U.S. wanted a housing boom. Now what?

The bigger the government gets, the more problems it creates. The government helps makes the mess, yet now voters want yet more government help to fix it. Why can they see the error of their thought process???

The government had a hand in it but it pales in comparison to the realtors who were pushing people into homes they couldn't afford for their 6% commission, Wall Street pushing for more mortgage securities to collect fees on, and flippers lying about their incomes.

I bought a very modest property in 2004 with a 30 yr fixed mortgage. At the time of purchase I was offered tremendously creative financing, gigantic mortgages, etc. that would have gotton me into a more spacious place, but I decided against taking that type of risk in the market because of the perception that prices had perhaps peaked. I find it discouraging that Bernanke is now suggesting that mortgage companies reduce the principle of many of these loans, because it removes the responsibility of the buyer from the equation- just because a bank approves a huge mortgage with an ARM doesn't mean it is a good idea to take. I hate the idea that a small fraction of people were duped into signing on for things they can't afford, and if malpractice on the part of the RE agent or bank can be proved, they deserve assistance and forebearance. However, the idea of bailing out ordinary people who bought McMansions rather than what they needed makes my blood boil. People must learn to live within their means or face the consequences!

I bought but I bought modestly for what I could afford even though I was offered a lot more in a mortgage. I also hunted a 'bargain' and I found one of the first places that was entering the foreclosure process a few years ago because the previous owners did do 100% financing. I also educated myself and read everything. I agree with Evangeline, if there was any malpractice that must be pursued and compensation is most likely deserved. But for those where malpractice wasn't involved and I feel those are the majority of the people in trouble, suck it up. Bailing them out is going to hurt me who did it the right way. It is time that people remember that there are consequences to their actions and they are responsible for their actions, you buy what you can afford not to keep up with the Jones.

So it's the Real Estate Agents fault that you bought a home that you couldn't afford? That's the best one I've heard all week! Grow up America!!!!

I completely agree, Evangeline. I think it is the greedy homeowners that put the market in this position. People love the idea of duping the system, but then when the time comes for them to pay for what they got themselves into, they get angry and play the victim. 60 Minutes did a piece on this. The fact that people in California are just walking away and literally ditching their homes to start a new life is appalling. One young couple was saying that they borrowed beyond their means, but now that they are being asked to pay more than their house is worth they find it unfair. Good for you for having the foresight to buy within your means!

There is a certain amount of self-responsibility here. Buyers, in some cases, certainly did not fully think their situation out.
The industry must bear the brunt of the blame for the problems in the sub-prime market. They knew, or should have known, that trouble lay down the road as the housing market has its ups and downs.
The geniuses who started this whole mess made fortunes because of the mortgages they brought in. However, escape scott free when the bubble inevitably bursts.
Executives get substantial pay and bonuses these days. It appears they are not paying sufficient attention or exercising oversight. Why are they paid so much?

I agree with all the comments above about buyers being irresponsible. But, the fact is that the Prez did incent the housing boom not by pushing the idea of the ownership society, but by keeping interest rates inexpensive starting with the aggressive policy treasury/fed once we had september 11th and the 2001 bust.

The other problem is that there are no more cops on the street!! Meaning that they did away with most of the major banking legislation some time ago--that means every type of financial company can get into mortgages, insurance, bonds, brokerage, etc. Was a time in our history when only certain types of institutions could sell mortgages, so there were more safeguards for consumers. Blame the regan adminstration

People have to learn to take responsibility for their own decisions and if they took on a mortgage that they couldn't afford or took the risk of an ARM (in a low fixed-rate environment) then they have to accept the consequences or find ways to make it work. Bailing them out won't solve the problem. "Two wrongs don't make a right"

people need to learn to live withing there means and stop trying to live like the people they see on TV. If you only make 40g's a year, please do not go out and lease an entry class bmw and then ask why it is so hard to make ends meet.

Americans are a product of their culture, Greed, Greed, and more Greed. It's like that movie Idiocracy was more of a documentary then a comedy!

THIS IS INFURIATING!!! How can Bernanke sit back and offer principal reductions? I sat back watching housing prices rocket to the stratosphere, hoping and waiting for the opportunity to get into a more affordable market. I now sit with a HARD EARNED 20% down, and a HARD EARNED 790 credit rating, while those that HAD to have that $500k home jumped in feet first knowing FULL WELL what the risks were get a bail out. What sort of message does this send. Hear this..

People got into a hot market, using speculators financing and thinking they were going to continue to see the market explode! I give ZERO sympathy to these people. For every Bull, there is a Bear. To say they were all preyed upon by ruthless Realtors and Mortgage lenders is nothing but an excuse. And excuses are the crutch that supports good ole America now. Hmmm, market is getting soft? Let's give it a botox injection whenever we see a wrinkle. It only prolongs the obvious!!!

Now I'm not too naive to think the gov't really wants to help these poor, poor souls that were preyed upon out. I think it might have a smidge to do with the fear that we are on the precipice of a banking collapse. Taking the principal reduction may just be the lesser of the two evils...take a little less gravy for the meat now, or lose the whole gravy boat later.

