Thursday, November 08, 2007

Should the Government Bailout Foreclosures "Victims"...
Recently I was watching a news segment which featured a New York family on the verge of losing their home. The premise of the story was they were fighting the bank and the "system" (whatever that is) to save their home. I felt bad for them for about a second.

What's interesting to me is that the hosts were eager to sympathize with the family and really made it out to be a terrible problem in this country. It turns out that Mom and Dad were both working and had good jobs, but seemed to bite off a bit more than they could chew and couldn't afford their mortgage payments because their interest rates increased.

Wow!! Who could do such a thing and force this poor family out, somebody should help them.. I mean, how can "Big Banking" suddenly increase rates and their cost of home ownership! This "poor" family bit off more than they can chew, and simply made a poor financial decision. So Uncle Sam should step in and lend a helping hand, right? Wrong!!

To some politicians, biting off more than you can chew is no longer a personal responsibility thing, its all of our problem.

In an early August appearence CNBC Hillary Clinton was touting how she would help...Unsurprisingly, she’s demonizing lenders and brokers like she does "Big Oil."
She also said..“I think a lot of the lenders have really taken advantage of what is a really tough economic situation for many Americans,” and to top it off proposed a $1 billion federal fund for local and state programs that help at-risk homeowners avoid foreclosures. She said those programs could help the “unsuspecting families” linked to unfair mortgages.

In my opinion, people need to be fiscally smarter and think for themselves. Borrowers should NOT be rewarded with taxpayer money for over-extending themselves. Sort of like financial Darwinism...

Forgetting the fact that most people freely took out loans well beyond their means, politicians on both sides of the aisle say they are entitled to keep their homes. So they plan to take other people’s hard-earned money and give it away…not because these individuals did anything to deserve it, but simply because they need it.

Jonathan Hoenig at Smart Money could not have put it any better...

...Those who advocate for such measures tend to think with their hearts instead of their heads. When challenged about the morality of such schemes, they usually present a tragic example about a down-on-their-luck Rust Belt family who are in danger of being evicted from their home. Dad lost his job at the plant, mom is on dialysis and takes care of the kids, all of whom desperately need braces and new books for school. The argument is always an emotional one: “Don’t you want to help poor people in need?”

But a government bailout is not charity — it’s coercion. Americans are incredibly charitable people, last year donating a record $295 billion. But when you donate to Habitat for Humanity, for example, you do so voluntarily, deciding how much you’d like to give and to what particular cause. When Hillary pledges $1 billion in financial aid for homeowners, however, it’s not her money; it’s the taxpayers’, many of whom would undoubtedly prefer to give to any number of other deserving recipients....

There was a foreclosure a couple of streets down from me here...May be a good buying opportunity.. hmmmm


Janell said...

I have to agree. It is only through the wisdom of my husband that we were not caught up in such a home mortgage situation, where we would end up owing way more than we could pay. Back when the interest rates were low, I obtained a "pre-approved loan" which, in retrospect, would have been disasterous for us. People need to think for themselves and not depend on Uncle Sam to bail them out when problems arise.
Also, people need to rememeber that banks are in business for profit - not to insure the "pursuit of happiness."

Sue said...

100% in agreement. It seems like all the homes being built today are big mansions. What ever happened to the 3 bedroom ranch. Some of the people building these big houses can't afford furniture to fill them and are only one paycheck away from foreclosure. Also bailing out and rebuilding New Orleans with our tax and insurance dollars really rubs me the wrong way. Building a city below sea level and in hurricane areas is just plain stupid.

cdroses said...

Unfortunately, one of my good friend's mom is one of the foreclosures being discussed. Her mortgage payment has been increasing $300/month every 6 months in the last 18 months. (I don't know about you, but I certainly couldn't afford an additional $300/mo. added to my budget 2x/year.) My friend has advised her (multiple times) to refinance with a set interest rate, instead of the balloon rate she is in now.

The problem with letting all of these foreclosures hit at once, like it is, is the real estate market bottoms out. Even those who have paid faithfully, lose value on their homes because of all this.

Yes, it's a mess. Should the taxpayers pay? No. I believe the mortgage companies should be held responsible. They should be forced to offer these people an option to refinance using a traditional morgage, without any hassles.

There's my two cents...stepping off of soapbox now.

Joe B said...

Good Soapbox CD...
For those who lose value due to the market bottoming out, its mostly a paper loss, unless you move.

What should the lenders be held responsible for? Lending money? IN the early / mid-nineties the hot political issue was not enough lending occured to the poor, and home ownership was "just a dream" to many.

Here we are..It sucks for your friends mom, but is she surprised the rate is going up? Its hard to imagine someone not knowing this, especially given everything you have to sign to close on a home.

Most mortgage companies would love to re-finance, there is no reason to force them. I don't think they should be forced to a certain rate. If it were, then ultimately the lenders don't make money, lay off people, stocks decline, etc, etc..

I saw a stat, on Neil Cavuto's show that only 1.7% of house holds are delinquent (total market about 15 trillion).Dollar wise, big problem, percentage wise.. not a lot.

Mary Connealy said...

Interesting post, Joe.
What's that old saying?

When your neighbor loses his job it's a recession. When you lose yours it's a depression.

Shirley said...

It is a shame that some people need to be more educated in this world. yes -- there are some that are being portrayed as just being too anxious to buy the bigger and best they could find. Well, guess who told them they could. Those bankers and realtors who portrayed themselves as being there to help. Not in it for themselves --
that's certainly not why the numbers got cooked.

I don't think the government exists to bail out every bad decision people make. But I don't want to see everyone needing to take a lawyer along on each trip to the store. There are reasons for regulations. Some of those mortgage companies chose to bend the rules and we are all going to be a part of this house of cards in some way or other.

Oh yeah, now that there is this great program of "No Child Left Behind", everyone will be more educated and smarter and not get into the scams.

Cliff said...

Hear! Hear!
Very good.

LaDawn said...

At the risk of upsetting the balance of the universe I am going to agree with Joe here.

Is that lightening I hear?

cdroses said...

Actually, I do agree with Joe. Friend's mom was so excited about owning her own home, I don't think the "future" sunk in when she was signing the papers. Either that or she was being overly optimistic about her future income.
After yesterday's sermon...maybe we all should be following the Bible's teachings (imagine that) (paraphrasing) "all treasures on earth turn to rust or can be eaten by moths"j. As pastor (Olson) put it "you can't take it with you"
This whole subprime mess is a harsh lesson to all involved.

Joe B said...

No Lightning LA, but the ground is getting a bit chilly. Especially for South Florida.