[FoRK] Then there's this...

Stephen Williams sdw at lig.net
Fri Feb 27 22:52:18 PST 2009

Jeff Bone wrote:
> On Feb 27, 2009, at 6:13 PM, Jeff Bone wrote:
>> On Feb 27, 2009, at 3:57 PM, Stephen D. Williams wrote:
>>> Seems like a minor point.
>> It's not.  It's right at the heart of the matter.
> BTW, let's dig in on this just a bit.
> Consider that even now foreclosures and imperiled mortgages only 
> represent perhaps 3% of all home mortgages nationwide.  But the impact 
> of this --- this should be abundantly clear --- is absolutely 
> nonlinear, even exponential.
> Now consider that many people who have purchased new homes in the last 
> 5-7 years are new buyers, generally buying as much house as they could 
> afford in an inflated market.  Given the average home price nationwide 
> of about $220k, the tax deduction due to mortgage interest --- 
> particularly on ARMs, interest-only loans, and the other evil 
> instruments used to finance these purchases --- represents $10k-$20k.  
> Now take a big part of that away.
Whether you take away some of the credit for mortgage interest or you 
raise taxes, these people would pay more tax and have less money.  It 
doesn't matter to that person why they have less money, only that they 
do.  It is important that certain people would be taxed more while 
others would see no change.

The main bad loans types were the less-than-interest payment loans and 
other balloon loans.  The ARMs are a bet that the interest rate won't go 
way up.  In fact, they haven't for most people.  As for interest-only 
loans, those are only bad if people, within a reasonable time, pay 
principle on top of interest.  They aren't fundamentally bad as far as I 
can see since they just give you extra freedom in when to pay the principle.

In 1995, I worked with someone in Manhattan who lived in a building 
within commute distance that had an "ownership" contract that required 
everyone to have an interest-only loan, permanently.  Apparently, the 
strategy was to have people own the "apartments", but not to build any 
equity.  Presumably there was some kind of exit requirement.  I was told 
that it was not an uncommon arrangement there.
> It would not surprise me at all to see the percentage of mortgage 
> trouble / potential or actual foreclosures rise to 5% or more by the 
> end of next year as a result of this.  And again --- the damage THAT 
> causes is nonlinear.
Since there are many factors causing an increase still, I'm not sure how 
you are going to reliably attribute increases to this.  This might, 
along with the many other forces right now, cause a disproportionate 
effect.  It seems incremental to me, not exponential, unless many are on 
the same edge rather than an even distribution.
> No, this is not a minor point.  Not at all.  This is a *profoundly* 
> bad idea, one that messes with the basics of already 
> maximally-strained household finances for the  average American, and 
> particularly the kind of American that was just on the verge of 
> "moving up" the economic ladder:  the 30-something recently-married 
> professional, the lower- or middle-tier white-collar worker just 
> barely past paying of student loans, barely in the about-to-increase 
> second or top tax bracket, etc.
Those in lower tax brackets won't get affect that much, will they?
> The tinfoil hat perspective --- that the intent here is to engineer 
> deep and permanent dependency on government throughout our society --- 
> gains some credibility.  Even if that's not the intent, that will be 
> the effect --- coupled with a complete inability of government to 
> *meet* those needs in the first place.

Welcome to bizarro world.  There is some seriously wacked out logic 
going on with these people.

> jb

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