Irvine Housing Blog goes medieval on McMegan, who thinks that all mortgages should be ARMs. Who needs a fixed-rate mortgage when we all know that interest rates will never go up?
(This was in yesterday’s comments, but nobody got a chance to post it.)
Comrade Javamanphil
McMegan, FTS! (For the Stupid) It must have been a pretty healthy check from the banking industry she received to shill this hard. Gotta pay for that wedding and himalayan salt somehow.
Pasquinade
McMegan’s Twitter account if you want to send her a message:
@asymmetricinfo
arguingwithsignposts
Getting medieval on yo ass!
valdivia
@Comrade Javamanphil:
FTS is pretty effing good! Can I borrow that?
TomG
I seldom read McMegan. Every so often she tries to claim that she’s libertarian, but I’m not buying it. There are just better blogs out there and I only have so much free time.
dmsilev
I got a personal taste of the joys of our banking system yesterday. Banker: “Well, it turns out we can’t offer you that low-interest fixed rate loan we promised you. How about a nice sub-prime ARM instead? No, nothing wrong with your credit; the underwriters read something disturbing in the sheep entrails that they gutted”. Me: “What’s a polite way to say ‘go to Hell’?”.
Not exactly what wanted to hear a week before the scheduled closing date.
dms
Comrade Javamanphil
@valdivia: As long as you are aware of all internet traditions, be my guest!
gene108
If you don’t plan on living in the place that long, there’s nothing wrong with an ARM, but if you have to keep refinancing every few years all you are doing is adding to your principle, each time you refinance, which sort of defeats the purpose of owning a home, rather than renting in my opinion.
Linda Featheringill
@dmsilev:
My sympathy. This must be so frustrating.
But, as you apparently already know, an ARM can be a beast.
In fact, ARMs were instrumental in bursting the housing bubble a couple of years ago.
Having an ARM wasn’t my problem. Unemployment and loss of 1/3 of the household income is why I lost my house. If I had taken out an ARM, I probably would have gong into forclosure even sooner.
At any rate, I think you made the right decision and hope that things work out somehow.
grandpajohn
After reading this, I should have have stopped because no matter how ignorant and stupid she is, this she couldn’t have possibly topped. Is the Atlantic conducting a special ed program for the mentally incompetent who wish to be bloggers? They pay here to write insane shit like this? Where do I apply?
Tom Levenson
Irvine renter’s post was pure joy to read…and still MM will continue on her merry way. Why is the stupidnalways a zombie?
beltane
Give McMegan some credit here. This past week alone she has managed to be more wrong, more often, than Sarah Palin. How does she do it?
Rob
Shorter Megan:Making banks actually work to earn their money is just so unfair! How could you possibly expect a multi million dollar firm with access to derivatives markets hedge interest rate risk? That should instead fall to small households who have neither the money nor the expertise to hedge that risk!
Starfish
@gene108: Everything is wrong with an ARM, especially now. It doesn’t matter how long you plan on living in a place, you will probably be there longer than you expected. With home prices still falling around the country, increasing the principle that you own on the house is the most boneheaded thing ever because you are going to get to the point that your Florida condo is worth 30-50% less than it was worth 3-5 years ago, and no one is going to give you a new ARM.
dmsilev
@Linda Featheringill: Thank you. Fortunately, I have a couple of other options. It’ll mean postponing things for a few weeks, but I can live with that. What really got my blood boiling was the reason cited, that there was a nebulous “something” in the condo declaration/by-laws which made the underwriters nervous about their rights in the event of a foreclosure. Never mind that this complex has been a condo for 35 years, and there have probably been several hundred sales in that period, and that the language of the declaration was pure boilerplate for the time.
I would apologize for any excess profanities that I spew forth today, but among this crowd, who would really even notice…
dms
NonyNony
@TomG:
Megan likes to call herself a libertarian because authoritarians are out of style right now. But that’s true for a lot of the glibertarians – people like to say they’re Republicans who are embarrassed to call themselves Republicans these days, but they’re really monarchists who realize it’s kind of unpatriotic to be a monarchist in the US. But if a proper king showed up they’d be the first to bend their knees and start jostling for position in his court.
Violet
This post by the Irvine Housing Blog is a beautiful, beautiful thing. Taking apart McMegan with actual facts is so easy, yet they they make it so much fun to watch.
@dmsilev:
Urgh. So sorry to hear that. What a freaking pain. I hope it all gets sorted out and you get to close, even if a little later than hoped.
Ginger Yellow
If 30 year fixed rate mortgages are to blame for the crisis, how does McMegan account for the fact that the UK, which is almost entirely an ARM market (we call them variable rate) and in which it is literally impossible to get a 30 year fixed rate mortgage, had a strikingly similar housing boom and bust in the 2000s? See also: Spain, Ireland.
