The #1 Bank Product: No Surprises Here
In yet another round of forgetting the past and repeating the mistakes that brought us to the brink in 2008, we introduce the next potential bubble, or maybe we should cal it a "re-bubble" in housing. Can you guess what it is?
But whatever it turns out to be, two questions come to mind:
First, why would anyone want to suck out the equity from their home, especially so soon after our recent experience with collapsing home values, starting in 2006-2007 with the resulting negative equity millions of home owners found themselves stuck with (i.e., their mortgages were worth more than their homes)?
Second, who are these people? Could these be the same people whose homes slipped into negative equity come back for more equity-sucking now that their homes have returned to positive equity? Or are they other home owners who didn't suck out their equity the last time deciding now that their neighbors who did had all the fun and they don't want to miss their chance now that their homes show positive equity and some banks are loosening their lending standards?
I don't know the answers here. I do know that, once upon a time, Americans prided themselves on being debt-free. They held "mortgage burning" parties when they paid off their mortgage. They wanted to own their homes "free and clear." The same applied, albeit to a lesser degree, with cars - typically the second most expensive item the average person buys (second to their home). And while some people always bought things for which they didn't have the cash, even those who did so simply because they couldn't hold themselves back from buying that couch or dining room set now, rather than a few months or years from now when they might have saved their money, there was once a core of Americans who waited until they had the money before buying anything. That was a long time ago.
And while there remains a segment of the American population that has had it with living under the thumb of creditors, and therefore do strive to free themselves of debt, including even their mortgages, there also remains that great mass of people who somehow thrive living with large debts and pressing monthly payments. I don't get it.
Then again, in a country where the federal government piles up its debt, and where state and local governments borrow as much as they can to hire municipal employees (who might feel compelled to thank them with a vote or two), and who make commitments to future benefits like health care and pensions for their employees that in all too many cases the government can't pay for out of current revenue and which it has no reserves to tap into when the time comes to pay out, you shouldn't be surprised when a culture of debt forms and solidifies from the top of our society to the lowest rungs.
Besides, what's the point of saving money in a country where you can't get any return on your savings anyway?
So with a massive build-up of student loans, sitting on top of a bubbling pot of auto loans and leases given to anyone who can walk into the car dealer and breath on their own, we now add yet another layer of borrowing of these equity-sucking home owners. What would be really interesting would be to know who owes a slug of student loans, drives a leased or loaned car, and has also recently borrowed against the equity in their homes. I suppose such people would be the new models for our children to emulate as they graduate into a world of crushing debt and a life of paying an ever-expanding line of creditors.
Now all we need is another financial crisis so the rest of us can bail these folks out yet again - after we bail out the banks, the government and...
"That is the No. 1 product that customers want," said Kelly Kockos, Wells Fargo senior vice president of home equity.Of course, it's the home equity loan and home equity line of credit (HELOC). Now that some home values have finally risen, apparently the homeowners have returned to sucking out the equity that the risen values create. What they are using that equity for is anyone's guess. But if the latest consumer spending numbers are any indication, they're not spending it. Of course, maybe the increase in borrowing against your home will result in spending increases in the future, but it's just too early in this new cycle of debt to see that spending show up in economic reports.
But whatever it turns out to be, two questions come to mind:
First, why would anyone want to suck out the equity from their home, especially so soon after our recent experience with collapsing home values, starting in 2006-2007 with the resulting negative equity millions of home owners found themselves stuck with (i.e., their mortgages were worth more than their homes)?
Second, who are these people? Could these be the same people whose homes slipped into negative equity come back for more equity-sucking now that their homes have returned to positive equity? Or are they other home owners who didn't suck out their equity the last time deciding now that their neighbors who did had all the fun and they don't want to miss their chance now that their homes show positive equity and some banks are loosening their lending standards?
I don't know the answers here. I do know that, once upon a time, Americans prided themselves on being debt-free. They held "mortgage burning" parties when they paid off their mortgage. They wanted to own their homes "free and clear." The same applied, albeit to a lesser degree, with cars - typically the second most expensive item the average person buys (second to their home). And while some people always bought things for which they didn't have the cash, even those who did so simply because they couldn't hold themselves back from buying that couch or dining room set now, rather than a few months or years from now when they might have saved their money, there was once a core of Americans who waited until they had the money before buying anything. That was a long time ago.
And while there remains a segment of the American population that has had it with living under the thumb of creditors, and therefore do strive to free themselves of debt, including even their mortgages, there also remains that great mass of people who somehow thrive living with large debts and pressing monthly payments. I don't get it.
Then again, in a country where the federal government piles up its debt, and where state and local governments borrow as much as they can to hire municipal employees (who might feel compelled to thank them with a vote or two), and who make commitments to future benefits like health care and pensions for their employees that in all too many cases the government can't pay for out of current revenue and which it has no reserves to tap into when the time comes to pay out, you shouldn't be surprised when a culture of debt forms and solidifies from the top of our society to the lowest rungs.
Besides, what's the point of saving money in a country where you can't get any return on your savings anyway?
So with a massive build-up of student loans, sitting on top of a bubbling pot of auto loans and leases given to anyone who can walk into the car dealer and breath on their own, we now add yet another layer of borrowing of these equity-sucking home owners. What would be really interesting would be to know who owes a slug of student loans, drives a leased or loaned car, and has also recently borrowed against the equity in their homes. I suppose such people would be the new models for our children to emulate as they graduate into a world of crushing debt and a life of paying an ever-expanding line of creditors.
Now all we need is another financial crisis so the rest of us can bail these folks out yet again - after we bail out the banks, the government and...
Comments