Moral hazard is central issue in housing bust

 FULLERTON, NEWS
Mar 012012
 
Moral hazard is central issue in housing bust

Many issues compete for our attention in the wake of the housing bust. In the sidebar of the blog is a list of topics of interest I write about frequently. However, the importance of these issues is not equal. Underlying most of them is the central problem of the housing bust: moral hazard. Every decision we make in life has consequences. If we save regularly and invest wisely, the consequences are wealth and peace of mind. If we spend foolishly and speculate wildly, the consequences are periods of feast and famine, delusions of grandeur, enormous entitlements, and when times are [Read More...]

US taxpayers about bail out California HELOC abusers

 ANAHEIM HILLS, NEWS
Feb 102012
 
US taxpayers about bail out California HELOC abusers

I found a new hero online: Steven Greenhut, vice president of journalism at the Franklin Center for Government and Public Integrity. As a fellow displaced Midwesterner, he was shocked and appalled at what he witnessed moving to California. He too is buying up rental homes in beaten down markets for the cashflow. He recently wrote an editorial on Bloomberg that is today’s featured article. Mortgage Deal Props Up California House of Cards: Steven Greenhut By Steven Greenhut Feb 9, 2012 8:06 AM PT Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s [Read More...]

The devastating aftermath of mortgage equity withdrawal

 IRVINE, NEWS
Oct 182011
 
The devastating aftermath of mortgage equity withdrawal

Money won't buy happiness, but it can provide the finest forms of misery. Everyone wants money. If given the chance to do nothing and obtain money, most people would take it. Such was the lure of the housing bubble. People only had to do two things to obtain copious amounts of cash. First, they needed to buy a house. Then they needed to find a lender who would give them money for signing some paperwork. That's it. No work, no skills, no risk, no sacrifice, nothing. Buy a house, sign some papers, and anyone could obtain hundreds of thousands of [Read More...]

Foreclosure Is a Superior Form of Principal Reduction

 NEWS
May 172010
 
Foreclosure Is a Superior Form of Principal Reduction

The banks blew it. We all know that, and now we are all being asked to pay the bills for their catastrophic mistakes. I didn’t cast the first stone, but I hope my writing about this issue has left a lasting impression. I also hope we can all learn something from this are avoid the mistakes again in the future. I have my doubts. We can all see the problem and the solution, but we all know the government is likely to blow it. Excessive debt is the problem Ever since the Great Housing Bubble began to deflate, everyone has [Read More...]

The Ethics and Morality of Borrowing and Lending During the Great Housing Bubble

 NEWS
Apr 232010
 
The Ethics and Morality of Borrowing and Lending During the Great Housing Bubble

Did anyone who participated in the Great Housing Bubble stop to consider what was the right thing to do? As long as the money flowed in a river to homeowner’s doors, few cared. The river of free money isn’t flowing any more, and now we have to examine why this happened, or we risk doing it again. In yesterday’s post on Walking Away from a Mortgage to Secure Their Children’s Future, I presented the argument that people should walk away from their mortgages if they are facing the choice between defaulting or paying on an underwater mortgage when renting is less [Read More...]

The Moral Hazard of Market Supports and HELOC Abuse

 NEWS
Feb 092009
 

Have you ever stopped to ponder the issue of moral hazard? At its most basic, moral hazard is any change in behavior that comes about when people believe their actions have no consequences. The housing bubble was built on moral hazard. None of the parties to the real estate transaction believed they had any risk. Borrowers and lenders both believed real estate always goes up, so there was no market risk. Some savvy borrowers realized that 100% financing was transferring all the risk to the lender, so they risked nothing other than their credit score. Most lenders believed they were [Read More...]