Countrywide, the country’s largest mortgage lender, is stepping in to “rework” 82,000 loans totaling about $16 billion. I believe that the lenders and the borrowers are both partly to blame for the mess. Lenders offer risky loans, and customers, happy to hear they can afford more than they anticipated, sign up without realizing they can’t really afford it.
When a company like Countrywide gives into consumer pressure, you can be sure other lenders will follow. While this is good for the economy in the short-term and good for the borrowers overall, it may send a bad message. It perpetuates the idea that there are no real consequences to being in debt. Bailouts extend the ability for people to survive while simply signing their paycheck over to other people and companies like mortgage lenders, electric and cable companies, and credit card issuers.
This is a dangerous thought: As long as you are following the spending trends of millions of other people, you are safe. There will always be changes in regulations or laws to keep the economy somewhat afloat, and if you’re representative of the greater economy, chances are you’ll be kept afloat as well.
While history shows that in general that has been the case it is a highly dangerous way of thinking, because it doesn’t play out that way for everyone, and you have no idea of knowing if it will for you. It’s a much better idea to live below your means and never have to worry.
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2:25 pm (reply)
2:34 pm (reply)
I’m holding judgment until details leak out of how this “rework” happens. Just as lenders got borrowers excited about mortgages they couldn’t afford, they could just as likely be getting troubled borrowers excited about a “rework” that may involve all kinds of penalties and charges that make it a bad deal. We’ll have to see how it shakes out, and what other lenders do.
3:46 pm (reply)
I’m glad they’re reworking it because of their end of the responsibility. But we’ll see what happens. I hope the borrowers will be accountable and use this bailout for good.
5:00 pm (reply)
I am on the same page as Joel. They are certainly giving a good PR show with talks of these “bailouts”, and working with their customers, but I think we can all agree that these companies aren’t going to roll over and lose money willingly.
There may be some borrowers that can requalify for better loans. They may offer refinance discounts over their already inflated costs. No real charity there. The rest of them are probably in subprime loans for a good reason – they are a credit risk. CW isn’t going to give them a free right, and I’d be willing to bet many of these resetting ARMs are going to be converted to fixed high rate 50 year loans, to keep the payments low but keep their risk minimal and their interest profit high.
10:53 pm (reply)
Very good thoughts on this, not that I don’t want people to be rescued in this instance, but it might not be a bad idea to make it mandatory to also attend a financial training seminar.
11:05 am (reply)
Well Wall St. Likes it to the tune of 16%. I don’t know how countrywide can’t do this. They can either write off the entire loan (and flood the market with foreclosures) or they can take a little less profit and move on. If CW can return these to manageable payments, and still make a deal their investors like, more power to them.