Housing bill bailout shameful
When I read about the housing bill bailout by Congress, I was ashamed. Ashamed that Congress would even bother with something like this. Why are they? It's an election year. And that is the ONLY reason.
Why? Let's take a look at how a mortgage works. The lender and lendee go into a contract. The lender says that these are the terms and the lendee signs off into that contract. Now while many lenders did not do due diligence to make sure the homeowner knew what they were getting into... hey, if you signed on the dotted line then you're also responsible. It takes two parties to make a loan happen, and because someone is fiscally irresponsible is no excuse for a bailout.
Just as it was wrong to bailout lenders that have taken a hit because they played the risk and instead of high capitalization, they lost on the risk. Fiscal responsibility is a just as it sounds. Responsibility in both business and/or signing on loans that you can actually afford. In the same breath, I can say that there is no way my business could survive if I took out a $500,000USD loan for operating expenditures when I fully well know that my profits don't even amount close to that amount. Thus, it's not fiscally responsible.
This bailout just shows that Congress is out to "buy" the votes instead of doing what they should be doing, which is not helping those that make bad judgment calls. There are plenty of people currently that do not live beyond their means. So why should the rest of these people pay in taxes for a bill that bails out those that continue to max out their credit limit and live in housing that doesn't reflect their incomes? It just shouldn't happen.
0 TrackBacks
Listed below are links to blogs that reference this entry: Housing bill bailout shameful.
TrackBack URL for this entry: http://life.firelace.com/mt-cgi/mt-tb.cgi/7680
2 Comments
Leave a comment
EXAMPLE
*********************
Home bought in 2005 for $200,000 — now worth $150,000. Loan is $200,000.
FHA plan
Borrower: Shows that he or she can afford a loan for 90 percent of the home’s value: $135,000.
Lender: Agrees to lower the principal of the loan by 15 percent of the reassessed value: $127,500 (a 36% discount to the original buyer).
Borrower: Monthly payment of $1,470 at 8 percent balloon rate falls to $875 at 6.75 percent fixed rate.
Or alternately, the lender sends the borrower a note saying "we think your house is worth $190k, sign this paper conveniently pre-filled-in with some assertions about your ability to pay, and your interest rate and principal will drop, significantly lowering your monthly payment, plus the loan will now be insured by the federal government so we won't need to foreclose even if you do default! Since the bank is now dropping the principal by a lot less, and is getting the shiny federal guarantee, it's delighted to find an assessor willing to give the highest possible value. Given that a condition of the deal is that the house will not get sold for a while, it'll be awfully hard to show that the assessor exaggerated... So, the bank is happy and the assessor is happy to get a big pile of business from the bank; the homeowner just got their payments lowered noticeably, so they aren't going to complain; the FHA official whose job depends on maximizing the number of these loan deals that happen is happy...
We are relying on the complete honesty of these participants, as demonstrated by the entirely ethical behavior of banks, assessors, and borrowers in setting up the very loans that led to this situation.
On top of this, $4 billion in free grants (taxes) were given to banks and lenders to help them fix up and sell foreclosed properties on their books.
While all of this is goes on for the lucky speculators, housing prices remain high and inflated. The new restrictive lending requirements mean even the best credit buyers are further unable to purchase a home if they wanted to.
Guess what. I don't buy the whole $200k home in 2005 and your house is worth... $150k now. Sorry if your property went down in investment value, but that still doesn't justify bailout. You live in that property (one would assume) and you bought into it at $200k. So thus, if you suddenly can't afford 200k? Give me a break.
This is no different than stock pricing. I buy in at a certain price on the market. The company's worth goes down. So does the government step in because ... whoa now.... you made a bad investment call? I don't think so. It's more of a "tough break, kid. Try next time."
Same goes for housing. If you can't afford it... don't buy it. If you mess up your FICO score, hey... no fault but your own. That doesn't float with people that are more cautious investors.