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Mortgage Hoopla

Let's face the facts, folks: both political parties are responsible for the incredible size of our current and future national debt. They are both complicit in failure to address the imminent collapse of our debt-based economy. If Congress was Bernie Madoff, they all would be sentenced to life in prison.

Let's face an additional truth: We all loved living on credit and the benefits that a credit-based economy provided for us. In order for me to substantiate my assertions, the following list of premises must be stated:

Highly compensated bankers and financial personnel are not the only ones to blame for the mortgage collapse.


Banks did exactly what the Administrations wanted them to do: Write mortgages and sell them to the Federal Government so they would have funds to write more.


Banks, financial institutions and investors did not walk away with all the money that disappeared in the housing market Bubble Burst. Keep in mind that they only were getting 5 to 10% of the principle amount every year. They lost that income on bad mortgages, but someone else got the principle.


The Administrations wanted to keep economic activity and value high during a reduction in domestic Manufacturing, so as to keep America's bond ratings high enough that foreign investors would keep buying our T-bills.


The basic difference between a Democrat legislator and a Republican legislator is that the Democrat wants to raise taxes to spend money and the Republican want to cut taxes to spend money.


As long as there is an interested investor the logical limit to deficit spending is when 100% of the Federal budget is consumed paying the interest on the debt. As long as the "economy keeps expanding" so does the ability to pay interest on more debt. You always repay loans with devalued money, so borrow now and pay later when your income is higher.


Many jobs in the US do not pay a wage that is considered "livable." That is one wage earner in a family household cannot earn enough to support the spouse and the 2.1 children, and possibly one or two parents without government subsidy.


Many US jobs have a monetary value that is less than the livable standard mentioned above. Even the best potato fry dipper is not worth $15 per hour with or without Health Insurance benefits. His extraordinary skills are lost on the fact that the burger drive-thru can't sell the fries he can make fast enough.


When a home-buyer gets a mortgage and buys a new house, the land owner who sold the land to the developer gets some of the money; as do the builder and his suppliers; all the laborers who actually built the house, prepared the subdivision landscape, paved the streets; the broker/agents who sell the house; the closing attorneys who handles each deal; and finally the developer itself.


That which Americans have come to think of as an essential lifestyle cannot be sustained on income alone. Mortgage and equity debt is an essential part of what makes our society function.


Many people who bought a house in the 50s and 60s before prices inflated resold them for high prices that were possible due to easy mortgage terms. They took that money to retire in the Sunbelt States where taxes were low.


We pretended that we were rich because we owned houses that kept gaining in value until we retired to senior communities or used the proceeds to pay for nursing home care.


We funded our children's college educations with home equity loans and mortgage refinance deals. Likewise we paid off consumer credit balances with equity loans which were supposed to be more secure in the eyes of the lender.


Seven million unemployed workers need seven million jobs. At $25,000 per job the cost is $175 billion per year. Then add to that the benefit of Health Insurance at $300 per month and you add another $10.2 billion. At a net effective 10% income tax rate and the Federal Government generates $17.5 billion.


Mortgage lenders used to consider that a borrower should not spend more than 25% of income on housing. Therefore an employee earning $25,000 annually should pay no more than $6,250 in rent or mortgage. $520 rent or mortgage payment is the top. That is equivalent to a maximum house price of $96,880.


After we ran out of A+ credit-worthy borrowers, where was the market going to go to keep building houses, and for they who had previously bought to sell their investment?


Developers make more than twice the profit on a $400k house than a $200k house. Similarly they make more than four times the profit than on a $100k house. So why build smaller more affordable houses for people who earn income in the lower tiers of the workplace?


It is sexier and easier to sell one McMansion for $500,000 than five economy houses at $100,000. A 4% commission is $20,000 on the McMansion and $4,000 on the economy model. All the pretty faces and handsome smiles in the Real Estate advertising inserts think of themselves as above the common transaction.


When the building boom began after WWII we were building the matchbox houses for the masses, not the upscale three car garage units for the wealthy.


If everyone who started investing in their houses when they first got married kept them any paid off the mortgage, they could fund their own retirement and not rely on SSI for their primary retirement income. Resistant Legislators wanted this mechanism to prevail so they would not have to raise taxes to fund the social systems.


Madison Avenue is just as responsible as is Wall Street for the collapse of our imaginary wealth. And Main Street was also a perpetrator and willing victim.


People from all over the world migrated to America so as to be free to improve their economic status, own a house and be masters of their own destinies . They arrived hoping for and expecting an upwardly mobile life. For the most part they found that higher ground and stood fast to defend that new station.


When laborers who immigrated to America reached a critical level of pay, benefits, working conditions and retirement comfort, the employers relocated as many jobs as was practicable to developing nations where wages are low, benefits are non-existent, and working conditions are dictated by the corporations. With those jobs went much of Americans' real wealth, possession buying capacity and ability to repay the loans taken out to accelerate the acquisition of mortgaged wealth.


Bankers and investors wanted the inflation of real estate prices because it seemed to improve the security of lending to sub-prime borrowers. Larger principle loan balances generated greater interest income for the lenders.


Points on a loan are really pre-paid interest. This amount is paid upfront and is not adversely impacted by future default of payment by the borrower. The lender gets an extremely secure income from those points. Two points on a $400,000 mortgage is $8,000.


The US Congress needed the GDP to reflect a growing economy so that the Treasury could sell Treasury Bills on the global market. Housing prices were part and parcel of the total GDP value. Therefore the more loans issued, the better the economy seemed to be. The result was more Treasury borrowing to balance a budget they were not willing to fund with taxes.


The US economy had a multi-billion dollar monthly trade deficit with China. We bought products from them then sent jobs over there to produce those products. From a macro-economic POV that was a good thing because they used their trade surpluses to buy our debt. They also bought heavily into our mortgage markets.


At the height of the import price of crude oil we were paying $140 per barrel. The net trade deficit with OPEC over a baseline price of $40 per barrel was $700 billion per year. The OPEC nations bought our weaponry, our debt and invested in our real estate. So nice of us to buy their oil and let them lend us the proceeds.