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A morally corrupt plan: $5,000 bonus for paying on time

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POSTED February 20, 2009 4:37 a.m.
Did you refrain from buying more house than you could afford?

Did you resist the temptation to use your home as an ATM?

Were you honest when listing your income on your mortgage loan application?

Do you make all of your mortgage payments on time?

If you answer ‘yes” to those four questions you are about to become one big patsy.

The federal government – in a bid to reengineer  the housing market in a manner that would make the central planning committees of the old USSR burst with pride – is about to make you a victim of the $275 billion housing bailout.

The rationale for the giveaway is that Uncle Sam did it for the big guys so now he’s going to do it for the little guys. This means anybody who honored their obligations no matter how rough things got, who was completely honest, and lived within their means is about to get filleted in 275 billion pieces.

The one provision that sums up the moral bankruptcy of the entire plan is the “reward” for borrowers who make all of their payments on time after the government has stepped in and picked up the tab to reduce their mortgage ratio down to 31 percent of their income. That provision gives the borrowers a “bonus” of $1,000 a year for up to five years if they make their lowered payments on time.

That’s right. The federal government couldn’t simply stop at stepping in to help irresponsible borrowers but they are now going to reward them for doing what responsible people do which is making their mortgage payments on time.

This is not kindergarten where you reward good behavior with treats. This is real life although with $3 trillion here, $70 billion there, and now $275 billion we may be talking funny money and not real money since real wealth doesn’t come off of a printing press.

One rationale was that these borrowers need an incentive to do the right thing. No joke. The same people who acted just like the irresponsible folks on Wall Street and let greed and what amounted to gambling get control of their actions and are getting a bailout will also get rewarded for not repeating the mess they helped create.

If you found it morally bankrupt that bankers that got government infusion of billions were still getting fat bonuses after they helped the economy crash and burn, you should also be ticked at what the federal government is offering in terms of a bonus to those individual home buyers who did their part to help destroy the economy. They’re the people who spent money they didn’t have like drunken sailors, signed their names to falsified income statements, and hedged their consumer gorging on the assumption they could just flip the house in a year or so. Not only is the American taxpayer going to help clean up their mess and make sure they can stay in their homes and keep all of their toys that ultimately will have cost them far less thanks to debt being forgiven, but we’re going to give them performance bonuses!

All of this is being done because the White House says without it home prices will fall an additional $6,000. Now that is something to fear. Home prices in Manteca falling another $6,000 after dropping $200,000 isn’t exactly catastrophic.

There is also something wrong about the government also making it possible for responsible buyers who may have purchased a home 10 years ago at 7 percent interest but now their home value has dropped too far to get a refinance loan at a lower rate is an assault on the principles of borrowing. What’s next, underwriting people who bought cars at higher rates so they can get to lower rate because the value of their cars dropped?

Nobody was clamoring about sharing money with the banks when new homes would jump $10,000 in value between a loan lock and escrow closing. No, home buyers “pocketed” the perceived increase in value. Now since home values have gone south, we want to rewrite the rules of the game so home buyers can share “the loss” which doesn’t exist, by the way, unless they go to sell their home. And even then, the only real loss is if their home sells for less than what they paid for it.

Real estate may be cyclical but the federal government is cynical.
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