When the news constantly speaks of doom, gloom, your shrinking 401(k), job losses, the end of the world as we know it, and your bills seem more and more ominous, the prospect of the government stepping in and helping out Middle America sounds like the break everyone seems to be waiting for.
The economy is suffering from a great many ailments, and one of them is a complete lack of hope in, well, everything. Lenders don’t trust borrowers, borrowers don’t trust lenders, consumers don’t trust producers, the East doesn’t trust the West, and nobody trusts Wall Street. People have no hope. President Obama hopes (ha!) to curtail this hopelessness with the new housing bill.
This country has, for its entirety, firmly believed in the American Dream, the belief that anyone can make it big or strike it rich, that you can pull yourself up by your bootstraps. The housing crisis is taking away hope in the American Dream. If you borrowed more money against your house than it’s worth and can’t make your payments, you’re at risk of foreclosure, and you didn’t make a very sound financial decision. If your mortgage payments are incredibly high and you can’t afford them, you either made a bad financial decision or you’re getting screwed by your lender – either way you’re not in a good way.
These people seem to be the real victims of the housing crisis: the homeowners that continue to make their mortgage payments, but struggle, either due to increasing mortgage rates, housing value deflation, or just the state of the economy in general. This new housing bill likely will not help these people out too much.
Housing Secretary Shaun Donovan explains that “there are no 'flippers,' investor-owners or scammers that are eligible for this program.”[1] That’s great, but something about this bill doesn’t sit quite right with me. Although the administration touts the bill as helping millions of Americans that are stuck with mortgages worth more than the value of their home, it will only allow mortgage restructuring for these kinds of loans backed by Freddie Mac and Fannie Mae, a relatively small amount. There are also a host of other limitations (valuation cap, rate floor, etc) for being able to refinance your mortgage if you’re struggling to make payments.
With all of the money going into insolvent banks that made poor financial decisions, where the government threw hundreds of billions of dollars at the problem, one would think that giving all homeowners a helping hand here would be doable. Why not offer refinancing opportunities to all homeowners? It seems absurd that next door neighbors, both struggling, could receive vastly different amounts of help for the same (or at least an incredibly similar) problem.
This country (for the most part) is an equal opportunity meritocracy. Shouldn’t a plan to help homeowners offer equal opportunity aid?
[1] http://www.cnn.com/2009/POLITICS/02/22/obama.housing/index.html?eref=rss_topstories
Monday, February 23
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