Disgust is all I feel right now

i hear you RC. I can't believe they are even discussing the possiblity of dropping some principle $$$. Talk about getting away with murder. I will be fine with it as long as I receive my money for NOT over extending myself....only makes sense right? Why should I be penalized for NOT over extending myself?!?! If they get a piece, I DESERVE a piece, it's that easy...

I thought it was funny how someone blamed the real estate agents before...come on dude...I don't blame them or the sellers...I can't stand playing the blame game...but in this case - I blame the buyers who knew full well they couldn't afford the loan and the predatory lenders/banks (I blame them the most) for lending WAy too much money to people who obviously couldn't afford it.

We're in for a world of hurt with the recent rate cuts. I heard someone else mention it earlier too...that's what got us in this mess!! Now you have people that are twice as desperate to keep their house, or stay out of Bankruptcy etc...and we're lowing rates again so they roll over more debt!! It's unreal...and it's not like this happended 100 years ago...it was like 5 years ago!! Granted it is slightly harder to get approval, but nontheless, we're doing it again!!

It's so crazy it's almost comical...

Huh? Try taking a look at deregulation, which allowed lenders to circumvent protections that had been put in place during the Great Depression. Lenders had no business making those loans, as neither lendee nor lender could afford them. But, hey, as someone has already pointed out, the lender was collecting a nice fee on these transactions. Lender then packages loans and sells them off as stocks-and-bonds, letting the loans become someone else's problem. Guess who someone else is? You and me, for the most part, as it turns out.

Many of these borrowers are guilty of poor decision making, and many lenders are guilty of aiding and abetting. Owning a home is NOT the right of every American, but a priviledge that must be earned. I do not feel as though the investors and banks that purchased these loans are obligated to do anything for the borrowers, but I would consider looking into the practices of some of these lenders and mortgage brokers. Listing agents did their job by getting the most $$ for properties they were contracted to sell, but did the buying agents to their part to let borrowers know that they were buying too high? Since buyers agents are paid, at closing (based on a percentage of the sale, an even bigger conflict), by the home sellers, there is a conflict of interest. Also, real estate appraisers, who are supposed to act as the "umpire" for lack of a better term, have a conflict as well, since their livelyhood is reliant on the lenders giving them business. Lenders will not continue to do business with appraisers that keep killing deals by not pushing values to meet workable numbers. Appraiser can either keep their business or their ethics it seems.
In the end, the buyer needs to watch out for themselves because no one else is. Anyone who relied on a real estate professional's advice about buying a home was naive and a bit foolish.

The blame lies with the buyers, putting 0% down, no-doc mortgages. If they had tried to live within their means this never would have happened. I do agree that the goverment and lenders made the problem worse. But ultimately, any homeowner in trouble at this point, is responsible for it. They only hurt the rest of us who were trying to live within our means and not over-extend ourselves.

Any government bail out at this point, only hurts those waiting to buy now. Those in their mid 20's - 30's have been most screwed by this. If people need to go into foreclosure, let it happen. The prices will come down. Then those that have actually been saving will be able to afford a house.

I don't want to see anyone homeless, but maybe they need to suffer the consequence of their own bad decisions and rent again. Most of the people who have been waiting to buy have been stuck renting because of the run up. It would be unfair to help those who actually caused the problem, by taking the tax dollars of those who didn't cause the problem to bail them out.

The goverment needs to send a message of supporting those that are actually doing the right thing and discouraging people from living in debt.

The only way the government "helped" was by offering programs with as little as 3% or no-money down.

For example, MassHousing. And, FHA-guaranteed loans.

If people had invested 20, 10 or even 5%, they wouldn't be underwater, and would feel the need to stay with their homes. Or, sell them for 20, 10 or even 5% less, and swallow the loss.

It is absolutely disgusting to think that principle should be lowered. It is the nature of the beast. You may have to lose 15-20 grand if you have to move in this market and overextended yourself. No one is suggesting that my principle be lowered because we were aware of what we could afford to begin with. If morons get 20 k reduction for being morons, I want it for being brighter than that. Perhaps, if I knew someone would bail us out, we would've bought what we wanted where we wanted in the first place, and screw the consequences.
On the other hand, keeping houses from be foreclosed on will also help those who will continue to own by keeping the market from following the price of bank sold homes. I hope we like where we moved to now, I don't think selling is in the cards in the next couple years.

The banks are at risk of losing trillions of dollars. What is being discussed here is the government, working on behalf of the banks, nationalizing mortgages and using taxpayer money to bail out the banks. Sure, you can vent at homeowners and realtors and everybody else. This is a massive credit crunch, resulting from a credit bubble and housing was just one component of it.

Deflation is here, folks. Look for stocks to sink, housing prices to sink, and US wages continue their stagnation and then also begin to shrink. Most US money is based on debt, and the contraction of credit is a contraction of the US money supply, which is deflation. This is not stagflation. The US dollar is currently weak, driving up the cost of imported oil (and therefore plastics, corn, chicken, and everything else made from oil). Do not confuse price inflation of an imported commodity with inflation. And no, price inflation does not increase the money supply. We are in a deflationary environment, and its only a matter of time before we all discover this. With the odds being that the US dollar is going to strength and the money supply is continuing to shink, this is a TERRIBLE time to rent debt

In this deflationary environment, the banks are way over-leveraged and are at risk of failure. Homeowners will chose to walk away. The government no longer cares about the people, this is all about saving the banks money.

