Saturday, July 26, 2008

On the Financial Bailout

Generally speaking, I am very pratical, financially conservative person. That does not mean I don't want to pay any taxes and am greedy. Rather, that means I am very careful about expenditures, alway ask a ton of question regarding every deal and take a magnifying glass to all small print.

I was lucky enough to pay off my student loans, and last year I went about trying to purchase a small home in Portland. The three brokers I spoke to wanted me to either borrow more than I needed ( for improvements, even though the home was newly constructed and built exactly the way I had wanted) or to do a interest only loan ( and pay nothing of the principal, and the payments would reset in 3 years) Depsite have a okayish credit ( fine, 670 average, you nosy bastard) and money for a downpayment, these brokers wanted me to do these stupid loans. I got hung up on when I suggested standard financing.

After a year of watching the news, I now understand why people tried ot push me into these dumb loans, and why so many people got caught up in these loans.

The reasons?

1) The loans were profitable. If i had a standard loan (interest plus principal) wih a 10% downpayment and paid pmi, it would have made less money in fees than an option adjustable rate mortgage or an straight interest only loans- loans that required more fees and more money to process.

2) I was a young female minority- so the loan officers structured these prducts to look like the loans were doing a great favor by allowing you to have the capital to buy a home. What utter rubbish. My parents owned their home Brooklyn for years, got it throughthe community thrift, paid a high interest rate- but paid it off in 15 years. I think that with the expansion of banks and credit came the expansion of fees and high interest rates, and so being African american or 1st Generation Hispanic or Asian ( or any combo of the three) who did not have the knowledge f how these loans worked, or who were panicked that they would miss the boat on getting a home as a way to build wealth for their families, were especially vulnerable. Was there greed and flipping? Absolutely. But there was also a lot of swindling for quota bonuses, and many of the brokers who offered the swindling loans were members of minority groups themselves.

2b) Not that whites did not get taken as well. All the lifestyle programs, the "Flip this House" and interior decorating programs, the applaince porn, the Wolf stoves and SubZero fridges that look like they should hold fold for a cafeteria and instead hold only take out boxes and beer, the $10K couchs and tables and such. Geezus.

3) So now, the bailout. But this bailout will not directly help desperate homeowners- it will help hedge fund managers and mortgage companies and such who profited from badly regulated markets:




No, I am no disciple of Ayn Rand. But this covering the Angelo Mozilo bottom is simply not right at all. And not just at all.

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