As renters, my husband and I have been a little unclear on what all the hubbub is with the mortgage crisis. The other day, we saw a headline on the paper that said, “Crisis seeps into prime mortgages”…I took that to mean even people with 30-year fixed mortgages at reasonable interest rates were defaulting on their loans. Is this accurate? I don’t know, but my husband believed me :)
Our landlord owns a few other properties. One of them went vacant and he cleaned it and listed it on Craigslist on a Friday. He was telling me that he had 60 people show up to see it that Saturday. He spoke of how he felt terrible for the people because many of them were in foreclosure situations and desperate for an affordable place to live.
My husband and I were talking about how it must be difficult for a landlord to be in that position - do you rent your property to someone who has shown credit-unworthiness? Even if it was in unfair circumstances?
Well, the question of credit-unworthiness is really the clincher, isn’t it? Are the 4 MILLION Americans who are at risk of losing their homes all somehow delinquent or poor money managers. Surely not. But, as someone who has no first hand knowledge of the home-buying process, I made quite a few assumptions. Most of them based on television.
For example, I remember an episode of The Ellen Degeneres Show (her sitcom, not her talk show) where she was trying to buy a house. The prospective lender made her account for every late payment she had ever made in her whole life. It was a very serious and elaborate vetting. Basically, I assumed everyone that has a house went through a similar seemingly-painful and very thorough examination before they were granted a mortgage.
Then I learned about NINA loans. NINA stands for No Income, No Asset - meaning the hopeful homebuyer did not have to state any income or any asset, and could be approved for a mortgage. Regardless of employment status or past credit history!!! Who would do such a thing? Thousands of mortgage brokers across the country.
Here is a very enlightening podcast - every one should listen to it. This week’s This American Life podcast follows the trail of mortgages from homeowner to global money pool. Listen and learn. I love This American Life. If you don’t have any desire to listen to it on the computer, you can download it for free on iTunes, but get it now, because free TAL podcasts disappear after a week. You can purchase them later, but they’re only free for their week of publication.
Other 2008 TAL programs I highly recommend:
- 353: The Audacity of Government
- 324: My Brilliant Plan, specifically, Act Two.
- 358: Leaving the Fold - the very interesting story of Jerry Springer.
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Yikes — you are just chock-full of great stuff! I’m now subscribing to several NPR podcasts — I like the idea of being able to listen to something worthwhile while I sew -not just watching the TV. And let’s face it: SoCal radio isn’t what it could be. Thank GOD for the internet!!
You are so right on about the TAL piece on the mortgage crisis. I have sent it several friends and family. It was frightening how many of those loans were sent out and absolutely retarded the industry became with money lust.
TAL is one of my faves anyway. I have sat in the drive way to finish the show, even though it is on my ipod. The Jerry Springer is also I will second. Nobody believes the story till they hear it.
Once those NINA loans got processed, they were sold off immediately. Eventually ending up at big financial institutions like Citi and Chase. These institutions assumed that the loans were vetted properly. When the loans would go belly-up, their shareholders would panic (as they should) and the stock market fell.
Many people weren’t even required to have any down payment. So once they couldn’t afford the mortgage, it was really easy to walk away because they had nothing to lose.
And now with so many homes being foreclosed on, there is a surge in available housing so home prices have gone soft. Soured to the point where if you took out a home equity loan (like many people were doing over the past 5 years) your house may not be worth the amount of your mortgage. And that is scary!
This is a really big mess that will take years to clean up. Hopefully better lending laws will be enacted to prevent it from happening again.
The bright side is that the market is perfect for new home buyers. Lots of choices at good prices.
World economics simplified. I bookmarked This American Life. I thought ‘A Great Poole of Money” was a fantastic learning experience. I was a homeowner in the ’70s, and I would not compare this timeperiod with that. It is much worse today.
Thank you for posting this information.
My pleasure, Laura! Welcome to the blog world, and thanks for leaving a comment!