Thursday, September 9, 2010

"Help" For Underwater Mortgages

Here is yet another discussion of those horribly, horribly poorly treated people whose houses have diminished in value, leaving them--as the term is known--"underwater".  Never mind that the house has lost none of its primary value as shelter (from the elements, that is), and that it serves as a useful storage contrivance for the accreted possessions of one's life--no, these are unimportant.  The house is no longer the fat INVESTMENT it once was.

In this article, Allan Sloan from Fortune tells us about a proposal that goes something like this:

"Let me show how this would work, using HSH numbers that I've rounded for simplicity's sake. Say you bought a house for $350,000 in July 2006 - those were the days of 100 percent financing, so you borrowed $350,000 on a 30-year, fixed-rate mortgage at 6.8 percent. The house is now worth $280,000, but your mortgage balance is $334,000. The current rate for a 30-year, fixed-rate loan, if you could get one, is 4.7 percent.
Under Gumbinger's plan, you'd get a new $280,000 mortgage at 4.7 percent, and the government would guarantee the other $54,000, on which you'd pay 4.7 percent interest to the current mortgage holder. This would reduce your payments by $6,700 a year, or roughly 25 percent. Your mortgage holder wouldn't have to take a write-down, because the shortfall would be guaranteed by Uncle Sam. You get lower payments, preserve your credit rating and save your pride by not becoming a deadbeat" 

So let me get this straight--the government takes on MORE mortgage risk, contributes even more to disastrous real-estate bubbles by further diminishing moral hazard and artificially propping up housing prices, just so a mortgage holder can save his or her "pride"?  And just how is that pride saved?  By preventing someone from voluntarily walking away from a mortgage?  This is LUNACY people!  This, from the clue merchant behind this brilliant idea:

"This is for people who are underwater on their mortgages but still current on them and have every intention of remaining so, and hope to remain in their homes for the foreseeable future," says Gumbinger. "These people are being compelled to pick up the tab for reckless borrowers and failing banks, and get absolutely no help from anywhere for themselves. How about a reward for doing the right thing for a change?" 

No, Mr.Gumbinger, they are being compelled to do nothing but continue to pay on an obligation they freely made for an asset they acknowledged might diminish in value--like any other investment.   They get no help from anywhere?  What is it they need help to do?  Pay a mortgage they seemingly had no problem paying when the value of the house was higher?  We are a society completely out of whack if we see this as a "problem" worth "remedying" without fleecing taxpayers the largess of the federal government. 

1 comment:

"The Hammer" said...

I think we all knew, for some folks, a vote for Obama was a vote to keep the house you weren't qualified to get and can't afford to pay for.

Newer Post Older Post Home