George Rebane

Patrick Tobin of Nevada County, CA sent me the following email on the effects of the current subprime ‘crisis’.  Pat and his wife are long-time friends of ours from college days.  Pat is an ex-Marine officer, served on the city council of Inglewood, a career real estate professional, fellow escapee from the soCal mess, now a collector/restorer of antique cars, and for years (with wife Ardy) the editor/publisher of an impressive (inter?)national newsletter for Ford Model A aficianados from which he recently retired.  His email is reprinted here with permission.

"Mind you, I wouldn’t want to lose my home, or more accurately, lose my house.  I haven’t had the experience, but I imagine that it is humiliating, discouraging, possibly depressing , and without meaning to trivialize it, bothersome to have to relocate. The newspapers and TV run stories of sad looking people packing up whose mortgage payments have jumped so much that they can’t pay.  Foreclosure and out. Ruination. Woe is me!

I suggest that it’s not as bad as all that.  In many current cases, without the mortgage teaser rate, ( that is, a loss-leader in grocery store parlance), a family could  not have afforded a house,  not be able to close escrow, and not be able to move in.  But with a loss-leader teaser rate, the family was able to do these things.  What has the family lost when the under market interest rate goes to the market interest rate?  If the family wasn’t in the house in the first place, the family wouldn’t have had to move later in humiliation. And with very little down payment, there’s not much economic loss either. Teaser rates should be forbidden.  If a family is buying a house as a home, not a money making speculation, they (the family), should not object too much to such requirements.

Polly Adler wrote a book about her San Francisco whorehouses, titled " A House is not a Home".  To paraphrase her, I remind that " A Home is Not a House".  Or, using an old aphorism, "The home is where the hearth is".  With the surplus of housing available, and with speculators now desperate to get some, any, income, it is now cheaper to rent, by hundreds of dollars monthly, than it is to meet mortgage, taxes, and maintenance expenses.

What’s wrong with renting your home? Now, for a few years at least, the family renter has the advantage.  If that family is wise, it will rent a house, save the difference between renting and owning,  and use it for a legitimate future down payment on a house that they know they can afford, and at a price probably cheaper than that that caused all the trouble in the first place.

There is a  finance counselor,  Robert Kiyosaki, that writes about personal financial planning whose book (Rich Dad, Poor Dad),  talks of different investment methods but advised "not to include your house in your calculations; your house is your home, do your planning beyond it."  How right he was!"

Pat argues that loss-leader teaser rates should be forbidden.  Which new law, of course, would be another restriction of our freedoms.  A lender with money to lend cannot lend it on his properly declared terms.  His property rights to that cash have therefore been further restricted in order to save some stupid people the agonies he describes.  In doing so, the new law would penalize the fiscally savvy people, who happen to be currently financially limited, from getting into a house and onto the ‘real estate step’ with the rest of us.  The law would brand all who desire to take out such a loan with the label as ‘Financial Idiot – needs government supervision and care’.  And all this because about 1 in 14 subprime borrowers decided not to prepare themselves for the ‘sure as the sun rises tomorrow’ ARM increase in their mortgage payment that they had to initial 53 times in the hernia pack that now passes for a typical loan package. Broderick Perkins of RealtyTimes gives a fuller analysis of this situation here.