I can understand Bernanke wanting to avoid large scale foreclosures because that could lead to a market collapse but principle reduction is not the way. Besides it being inherently unfair that people who made bad choices are getting bailed out, it also result in losses for lenders which will come back as higher rates for new borrowers.

A better alternative would be for lenders to work with the borrowers to keep their monthly payments affordable but extending the life of the loan to 40-45 years.

This way, borrowers keep their homes while still paying what they borrowed.

there is certainly enough blame to go around for all...but the underlying problem as I see it was the move to securitize mortgages and take the direct responsibility from the lenders and borrowers. Any move to insure that the market does not suffer more losses will only exacerbate the problem. Let the pieces fall where they may and clean up the resulting debacle with less, not more, government intervention. The price will be high, but hopefully not as high as the cost incurred in the Great Depression. Baby, the rain must fall.

If some Joe Schmo gets his principle reduction, so should I. Banks are bullies.
Why can't they just do rate reduction (say from 6% > 3%) or extend the life of the loan (30 yrs > 40-50 years)? But NOOOO if you're falling behind payment we'll foreclose the property!

Conservatives' intense fixation on Bill Clinton never ceases to amaze. Fact is, the policies he proposed were benign by today's standards--lowering interest rates, finding other sources for down payments, and the like.

Indeed, property values had hardly begun to rise when he left office. The Bubble was all on Bush's watch.

It was deregulation that caused this--lack of government interference, not too much of it. The boys at Goldman cooked up these insane lending schemes, and now we will all pay the price. And the deregulators still don't want us to touch the shadow banking industry.

On the other issue: I agree, bailouts are obscene--whether they're for reckless banks or reckless homeowners.

Let's get one thing straight. In the future, we still need good borrowers, and lenders with the capital to serve them. Otherwise, we have a major economic meltdown.

But we don't need the same lenders and borrowers we have now. These homeowners, these banks, these lenders who lost a trillion dollars in value through greed and stupidity--they can all go belly up. We'll do just fine, as long as we find someone else to replace them.

The bailout queens don't want us to understand that.

From what I've heard, due to the mortgage collapse, we all end up paying for other people's greed through inflation. Every time we pay more for our groceries or whatever else, that's our collective tax to pay for this BS. It pisses me off. I actually left the Boston area with my husband to move somewhere where we could buy a house we could afford. And I miss it like crazy. It steams me to no end that there are people who got to stay around Boston in fancy joints with granite countertops that they couldn't afford, and bit by bit, I get to pay for it instead of saving money to come home!
People judge themselves too much by comparison to what is on TV. They look at a neighborhood and say, this isn't good enough for me, this doesn't reflect who I think I am. Maybe, maybe not, but maybe it reflects what you make and you shouldn't take it any more personally than that. Your things do not define you!

I was always content to pay my rent and not put up with the hassles of ownership but in the past two years I felt I was in a position where owning a condo made sense for me. When I called the bank for a pre-approval I couldn't understand why they were so willing to give me money that would clearly become a burden to me. I always thought the bank wouldn't give me more money than they thought I could afford but the opposite seemed true. As I've gone through the process of buying (still looking) I definitely share the same observations of people who have written in this blog (low quality choices, over-priced properties). However, while I was surprised by Bernankes recent comments, it doesn't make my blood boil. Home ownership isn't about fairness, it's a personal decision and it's also about a stable society. Bernanke is worried about the stability of the country (I assume). While living in a society that rewards intelligence and responsibility also is important, suddenly having thousands of people put out of their homes can be very bad for us all so I give him credit for putting it out there. It may not be the right move right now but we can't leave anything off the table. Life ain't fair right? In the meantime, I will continue to look for the right place for me but not get sucked into this notion that ownership is the secret to happiness or live beyond my means because "I deserve it". It sounds like everybody on this blog is making good decisions and are very thoughtful and I appreciate hearing your thoughts which give me a lot of good information about this issue. Good luck to everybody!

I would put a little more thought into the role that real estate agents play in the housing debacle. Many people know little about the financial stability of the market and cause and effect of goverment. They simply aspire to buy a home and be a part of the american dream. Real Estate companys advertise themselves and their agents as all knowing friendly people with the customers best interests in mind. Common people who don't know any better put their trust into the agents believing they are in good hands. They trust these agents to help them understand what they can afford. So, are Real estate agents to blame for the housing debacle? Well, not directly perhaps. But were the effective at placing peolple into homes they could afford? Apparently not. So what have we learned? Real Estate agents should not be trusted to have your best financial interests in mind. They are just interested in getting their money. It's just a job like dealing cards in Vegas. You might win, you might lose but don't expect the dealer to have your best interests in mind. Don't trust what Real Estate agents tell you about the financial part of the market.

Greatings,
You need more rest i think

Thank you
Zoran