Helping borrowers who don't deserve it
How much is enough?
By Jack Guttentag, Monday, June 8, 2009.
Illustration by Frits Ahlefeldt-Laurvig.I don't ordinarily like to publish long letters, but this one is worth the space because it captures the mood of a sizable segment of the population:
"I'm upset by your recent article advising people having trouble with their mortgage on how to get it modified. In my view, they should be allowed to take their lumps.
"My first home was a single-wide trailer that cost $18,000, which was all we could afford at the time. We have upgraded three times since then as our family and our income have grown, but we never paid more than we knew we could afford. We have never missed a mortgage payment.
"I am tired of hearing the sad stories of people who overbought because they thought that house prices would rise forever and they would get rich. Their garages were full of boats and other toys that I don't have because I can't afford them.
"It drives me nuts that these people can now take advantage of programs that reduce their mortgage payments, and I'm paying for it with my tax dollars.
"The government should aim to promote good behavior, with programs that benefit homeowners who have played the game of finance the right way. Instead, government is helping the ones who were greedy, or stupid, or who lived beyond their means.
"I'm also tired of the media, including your articles, supporting these bad government policies by playing up how rough it is for these people whose lavish lifestyles have gone awry."
It is hard not to have some sympathy for this view. The measures government has taken to deal with the financial crisis are indeed unfair, rewarding many who don't deserve it while burdening the many innocents who must finance it. So why do we do it?
In large part, we do it because inaction that allowed the crisis to run its course, along with the major depression that would accompany it, would not punish the guilty alone. It would also destroy the livelihoods and disrupt the lives of millions of others who have done nothing to deserve having their lives disrupted. ...CONTINUED
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Submitted by Robert A. Hulme on June 8, 2009 - 5:10am.
For whatever reason these homeowners find themselves in need of government assistance should not be a concern. We need to help them in order to help everyone else, which includes Mr. Conservative.
Robert A. Hulme
Realtor, GRI, e-PRO
Utah Select Realty
Loan Officer
Mortgage Xpress
www.PaysonUtHomes.com
www.SpanishForkUtHomes.com
Submitted by Jay Thompson on June 8, 2009 - 5:53am.
How the Government can Fix the Foreclosure Crisis
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Joe Loomer on June 8, 2009 - 6:01am.
The writer has every right to feel the way he does. I share most of the sentiments, and abhor the fact that these people are getting a handout. I also recognize the need for action, but that doesn't mean I have to like it.
Augusta GA Homes
Navy Chief, Navy Pride
Joe Loomer (USN Ret.)
Associate Leadership Council, Growth Chair
Keller Williams Realty Augusta Partners
Submitted by Jay Thompson on June 8, 2009 - 6:32am.
Sorry, weirdness happened in the link I left in the comment above. Here's my take on how the government can fix the foreclosure crisis:
http://www.phoenixrealestateguy.com/how-the-government-can-fix-the-forec...
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Ryan Elliott on June 8, 2009 - 9:10am.
I have to disagree. The following statement in your article is what bothers me.
In large part, we do it because inaction that allowed the crisis to run its course, along with the major depression that would accompany it, would not punish the guilty alone. It would also destroy the livelihoods and disrupt the lives of millions of others who have done nothing to deserve having their lives disrupted.
The main reason we got into this “crisis” is because the balance of the free market was manipulated. Government programs, artificially low interest rates, subprime loans, and easy to get equity lines to name a few. The integrity of the corner stone that is American wealth, security, and community was violated. So many innocent people have been, and continue to be damaged despite government intervention. People that had no business getting a home loan in the first place are the very people getting the most help. What makes us believe they are going to change their ways and suddenly become responsible borrowers?
The bottom line is that home prices must drop to fall in line with affordability. The free market is trying, despite government efforts, to correct itself. Just as market manipulation drove the market artificially high, manipulating the market on the way down will only prolonging the inevitable.
Buying a home involves risk. The more we bail people and banks out the less the perceived/actual risk. The cycle will continue. Getting in the way of the natural free market got us here, so let’s get out of the way!