More to the point, why do people (especially, though not only) on the right seems so determined to find some esoteric cause for the crisis? It’s really not that obscure or complex. The transmission mechanisms were certainly complex, but not the root causes. It was a classic leverage bubble.
russell
BA in English Lit from U PA. MBA from U Chicago.
That’s an excellent background for someone who wants to work in a bank, or wants to jump on the executive fast track in a big corporation somewhere.
I’m not sure it’s the right set of credentials for opining in public about government and economics.
McArdle is a conservative libertarian blogger who wrangled a gig on the Atlantic, where she is clearly in over her head.
But you can’t just walk away from a gig like that, so she’s stuck making an ass out of herself on a more or less daily basis.
georgia pig
@Ginger Yellow: They don’t just try to find an esoteric cause, they try to find an logic-tortured basis for blaming the less well off, less well-positioned victim. In this case, she contrives a reason to hold banks to lower standards than less sophisticated home purchasers who have signed up to a 30-year commitment that they, unlike the mercenary management of a bank or other corporate entity, will likely adhere to until they are flat broke and on the street. McMegan is a less competent female version of Bobo Brooks, and her schtick consists entirely of finding moral justification for the selfishness of the wealthy. Galbraith had their number years ago.
SpotWeld
I’m currently house shopping. I’ve been out of college and working for about a decade now and saved up a decent nest egg.
I want to move into a good sized house and skip over the whole “Starter home”, the state of the market suggest that’s the smartest long term decsion for me.
With that in mind, what kind of crazy would I have to be to get an adjustable rate mortgage?!
J.W. Hamner
@Ginger Yellow:
Exactly. I know libertarians basically consider all government intervention into any market to be EVIL, but at least present some evidence of how terrible 30 year mortgages are… it’s not like there aren’t a ton of countries to compare us to.
David in NY
@grandpajohn:
From the Irvine Housing piece:
As grandpajohn noted with respect to one of these examples, this is about all McArdle ever has. Insulting characterizations — her one and only specialty. Actual understanding or thought or rationality or accuracy — not.
They really ought to fire her for vapidity.
Phoenix Woman
@NonyNony: She’s a true corporatist, as are the vast majority of glibertarians offered a prominent and/or well-funded place to spit their bits. Kinda like how the only Tea Partiers that get enough money to get on national TV are the ones who agree to uphold the Republican party platform.
Doctor Science
@georgia pig:
*Bingo*. Over at Crooked Timber there’s currently a discussion of the causes of the inequality boom, and I cited this attitude as a major ingredient.
In many rightists I’ve spoken/blogged with (many more intelligent than McMegan), it almost comes across as a specific blindness, as though the concept of “blame the rich” is so incompatible with their worldview that they can’t get a grip on the idea, it just slides away from them.
râŹnato
FFS. I can imagine few dumber arguments to advance, than that the 30-year fixed interest mortgage is terrible, awful, evil and no-good.
It’s almost as if some people want to destroy the middle class… hmmm…
Scuffletuffle
@dmsilev: I’d love to know what that “something” is, because it has affected clients at my office as well. Hmmmm.
dmsilev
@Scuffletuffle: I got a bit more detail this morning, from another lender who is reviewing the condo declaration. The issue is that there’s a clause in the declaration which says that the association has the right of first refusal on all sales; I’m told that this was fairly standard language for condos that were set up in the 1970s. Underwriters are now apparently interpreting this clause to mean that in the event of a foreclosure, they could be subordinate to the association in terms of recovering the property, and hence are starting to insist on an explicit “lender foreclosure rights” clause in the declaration.
dms
LindaH
@SpotWeld: Short answer pretty crazy. Interest rates are fairly low right now. The chances are if you get an ARM when it comes time to adjust the rate will go up, your payment will go up and then you’ll have to rebudget all over again. With a fixed mortgage, you will at least know what your payments will be per month for the next 30 years. I personally would never take an ARM, unless interest rates were phenomenally high, like 14%-18%.
Corner Stone
Just saw a blurb where 30yr rates are at 4.54%
Bill H
@SpotWeld:
Just take your savings, pile it in the street in front of your rented apartment and set fire to it. It will be painful to watch it burn up, but that pain will last a lot shorter time than what will happen if you buy a house and get an ARM of any description.
With an ARM, you will have to refinance or sell your house very soon, and hope both that the interest rate went down and that the house value went up. Not or, and; both things have to happen for you to come out ahead in the refinance. If either one doesn’t happen, then you have to sell, and you will lose money on the deal.
