Tag Archives: Mortgage loan

Really simple explanations as to why government involvement in home loans is counterproductive

The Federal government’s involvement in home loans has been a disaster, costing the nation hundreds of billions of dollars, damaging the nation’s credit rating — probably permanently, and causing misery for millions of people.  It was all preventable, but childish ideals got in the way of clear thinking.  You don’t have to be an economist to understand these principles.

Q. If you increase the demand for something, do prices go up or down?

A. Up.  Most people understand that intuitively.

Q. So if the government decides that more people should own homes and makes it easy for them to borrow money for them — whether they can afford it or not — will home prices go up or down?

A. Up, of course.  That is what drove home prices up in the housing bubble.  So the government increased housing costs for everyone, including the people they were trying to put into homes.

Q. At a given price of a house, say $100,000, and all other things being equal, which borrower is more likely to repay, the one who makes a down payment of $10,000, resulting in a $90,000 loan balance, or someone who borrows at 100%?

A. The one who made the down payment, of course.  Even if you ignore that those who have the cash to make down payments are probably in a better financial situation and more likely to make payments, the lower mortgage will have a lower payment.  But the government made it easy for people to borrow with no money down.  Then people were surprised when loan defaults went up.

Q. If you could go to Las Vegas and gamble knowing that you could keep all your winnings and others would cover all your losses, would you go?

A. Of course!  And that’s why bailouts are always horrifically bad ideas.  The mortgage mess involved government promises to cover losses, so people did exactly as expected: They made loans they never would have made otherwise.

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The government needs to get out of the home loan business. Privatize Freddie Mac and Fannie Mae asap.

If you are ever in Louisville . . .

. . . check out Sojourn Community Church.  My daughter worshiped at Sojourn during the two years she lived there and I always loved visiting.  It had consistently accurate verse-by-verse preaching, contemporary style music with sound lyrics, and just an overall good balance.  It was recommended to us by some missionaries who now live in the Ukraine, and we are very grateful to them.

(Just to be clear, this church has nothing to do with Jim “the Gospel is all about wealth redistribution” WallisSojourners organization.)

They took baptism very seriously, and would tell you about the people being baptized.  Someone would read a ~1 page overview of how the person being baptized came to trust in Christ.  The stories were so varied — tales of horrible abuse, drug / alcohol additions, etc. but also some people who grew up in Christian homes, went to church camp and such, but never truly committed to Jesus.  I like how a full range of people felt welcomed there.

Another nice touch: For communion, they would offer two cups — one of wine and one of grape juice.  I’ve never seen that before.  I know people have preferences but it is definitely a “debate, don’t divide” issue for me.  On second thought, it isn’t even a “debate” issue with me.  Just approach communion with the right attitude and drink whatever you like.

They are welcoming to the “over-churched or the under-churched,” though a “churched” person like me could get a lot out of it as well.

They didn’t water down the Gospel a bit, weaving it in the messages every week.  They did a 2 year sermon series through the Bible, and ended with a sermon on the lake of fire from Revelation — even though it was Christmas week!

They opened a Sojourn Community Church in the Heights area of Houston recently.  I want to check it out sometime.  It would be too far of a drive for us to worship at regularly, but it might be a good place for ex-prisoners I know who will settle in halfway houses in the downtown area.

I’d love to see this model expand across the country.