chinese and they were sponsored by HUD, Fannie and Freddie...

These programs waived traditional down payment requirements and long credit history requirements... in fact, if you made too much money, you often were not eligible.

For Jose' and his family... their debt free date started the minute they returned to Mexico...

 

[beppington]

What doe ANY of the past 3 pages (save 2 posts) have to do with the OP's original question... What is your Debt free Date??

We may have gotten slightly off track.

 

[riptides]

We may have gotten slightly off track.

True but housing is a burden of debt, most of us have housing debt, so this thread track covered that.

 

[riptides]

Tell me where you think the blame belongs:

........So, whose fault is it? Everybody's, as far as I can see. The belief in easy money is the most dangerous drug there is. But if I was going to send the FBI in, I'd start with the ratings agencies and go from there. Most of the culprits are guilty of wilful ignorance and blind optimism, but the ratings agencies were somewhere between negligent and fraudulent.

Last I checked the SEC, Treasury and Justice Departments were all trying to recoup or investigate Wall Street and Bankers.

I have not been called into court for my monetary transactions.

The problem with money is it is a transaction in time. So the CEO can say, well at the time we looked solvent. Which is BS, because the transactions were based on negligent and fraudulent information. Proving that is another matter.

 

[Pilot]

Thanks Creemore and Ultrarunner for adding aspects to the discussion not well covered before.

However, I and many others here share no blame for the debt mess because we were responsible about handling credit, carried no debt or paid all our bills.

I still contend the root cause was the government which set the stage, compelling lenders (not just mortgage brokers) to make loans no sane person would have made to borrowers who couldn't pay. And those borrowers irresponsibly took advantage of opportunities, opportunities everyone was talking about because they greedily followed the herd. If the government had not set penalties for what it saw as bad behavior on the part of banks (redlining) or had come up with a better solution (redlining was real) we would never have gotten into this mess.

 

[Creemore]

You're in good company in your assertion that the root cause was an earlier government's loose money policy. It was a bad idea, and clearly created a temptation a lot of people couldn't handle.

I, like you, was never part of the problem, and I don't much like that my retirement plans have to change as a result...

 

[300UGUY]

Tell me where you think the blame belongs:

Government adopts a cheap money policy, believing it will encourage economic growth.
Citizen borrows the full value of a house he wants to buy - or more - reasoning that the appreciation of the real estate will exceed the cost of borrowing. He sees a chance to beat the wealth game.
Mortgage brokers lend him the money on behalf of banks, often not even requiring proof of income and almost never worrying about his debt/equity ratio.
Banks take the broker's mortgage and turn a blind eye to the way it was written. The government allows them to put the mortgage on their balance sheet at, say, 70 cents on the dollar. Still, nobody questions the underlying value.
Then, the banks sell those mortgages to investment banks, which roll up a bunch of them together and turn it into an investment product to be resold.
Credit rating agencies give these 'mortgage backed securities' great ratings, almost as good as what bonds get.
Institutional investors buy up the mortgage backed securities, seeing a way to beat the sideways performance of equity markets and taking the ratings agencies assessments at face value.
But houses stop appreciating, and the folly of easy money rears its head. Some are foreclosed, but many other buyers walk away just because they now have negative equity on paper, rather than honor their obligations to repay those loans.
The underlying value in the mortgage backed securities implodes. Big institutional investors are suddenly on the edge of solvency. The government writes down the value of the assets, maybe more than they needed to, putting financial institutions now under water at the stroke of a pen.
To solve this new problem, the government lets them use some taxpayer money to shore up their balance sheets for a while (the TARP money).
Now, up to their eyeballs in debt, the government has no choice but to keep borrowing costs low and keep printing cash.

So, whose fault is it? Everybody's, as far as I can see. The belief in easy money is the most dangerous drug there is. But if I was going to send the FBI in, I'd start with the ratings agencies and go from there. Most of the culprits are guilty of wilful ignorance and blind optimism, but the ratings agencies were somewhere between negligent and fraudulent.

The ratings agencies were afraid if they did not give out good ratings, another one would, and get the fees. I agree, they were negligent in the extreme.

 

[beppington]

The ratings agencies were afraid if they did not give out good ratings, another one would, and get the fees. I agree, they were negligent in the extreme.

It could also be that they felt any downgrading they might've considered doing would've actually caused the problems that eventually did happen anyway.

Of course I'm probably giving them too much credit (puntended).

 

[Loren49]

Is the person whole sold one of these greatly "overpriced" homes (or many of these homes) and walked with the money somewhat responsible for the problem. Is it possible that regulations were influenced by an industry that was enjoying huge profits?
I suggest that anyone who made more than reasonable profits may not be exempt from some responsibility. Many good, honest people who purchased homes did not for see the job losses and collapse of the market.
Maybe some of the stocks owned by the pure among us were in companies that had a selfish influence in this scheme. It's so easy to blame others - makes us feel better:thumbsup:

Loren