People are up-in-arms because they’re frustrated that banks are refusing to refinance their homes at a lower rate. Let’s get real for a minute. Banks are for-profit institutions, just like any other business. If they are able to sell their widget (loan money) for 10 percent elsewhere, why should they loan it to us for 5.9%? Part of this is the bemoaned Wall Street angle, but mostly I’m referring to the fact that they’ve already got you by the short hairs in a higher interest rate, so where is the advantage to them to refinance?
“Perhaps within the same bank,” you might say, “but you should still be able to refinance with another institution!” Banks are avoiding ANY risk these days. Understandable, since we ripped them a new bunghole when they collapsed and needed bailing out.
Ya can’t have it both ways, people. Do you want them in safe, conservative risk mode, or overextending people’s credit? The fulcrum, the balance point, is a virtually imaginary point, it is so small, so they will ALWAYS be one or the other.
Of course Bankers will be opposed to anything that costs them or cuts their profit levels. But it also runs against our Capitalistic system for a judge to start imposing deals on one or the other party in a civil contract after the fact. If XYZ bank loaned the money to you and held collateral for that loan (your house, for example,) they are stuck taking only the house, even if that house is no longer worth what they loaned you on it. They will have to pay back the $300,000 (for example) to those they got the money from, regardless of whether you pay or not. But if a judge (sometimes elected) comes in and grants modifications that the institution can’t afford (i.e. Mr. Smith now only has $800 a month coming in, so we’re going to knock his $3000 a month note down to $400 a month,) they will fall like the house of cards that they actually are.
Perhaps the real solution is in the original Credit Union concept. Even today, these organizations are a bit closer to the original concepts. Back when, a bank was a place where the community put their money, and some of THAT money was invested in the direct material costs of building a home. (Alternatively, a more wealthy individual took the risks and potential rewards.) The future homeowner had a large investment, between his Down and sweat equity. He also had a home that he could easily afford in most circumstances. These days, the money isn’t personal, the Down is small, sweat equity non-existent, and payments astronomical. Why not? Wasn’t their money they were loaning in the first place, so the banks don’t really care… and Mr. Smith only has a few thousand in actual investment at risk. The rest he’d have paid in rent if he didn’t have a mortgage. It makes a lot of sense to walk away from a house when you owe $275k and it’s only worth $150k. In doing so, you saved yourself $125k PLUS the interest on that difference, over the term of the mortgage. Much smarter to get another home down the line, hopefully at market value in a market that doesn’t have you losing your shirt.
What we need to do is to learn to be more self-reliant, capable of finishing interiors, etc., to save ourselves money. We need to start paying debt off FIRST, before we incur more debt, or buy extravagances - on credit or otherwise. Borrowing should be a last resort, saved for those important things, not a new pair of $120 running shoes or a weekend vacation. Check things out, chances are you’ll find worthy fascinating destinations within a few hours of your home, and your current running shoes can last another year or so. Think of further acquisitions in terms of what else you could do with that money. Ask yourself: If I had the full purchase price in cash, in my hand at this very moment, is a $30,000 car what I’d want to buy with that money? Chances are you won’t.
No capitalist institution is anything other than self-serving. They have a responsibility to the owners and shareholders to do business that way. They are a business, after all, not a social charity. They’re doing what maximizes profit, which is their prerogative. It’s also our prerogative to purchase with cash, save up, pay every 2 weeks instead of every month, buy a shell instead of a finished house, forgo the new widget in favor of less budgetary pressure, and generally use what used to be Common Sense in our purchasing decisions.
We bailed them out. If we weren’t specific in the terms of that bailout, that’s OUR problem. When ya see ‘em having 3-cocktail lunches on Us The People, shop elsewhere, and let your representatives know — loud and clear — that you don’t want your money spent on bailing them out.
Meanwhile, be as self-serving as they are. Do what is best for you and your family. Rent for a while, save up, do as much of the building as possible yourself. We’ll get through this. We always do, one way or another.
Tags: banking, credit union, home, loans, mortgage, personal responsibility, refinance, savings & loan