Realtors, brokers, title companies, and financial houses make money when houses are sold/refi’d on ARMs. Everybody else, well, only the homeowner is left, loses.
StringonaStick
Spotweld, please go read the article linked to in this post (Irvine Housing Blog goes med….). It’s long, but it is worth it, and then take a look at the first reader comment there; that will explain why taking out an ARM is a seriously crazy idea. Taking out an ARM is a question of timing, and doing so when interest rates are very low means the fun of an ever-increasing monthly mortgage payment can be yours for years as interest rates start rising from generational lows. ARMs only make sense when interest rates are stable or high and expected to decline for the long term, but who has the crystal ball to know if that will occur? Can you realistically expect your income to increase as much annually as the cost of your ARM can once you get to the reset point?
I had to laugh at the realtor’s association ad that the Irvine Housing Blog included in his post; all the breathless “there will never be a better time to buy, prices are going to start going up!” sales crap. It isn’t until you read the whole ad that you realize it ran in 2006; e.g. pre-housing bust, and in what went on to become one of the most egregiously inflated housing markets in the US: California.
One last bit of advice for Spotweld: don’t buy too much house because of HGTV and a pushy realtor. The new American present/future is one of stagnant incomes and has been for awhile; we only had the consumer buying frenzy before the housing bubble burst because people were borrowing against the equity in their houses. Buy what you can afford, and preferrably below that just in case the economy bites you in the ass at some point.
sherparick
Let’s give McMegan some credit here. As a hack piece arguing for a policy that would support the “Financial Interest” of the country, it does it serves its rhetorical and propgandistic purpose, to shift risk from the banks (and the wealthy who manage, control, and invest in banks) to the customer. It is all part of McMegan’s plan to screw over the lowlife who stole her bicycle.
Bill H
@LindaH:
In which case I would not buy a house.
Napoleon
@Corner Stone:
My bank is at 4.375%
BC
@SpotWeld: Another thing to look at re ARMs is if there is a cap; i.e., rate can only go up x% per year for x years, then rate is fixed. During the hyperinflation of 1970s, we had an ARM that was limited to 0.5% increase per year and could only increase 5 times over the loan period. Problem with the ARMs that led to foreclosure crisis is there was no cap – could just go up to prime rate + some %.
Roger Moore
@Ginger Yellow:
Because they know that the finger of blame should be pointing straight at them and they want to dodge responsibility. SATSQ.
MattR
@Bill H:
This is just not necessarily true. It completely depends on why you are getting an ARM. For instance, if you choose to put 50% down on the price of your house, the value of your house does not have to go up for you to be able to refinance the amount left on your arm.
Now personally, I would not suggest getting an ARM at this point since interest rates are so low that you will never be able to refinance at a rate close to the current 30 year rate and the current spread between a 5/1 ARM and a conventional 30 year mortgage are pretty close right now (less than a point compared to more than two points when I bought in 2004). But that does not mean that there are not times and/or circumstances where an ARM is a reasonable option.
daveNYC
McMegan must have either photos of someone banging a donkey, or give the best BJ’s ever, because those are the only two ways I can imagine that she’s able to keep her job. It’s not that she’s wrong, it’s that she’s WRONG. Like visible from orbit wrong. Biblical scale get kicked out of the garden/eaten by a whale/pillar of salt wrong. She’s the Isiah Thomas of economic bloggers for God’s sake. The only way she could be more wrong is if she didn’t run a spellcheck before posting.
She’s so freaking bad, I just can’t understand why The Atlantic doesn’t just replace her with some random person with a BA in Economics. They’d be cheaper, and there’s no possible way that they be worse. Also too, they’d come with their very own HP-12c, so right there, the math quality would improve.
Comrade Javamanphil
@Napoleon: Jesus. That’s the rate on my 15 year which is only a few months old.
MattR
@Comrade Javamanphil: Rates have dropped half a point since April. I was getting quoted 5% in April and not it is 4.5%. If I was not actively trying to sell my condo I would strongly consider refinancing.
Bill Murray
@daveNYC: Your assuming that the purpose of her blog is to accurately examine economic issues, but under the laternate hypothesis that her blog is there to comfort the comfortable and afflict the afflicted, she does just fine
David Brooks
If fixed-rate mortgages are so bad for the banks, why are the banks selling them at all? Voluntarily! Isn’t that a refudiation of their fiscal duty to their shareholders?
Here’s a fish! Lovely fish! Only five dollars! Come take a look at it! Only, don’t buy it, because it’ll be bad for my bottom line and good for you. That would be immoral. Can’t have that.
Sounds a bit briar-patchy to me.
Indie Tarheel
@daveNYC:
That’s a keeper.
