Monday, March 9, 2009

A Conversation on Mortgages

I am blatantly copying this from a msg board (hat tip ucodgen), but I thought it was illuminating and worth sharing...

Investors to Home-purchaser: I will loan you money to purchase the property
using the property as security for the loan. If you can’t pay, I’ll take the
property since, after all, it was I that really paid for it. Since I will
have taken back the property, you will owe nothing else at that point. When
you have paid off the loan, the house will be yours free and clear. Since
house prices always go up, the principal is guaranteed.

Home-purchaser to Investors: Sounds good, This way I
can avoid being priced out of the market. Since house prices always go up, I
can sell it to cover the principal if paying the mortgage might be too
difficult. I may even exit with a profit

(looks like two guilty parties here )
From a month to a few years later..

Home-purchaser: I can’t pay the current mortgage and I can’t sell the property to get clear– for whatever reason

Investors: Ok, per our agreement, I am going to foreclose on the property
and you will be clear. I may take a loss, but at least this albatross will be
off from about my neck.

ObamaAdmin to Investors: Oh no, you can’t do that. Who cares about contract
law. We can’t deny people their dreams, their wants, no matter how unrealistic
it is for them to be buying a million dollar house on a bus driver’s salary.

Investor1 to ObamaAdmin: It was my money that was loaned to buy the

ObamaAdmin to Investor1: Tough, you are rich. You should stop exploiting
the poor people.

Investor1 to ObamaAdmin: If I am forced to take an additional loss and therefore to take a risk greater than specified on the original lending agreement, why should I ever loan money out for people to buy houses?

ObamaAdmin to Investor1: Tough, you are rich and have the money.. besides,
the government will take care of everybody so everybody has what they wish..
except the rich.. and if there are any problems, well figure it out later..

Investor2 to ObamaAdmin: What about us? We are not rich, but are running a
pension fund for retirement and health benefits. What happens if we can’t pay
out what has been promised?

ObamaAdmin to Investor2: If they have a pension fund, they must be rich. If
there are any problems here, we’ll figure it out later.

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