President Obama just finished doing a town hall meeting in Costa Mesa, California. It was awesome as usual, i guess nothing less is reasonably to be expected. What drew focus to me was the Q & A portion, particularly his answer to the housing market question. In his answer he displayed why he was able to win the election in November with his savvy and ability to make complex situation plain to the common person.
Thing is with this sub-prime mortgage lending, that some people want to blame it on the government making banks give loans to low income families. Its disturbing because those same people think they have it pegged but they have yet to scratch the surface. True as it may be that banks were made to give sub-prime loans, they were not made to inflate those loans. Everytime I have a conversation about this I have to break this down, similarly to like President Obama.
Essentially, since the banks were made to give these loans they started making people by homes.
Now about this time I always get the "people should not have bought houses that could not afford" statement, which is true; But what person, in their right mind, who works everyday and has been working for YEARS, is going to turn down their opportunity to finally own a home?
Fact is most people do not understand interest rates and refinancing, all they know is how much they have to pay, each month, and for how long. You think these people were told for the first 2-3 years they will pay $500 a month, then after that it will increase to upwards of $1500?
The answer is NO
People fail to understand that this whole banking situation is going to cause necessary parameters to be set up. It reminds me of what happen with the "buyer beware" practices of many moons ago - late 1800's early 1900's. Before things like consumer protection laws and better business bureaus, it was up to the consumer to fully inspect a product they wanted to buy. It was believe that products would be produced for quality and not just to get a quick buck. We know how that went, that is why the consumer protection laws came about.
That was when GOODS were the prime assets. At that time services were not so much covered and a hundred years later, now that SERVICES(like providing mortgages) are more prominent than GOODS, we need similar laws in place. This also encompasses Presidents Obama's mention of credit cards, again more banking stuff.
What is to come is simplifications in banking services and their products i.e. mortgages and credit cards. It will be great for banks to have to fully disclose what an adjustable rate is and means for your pocket. That way people will not "buy houses they can not afford" and if they can afford it when they get it they will be able to continue to afford it...
as long as they still work, of course.