BattleCobra90000
It seems like the point-by-point take down of McM’s posts is latest craze for people with expertise in whatever area she’s bludgeoning on a given day. (Reading these take downs, of course, is the latest craze for people who are me.) So anyway, thanks stupid/smart person/people!
Roger Moore
@daveNYC:
Only if you think the purpose of her blog is to present facts, evidence, and sound argument. I suspect that the real purpose is to present the glibertarian POV, and on that score she’s doing a great job. It’s not her fault that the only way to present the glibertarian POV accurately is to live in a world of make believe. Meanwhile, she’s apparently very nice in person, which presumably makes her a much better employee than the run-of-the-mill obnoxious douchebag glibertarian. As long as places like the Atlantic feel the need to have a resident glibertarian columnist, McArdle will continue to be well paid.
sneezy
@daveNYC:
She clearly doesn’t do that. Misspellings that a spell-check would have caught appear in her stuff with some regularity.
SFAW
I tells ya, between Billy Kristol and McMegan, Doug Feith may have to fight to keep his title.
(Not that there aren’t plenty of others waiting in the wings, of course.)
Hey, John! How about a contest to determine the winnah!
PeakVT
Sheâs the Isiah Thomas of economic bloggers for Godâs sake.
Not getting this reference.
Comrade Javamanphil
@MattR: Fascinating although the interest rate gap between 30 and 15 year loans seems to have shrunk (about half a point right now, I remember it being closer to 3/4-1 points.) Looks like the amount I’d save on interest over the life of the loan is only a few thousand above the tax break I will get for buying before that deadline.
SpotWeld
You have no idea how paranoid I am about exactly that.
I’m buying slighty more house than a single person might need only because I consider it a better investment, but I am checking and re-checking all my numbers on affordability.
I’m still hashing though the mental checks on how much of a time/effort investment in upkeep I’d be taking on (lawn care, general maint. etc.)
And worst case, I am still willing to walk away and wait a little longer. Even if *now* is the *best* time to buy, next summer will be slightly less *best* but still a very very good buyer’s market.
Corner Stone
@MattR:
I got 30 yr @ 4.75 in January. Month or so ago they offered me 4.625%, and now I could get 4.5%.
It’s just insane to take a step back and look at it in perspective.
Doctor Science
McArdle is a useful idiot test case, because she so perfectly exhibits the attitude that it’s never the fault of the rich. She’s not a Calvinist; she calls herself a “libertarian”. She’s The Atlantic’s business and economics editor, though it’s thunderously obvious that she knows nothing about what Paul Krugman would call “economics”.
What she *is*, is an MBA. As I recall, MBA programs became very popular and important in the late 70s, as the inequality boom was taking off. I wonder, now, if what these programs teach — the mindset, the basic attitudes, what things are important and what aren’t — isn’t where the Dives-blindness (or whatever it should be called) comes from. MBA programs, generally speaking, teach the wealthy to regard workers as tools, consumers as lawful prey. This is where our aristocracy is trained, and this is what they learn.
Now that I think about it, what has changed in how inherited wealth functions is that the scions of wealth are often expected to get MBAs. Old Money tends to be tied up in trusts, etc., so the heirs can’t spend it on hookers & blow, in traditional fashion. But since the 60s-70s the MBA has become a way to train heirs to a different kind of aristocratic tradition. You don’t have to insulate your heirs from the money if you train them not to blow it, and that’s why e.g. Charles Koch (who has an MBA) can be so obscenely wealthy. Gilded Age robber barons started small and made their businesses large; modern ones are Robber Dukes: they start with a large business and make it gigantic.
Comment x-posted from Crooked Timber, where the discussion has moved to look at why speaking English makes people loooooooove the rich.
Bill Murray
@PeakVT: Isiah’s performance as coach of the Pacers, GM of the Knicks and CBA owner have been just awful even without the sexual harassment lawsuit and accidental drug overdose. But he never seems to have lost the idea that he was doing a good job
SFAW
Bill Murray –
“Just awful”?
Now THAT’s what I call being charitable.
PeakVT
@Bill Murray: Ah. Well, I’d say McAddled is more like the George Bush of economic bloggers. At least Thomas was good at something once.
Anne Laurie
@daveNYC:
Thank you for the LOL, I needed that!
Ruckus
@Rob:
How could you possibly expect a multi million dollar firm with access to derivatives markets hedge interest rate risk? That should instead fall to small households who have neither the money nor the expertise to hedge that risk!
You’re not thinking this is bug are you? This is the number one feature of all the crap loans out there.
Shorter MBA/Large business executive: Never negotiate nor enter into a contract with someone who has more power, info or lawyers than you.
Corollary: Only negotiate or enter into a contract with someone who has less power, money or lawyers than you. They are much easier to fuck over that way.