Friday, February 13, 2009

Free Down Payments for Idiots

Seems like some people never learn. The same mentality of making home ownership an option for anyone with a pulse, regardless of ability to pay, and which was the spark that ignited the firestorm called the economic collapse is baaaaaccccckkk. Indeed, Obama is now mulling ways in which those individuals who bit off more than they could chew, who bought houses with no down payments, and crazy ARM's, can stay in their houses through loan modification programs. So if you are one of the lucky ones who bet the ranch to buy a home above your means, and now the place is worth less than what you owe, Uncle Sugah is coming along to save the day. If you are a nitwit who chose to buy a less impressive abode to ensure that even with a job loss, you'd be safe with the mortgage payments, you get to finance the gambler's bet.

I understand that the banks and economy are looking for any way to shore up the housing market. I also get that there are some people, as there always have been, who through no fault of their own are in dire straits. But the ethic of rewarding lack of personal responsibility has become so endemic in this country that we risk reaching a tipping point. If the message continually sent out to businesses, government, and the public is "Don't worry, we'll pick up the tab", at what point will responsible individuals feel like dupes, and join the party?

"WASHINGTON -- President Obama's administration is considering spending taxpayer dollars to cut monthly payments for homeowners on the verge of foreclosure, according to two people briefed on the proposals.

The deliberations came as lawmakers prepared to enact a new tax credit of up to $8,000 for first-time homebuyers that is intended to boost the ailing housing market.

Details of the plans to aid troubled borrowers were not final but were expected to be unveiled in the coming weeks, according to the people who declined to be identified because the details were not yet complete. The effort would be part of a plan to spend $50 billion on foreclosure prevention and establish national standards for modifying home loans.

The administration has several ways it could spend money to stem foreclosures.

It could follow a proposal by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who wants to give banks an incentive to reduce borrowers' payments by having the government absorb some of the losses should loans fail again."

So if someone bought a $500,000 house with no down payment, with an interest only ARM, and the house is now worth $400,000, that person is now underwater, meaning he/she owes more on the house than it's worth. The new plan will allow the government to step in and provide that individual with a $100,000 to incentivize them to not walk away from the property. To me, that sounds like a free down payment on the home, albeit after the fact, that that individual did not have to sacrifice for years to save, as a responsible homebuyer would have done.

"Government could also direct federal dollars to loan modifications. If a lender, for example, agreed to reduce a borrower's rate, the government could subsidize a further interest rate drop.
Still, deciding who would qualify would be a challenge, especially as foreclosures continue to soar. More than 274,000 U.S. households received at least one foreclosure-related notice last month, according to RealtyTrac." Inc.

In many places, the market is still over-priced. Are we going to once again artificially prop up housing prices, creating the same problem that got us into this mess in the first place? And for what? Recent statistics show that most homeowners near foreclosure who have had their loans modified eventually default anyways. So are we accumulating yet more national debt to simply put off the inevitable?

America is no longer the land of the free and the brave. It is the land of "I want it free" and the duped.

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