I look around my neighborhood and see home buyers with a lot of different stories.
There are those who struggled through the Great Depression and made great sacrifices to provide their families with a home often skirting dangerously close to losing it all due to unforeseen emergencies.
Some bought their homes at the peak of the early 1980s mortgage market where rates pushed 21 percent on loans. They made inflated payments based more on sky high interest rates triggered by the savings loan debacle. It wasn’t easy and arguably wasn’t fair.
Then there are those who were hit with major financial catastrophes – loss of a job for a prolonged period of time, family illness with major expenses not covered by insurance, and other things. They struggled. They borrowed from family and paid them back. They cut back on their lifestyles but they kept their homes.
Now we have a proposal from Washington, D.C., to settle a massive lawsuit against banks by using $20 billion in “fines” to buy down the principal – not the interest – of select distressed buyers.
By select I mean those who aren’t simply underwater but who either no longer have the financial wherewithal to make monthly mortgage payments, essentially lied through their teeth to get a loan, or pushed the limit in the hopes of flipping their home to make a financial killing.
There is a big difference between cutting back interest and cutting back principal.
You can walk a neighborhood and find people with mortgages – or who had them – where the interest rates are all over the chart. At the same time, you’d be hard-pressed to find folks who didn’t refinance to lower rates when they had the chance and ability to do so.
Everyone also bought at different times. Some bought in the 1950s when $7,500 was the going price. Some bought in the late 1960s when prices pushed $35,000. Couples bought at the peak in 2006 and paid $300,000 and are still in their home. Others bought on the way down during the last three years and paid $180,000. And there are those today who paid $103,000.
The homes – for all practical purposes – are basically similar in age and construction. They paid the fair market rate at the time. The guy buying at $7,500 was making $1.25 an hour while some of the later buyers are making close to $35 an hour if not more.
Price, income, and savings variables have always existed. People since they are allowed to be individuals in this country bring different things – and value judgments – to the table when they go to buy a home. They also have different priorities. Some – such as farm laborers – scrimped and saved to buy a home. Others got in with no down while they bought new cars, the latest electronic gadgets and dressed to the nines.
The one common thread is the fair market price.
Now Washington, D.C., is proposing to undermine that.
Principal represents an agreed upon value of the home that the seller, purchaser, and lender all agreed to in order for the deal to go through.
It certainly isn’t fair to those who have struggled to buy their homes whether they bought 40 years ago or five years ago.
It isn’t fair to those who got swept under who might have been saved by a principal reduction.
And it certainly isn’t fair to responsible buyers who took on home mortgages during the past three years knowing they’d be underwater.
It sends a message that potential buyers should just wait until Uncle Sam artificially cuts principal – the value of homes – before they buy.
The entire proposal only serves to undermine faith in the system plus prolongs the agony of the anemic housing market.
It also means those who played by the rules – including renters – and didn’t get overextended during the housing frenzy will continue paying a price thanks to the economic malaise the mortgage bubble created. Meanwhile those who helped cause the mess by buying homes they couldn’t afford will be rewarded with a gift of principal reduction courtesy of Uncle Sam.
Rest assured that the “gift” also probably won’t be subject to federal taxes.
After all, the administration likes to portray people who bought homes with falsified incomes, massive balloon payments four years down the road, buying with nothing upfront, or used loans that only had them pay for partial interest for three years as victims.
If they are victims, they are - for the most part – victims of their own greed.
And now Uncle Sam is pushing to make everyone pay twice for their greed.
There are those who struggled through the Great Depression and made great sacrifices to provide their families with a home often skirting dangerously close to losing it all due to unforeseen emergencies.
Some bought their homes at the peak of the early 1980s mortgage market where rates pushed 21 percent on loans. They made inflated payments based more on sky high interest rates triggered by the savings loan debacle. It wasn’t easy and arguably wasn’t fair.
Then there are those who were hit with major financial catastrophes – loss of a job for a prolonged period of time, family illness with major expenses not covered by insurance, and other things. They struggled. They borrowed from family and paid them back. They cut back on their lifestyles but they kept their homes.
Now we have a proposal from Washington, D.C., to settle a massive lawsuit against banks by using $20 billion in “fines” to buy down the principal – not the interest – of select distressed buyers.
By select I mean those who aren’t simply underwater but who either no longer have the financial wherewithal to make monthly mortgage payments, essentially lied through their teeth to get a loan, or pushed the limit in the hopes of flipping their home to make a financial killing.
There is a big difference between cutting back interest and cutting back principal.
You can walk a neighborhood and find people with mortgages – or who had them – where the interest rates are all over the chart. At the same time, you’d be hard-pressed to find folks who didn’t refinance to lower rates when they had the chance and ability to do so.
Everyone also bought at different times. Some bought in the 1950s when $7,500 was the going price. Some bought in the late 1960s when prices pushed $35,000. Couples bought at the peak in 2006 and paid $300,000 and are still in their home. Others bought on the way down during the last three years and paid $180,000. And there are those today who paid $103,000.
The homes – for all practical purposes – are basically similar in age and construction. They paid the fair market rate at the time. The guy buying at $7,500 was making $1.25 an hour while some of the later buyers are making close to $35 an hour if not more.
Price, income, and savings variables have always existed. People since they are allowed to be individuals in this country bring different things – and value judgments – to the table when they go to buy a home. They also have different priorities. Some – such as farm laborers – scrimped and saved to buy a home. Others got in with no down while they bought new cars, the latest electronic gadgets and dressed to the nines.
The one common thread is the fair market price.
Now Washington, D.C., is proposing to undermine that.
Principal represents an agreed upon value of the home that the seller, purchaser, and lender all agreed to in order for the deal to go through.
It certainly isn’t fair to those who have struggled to buy their homes whether they bought 40 years ago or five years ago.
It isn’t fair to those who got swept under who might have been saved by a principal reduction.
And it certainly isn’t fair to responsible buyers who took on home mortgages during the past three years knowing they’d be underwater.
It sends a message that potential buyers should just wait until Uncle Sam artificially cuts principal – the value of homes – before they buy.
The entire proposal only serves to undermine faith in the system plus prolongs the agony of the anemic housing market.
It also means those who played by the rules – including renters – and didn’t get overextended during the housing frenzy will continue paying a price thanks to the economic malaise the mortgage bubble created. Meanwhile those who helped cause the mess by buying homes they couldn’t afford will be rewarded with a gift of principal reduction courtesy of Uncle Sam.
Rest assured that the “gift” also probably won’t be subject to federal taxes.
After all, the administration likes to portray people who bought homes with falsified incomes, massive balloon payments four years down the road, buying with nothing upfront, or used loans that only had them pay for partial interest for three years as victims.
If they are victims, they are - for the most part – victims of their own greed.
And now Uncle Sam is pushing to make everyone pay twice for their greed.
