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Friday, September 15, 2006

Housing Finance and Refinance's Bad Choices

As I have read many reports on the housing market down-turn, be it hard or soft, with the expected recession, mild or severe, I am emotionally affected by what will happen to regular people. And the worry there is that people used ARMs to either purchase over-priced homes or removed equity to refinance at adjustable rates in order to buy nice cars and flat-screen TVs.

Amity Shlaes reports that it is not credit card debt that is problematic. Of the $2.3 trillion borrowed last year, $1.2 trillion of it was home-mortgage debt. $500 billion of that went to buy big ticket personal goods.

Shlaes explains that many to expect a hard road as interest rates climb are the professionals who cannot hold onto their chalets by the sea. With home values in decline, there will be many foreclosures and banks losing money if the forced sale as well. She also states:

There is even good news. “A decline will put houses within their [many Americans who cannot afford to buy homes right now] reach.”

I have a close relative who is now unable to handle the higher costs of the debt service due to dipping into her home's equity over the past few years. She is selling her condo and will likely be a renter for the rest of her years. The choice she made was not forced upon her. I wonder how all of this financial activity by individuals and institutions, smart and dumb, educated or ignorant, can be blamed on any Bush administration policy. And I fear the remedy will be a government program.

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