Thoughts on our buying a condo

*Alan Greenspan manipulated credit markets not to help the economy but to make more people homeowners and supporters of his personal ideology, capitalism. In a sense, it's worked on me - it's now a lot harder for me to support ending the regressive and environmentally destructive mortgage tax deduction. I'd still support a gradual phaseout though. Otherwise, though, I don't feel any more inclined to Greenspan's stupidity than I did before.

*There's a large tax credit for first-time home buyers that we'll get. Thanks, taxpayers! While we're not wealthy, I think there could be better uses of the money. Along the lines of Jonathan Zasloff's consideration of whether straight supporters of gay marriage shouldn't be married until everyone can, I suppose we could refuse the tax credit. As with marriage, I don't think that's going to happen. Maybe we should up our donations some, though.

*Fannie Mae charges a fee of 0.75% of the mortgage if you're buying a condo instead of a house, waived only if your downpayment is 25% instead of 20%. While I'm sure they have their financial reasons, it's a disincentive to smart growth.

*I believe increased residential mobility is environmentally beneficial, as in several years ago when I moved to cut my work commute to one-tenth the time. On the other hand, I've just been reminded what a complete time-wasting pain in the neck it is to move, one that gets worse as you get older and hoard more stuff. I'm not planning to move soon.

*We decided to clean our old apartment ourselves rather than spend several hundred dollars. Over forty hours work later, I'm not sure that was a great idea. Still can't figure out how it could take so long.

A bubble on top of a bubble - finally understanding the mortgage mess

These two NY Times paragraphs finally made me understand why the financial markets are going to hell now when foreclosures are only at a modest level:

Among the fashionable new [mortgage loan] products were so-called affordability loans, like adjustable-rate mortgages (or A.R.M.’s), interest-only loans and reduced documentation mortgages. In addition to helping Countrywide win market share, those loans generated enormous profits, both in the commissions that borrowers paid and the premiums investors paid when they bought them as pools placed in securitization trusts.

Investors were willing to pay significantly more than a loan’s face value for A.R.M.’s that carried prepayment penalties, for instance, because the products locked borrowers into high-interest-rate loans with apparently predictable income streams.

Interest-only loans and reduced documentation mortgages only make sense if the mortgage company expects the housing bubble to last for many years, with no potential fall in value.
That bubble-inflated value was then bundled and resold for a still higher value (a second bubble) based on the idea that the landowners will be forced to pay higher-than-market interest rates. Now the base value of home prices is bursting, and the expectation that people will be locked into high rates goes away for those who default on their significantly-devalued mortgage. In addition, government legislation may void the prepayment penalties for the rest in order to reduce the number of people kicked out of their homes.

We may get a perfect storm if the dollar devaluation forces interest rates up - still more adjustable rate mortgages become unaffordable, refinancing isn't an option, and the underlying value of these bundled mortgage loans disappears into the air.