Ryan Elliott
ryanassist@gmail.com
Submitted by Danny C. Flucke Jr. on June 8, 2009 - 11:13am.
I agree with Ryan.
The government has created a stairstep of false bottoms - And it is going to get worse.
The number of 60 day delinquencies is up 62% over this time last year - In spite of the "bailouts".
(Google "60 day 62%" and you will be pointed to numerous articles explaining the looming foreclosure dam set to burst in late 2009 into 2010.)
We are counseling our clients that ANY purchase may be a minimum of a 10yr hold to see any profit - Possibly even longer.
The current median income in Orange County, CA is $94,000 per year - While the median home price is $375,000. (Price = 4X Income / 2.5X is a balanced market.)
With unemployment and further wage cuts trending up at a double digit pace - The OC real estate market still has another 30 to 35% correction to make. And a long time to recover.
Nationwide we certainly do not share these same indicators - So run your own local numbers and post them here.
It would be great to see the differences in affordability across the markets.
Work hard and ride safe, Thanx, Danny
Danny C. Flucke Jr.
Senior Partner
Nationwide Mortgage Experts, LLC
DCFJ@NaMoEx.com
www.NationwideMortgageExperts.com
Submitted by Lenn Harley on June 9, 2009 - 2:38am.
I've noticed that same attitude on the part of many real estate practitioners. It was quite evident when there was a chance that home owners could petition the bankruptcy court to modify the balance owed on their mortgage loan.
The "crime" of buying a home that subsequently depreciates to about half of what was paid appears to be a serious social stigma in the eyes of many who purchased prior to 2004.
Sad that so many Americans are willing to see the Wall Street gangs enjoy our tax money but aren't willing to see any relief for fellow Americans facing financial ruin.
Perhaps if they understood the long term damage that will accrue to our national economy by the loss of credit, equity of these upside down home owners, they would think differently.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Chuck Licari on June 9, 2009 - 10:40am.
What has happened to “personal responsibility”? You buy a home, sign a mortgage, then default (“oh my, I can’t make the payments”) and expect to walk away without consequences. Not my fault: “I’m upside down” (a new concept, what about driving a new car off the lot… you’re automatically upside down aren’t you? Lost your job, no savings…. Do what ever you have to do to get a job! A lot of bad decisions made by borrowers.
Loan modification? If a borrower can’t pay on the first loan, why do we expect he will pay on the modified loan? The “RE-DEFAULT” rate for modified loans 60 or more days delinquent is almost 50%
What has happened to “lender responsibility”? “Liar loans”?, When did the three C’s (Credit, Capacity and Collateral) disappear in the loan process? A lot of bad decisions made by lenders.
What has happened to the rule of law? Mortgages are contracts…. Contracts have terms the borrower agrees to by signing on the bottom lime. Borrowers should know what will happen to them if they default. A lot of bad decisions government.
Why do people that don’t pay their mortgages “deserve” not to lose their properties? Don’t the investors that lend the money “deserve” to be paid back, “deserve” to have a government that maintains the rule of law.
I don’t “deserve” having to pay the bill.
100% Thanks, Chuck Licari, CRB
Submitted by Matt Fein on June 9, 2009 - 6:26pm.
Lots of good comments here.
Those who argue the borrowers in default may go into default again should keep in mind that part of "helping borrowers who dont deserve it" is the governments assistance in expediting short sales. A property that is a short sale vs going back to the bank through foreclosure is better for everyone - including the neighbors that did not make bad (stupid, greedy, etc) decisions.
Also, many of these borrowers are exercising "personal responsibilty" by signing promissary notes (or agreeing to do so at a later date) to make up part of the loan deficiency. So it is not all borrowers that are trying to walk away without consequence.
I too agree that many of these borrowers do not deserve the help. And I agree that as a general rule, it is best to let the free market do its thing. But there are exceptions to every rule, and being these are extreme circumstances, it may be the right time to make an exception.