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The housing plan is out
President Obama unveiled his plan for the housing market this morning. Here's a detailed article from Bloomberg about the proposal, but I'll also give you an abridged version. The plan is worth $275 billion and there are three main components:
$75 billion, mostly from the $700 billion bailout fund, will go to homeowners struggling to pay their mortgages. Fannie Mae and Freddie Mac will put in another $100 billion on mortgages, to help restructure some loans and increase new lending. The government might also chip in $100 billion to protect Fannie and Freddie against any losses.
Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower's income. The government will share the cost of cutting the rate further to 31 percent.
The President also says he'll support changing bankruptcy rules to allow judges to reduce mortgages to fair market value -- as long as borrowers pay their debts under a court ordered plan.
Here are some comments about the proposal:
HUD Secretary Shaun Donovan: A family with a conforming Fannie Mae or Freddie Mac mortgage will save an average of $2,300 annually under the program. We'll have as many as 6 million foreclosures in the next three years if this program isn't implemented.
Michael Cheah, portfolio manager at AIG SunAmerica in NJ: "This plan is good, but it is unnecessarily complicated. Every effort helps, but the question is effectiveness. I
think it could come with side effects, like people trying to game the system."
Andrew Bekoff, chief investment officer at LPB Capital LLC in Pennsylvania:
"The plan has a real shot to help. The combination of government action and additional funding Fannie and Freddie should help keep millions of Americans in their homes."
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During the housing boom I made very careful decisions about my debt level and mortgage obligations. I bought a simple house in a below average neighborhood. I made sure I could afford my mortgage payments even if I lost my job and went on unemployment. I avoided all other debt and saved money.
Now that the economy has taken this down turn I'm OK. Why am I being punished for the behavior of irresponsible people? They've already caused me to loose equity on my home. I feel no pity for either the lenders or homeowners. Both parties entered into a legal contract. If they made a bad decision then they should both pay the price for taking a bad risk. People must be accountable for their own decisions and commitments. We teach this to children as parents so why is the government sending the opposite message to full grown adults? It's intolerable to me that someone who lives in a nicer home in a better neighborhood and can't afford it should be given assistance while those of us who wisely compromised get nothing.
Now I wonder if I should come up with a strategy to get my own assistance. What does it take to get fair and equitable treatment under this new plan? Do I stop making mortgage payments and start begging for help? This plan rewards those who did the wrong thing in their lives and ignores those who did right. It will only encourage people to make more bad decisions in the future.
What about a renters' bailout? Why are people who bought houses that is financially risky getting a free ride? When would housing price ever return to supply-and-demand equilibrium for those who are shut out due to housing speculation? For example, how do San Francisco renters ever get close to buying a 800K home in San Francisco if there is no free market adjustment. Government is artificially pumping up the prices via the bailout.
Although it is easy to simplify the situation to one in which we blame the borrower we should take a measured approach and look at the conditions that led to our current situation. One condition was through cheap availability of cash for home lending was pushed by the government as a way of stabalizing growth in our economy. The government essentially artificially boosted the supply of homes past the boom of the 90's. So the argument that government has some responsibility to the industry they encouraged to shoot itself in the foot is not erroneous. Also the LENDERS under this policy were telling people that they could afford these houses, and why should they know or not? That is why you pay for a mortgage broker. Many of the government's policies for too long have been to protect the lender and not the lendee.
I want to get rewarded for staying within my budget, not buying a house I can't afford to, not overcharging my credit cards, paying my taxes, mortgage, car loan etc. Why is bad spending behavior rewarded? Can the government reward me also? DO NOT REWARD BAD SPENDING BEHAVIOR.
I think if anybody gets help with a home loan from the Gov then they should lose that tax deduction until the adjustment is repaid in full. No one should get to take tax losses on these adjustments especially the banks that have received bailout money. The have already gotten their deduction up front. I paid through the nose in taxes as a renter. My savings for the down payment was taxed while all these people traded houses like stocks and took out every dime in a loan they could when the inflated price went up. Now they want a gift for going in to debt instead of saving for a rainy day.
I waited twenty years and moved to a small town 18 months ago to afford a home so I could pay it off in a few years due to being close to retirement. Now I wonder if I should have stayed in the big city paid three times as much and missed a few payments. Some of these people have had their home value fall more than I paid for my house.
If they get help it should be a in the form of a loan with no or low interest that is paid when the home is sold in 1 year or 20 years. Just no free lunch.
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