Do the right thing, make the smart decision, and then get screwed

[MadHound]

In this ongoing mortgage madness, the Feds have come up with a doozy. They are proposing to reward those who went out, got nothing down, ARM's for houses way out of their price range by resetting their interest rates to 3% and extending the mortgage life to forty years. Yes, that's right, those who went out and made stupid decisions will be rewarded, and the rest of us, well, we're stuck with the tab.

"The easier mortgage terms will include lower interest rates, as low as 3 percent, less than half what a homebuyer could get now. Extending the length of the loan as long as 40 years and perhaps forgiving some principle or deferring payments until the home is sold. The workouts are aimed at homeowners who are 90 days or more behind on their payments, but not yet in bankruptcy."
<http://marketplace.publicradio.org/display/web/2008/11/11/mortgages/>

Yes, I realize that there are those out there who, through no fault of their own, had the personal economic situation change in such a fashion that their houses are at risk. I have no problem helping these people out. However I do have a huge problem with helping out those who were either too stupid, or too greedy to realize what they were getting into. Furthermore, for these people to receive better interest rates than those of us who did the right thing, stayed within budget, did our research, etc. etc. is just flat out infuriating. We shouldn't be rewarding stupidity, greed, or the lack of personal responsibility, whether it's on Wall St. or Main St.

What I want to know now is where's my reward? Oh, yeah, this is it, my tax dollars at work:eyes:

[riqster]

1. How can we tell which was which?

...at least amongst the homeowners?

The root cause was deregulation, which allowed those shell-game mortgages to be on the market in the first place. Dumb people, crooked people, naive people, all took part.

From where I sit, only the naive people deserve help, but how to tell which borrowers fall into that class?

[MadHound]

4. Yes, deregulation has got to be addressed

But frankly, I don't believe in rewarding greed and stupidity, which is what this, and the Wall St. bailout does. A house is the largest investment that most people will make in their life, and as a potential buyer, you need to treat it as such. Stay within your budget, get a fixed rate loan, put down at least five, preferably ten percent down. If you can't do these things, then you put off buying a home until your situation improves and you can meet these conditions. If you have any trouble figuring things out, hire a financial adviser. Real simple steps, ones that used to be standard. The trouble is people got stupid instead.

Frankly, this should be on a case by case basis, and failing that, nothing at all. Sounds harsh, I know. But the rest of us are already carrying a huge burden due to this mess, and quite frankly I don't know how much longer we can carry it.

I would have less problem with this is it was simply a reduction to around 6% and thirty year fixed. But to reduce it to 3% fixed over forty years, sorry, but that just pisses me off no end.

[renie408]

6. Exactly what I was going to say. And in the meantime, housing prices are going in the toilet

and it's getting to where nobody can sell anything. The people who did the right thing are going to be hurt much more if the people who didn't dump their houses and their mortgages.

[MadHound]

9. Have you been paying attention?

Those people who didn't do the right thing are already dumping their houses, even if they have gotten some relief, simply because they're upside down on their has, it's worth less than they paid for it. Rewarding them with super low rates isn't going to change this situation, and they will continue to dump their houses, walk away from them.

And frankly, those of us who've done the right thing are getting to the point where all these bailouts for the stupid and greedy are dragging us down. Gee, kill the goose that lays the golden eggs, then what are you going to do?

[riqster]

11. I have indeed been paying attention

... and am simply painting with a brush that is less broad than that which you appear to be wielding.

What I read in your post is frustration that leads to dumping all of the mortgage holders into one category, regardless of their actual circumstances and culpability. That doesn't work for me.

We should no more demonize people unfairly than we should reward them unfairly. All of the mortgage holders are individuals and should be treated as such.

[MadHound]

13. Apparently not, at least not to my posts here

From my OP "Yes, I realize that there are those out there who, through no fault of their own, had the personal economic situation change in such a fashion that their houses are at risk. I have no problem helping these people out."

From my original reply to you "Frankly, this should be on a case by case basis, and failing that, nothing at all."

I would say that my brush is just as narrow as yours is.

[renie408]

12. Yeah, I have been paying attention and attacking me isn't going to fix this.

I guess I am thinking about some friends I have who HAVEN'T dumped their houses but are on the verge of being foreclosed on. I have two different friends who are in very similar situations. One bought their house about four years ago and the other bought hers two years ago. The first one had a really good job and her husband worked, too, when they bought the house. The did probably buy more house than they really needed, but it was her dream house and they could afford it at the time. Now her job has been downgraded and she is making less money and her husband has been laid off. They can't sell the house because literally half the houses in their neighborhood are either for sale or have already been foreclosed on. She has been paying whatever they can afford towards the house note, but it is only about 2/3 of the payment. She was hoping that the mortgage company would refinance or help her out, but they won't even talk to her. She was crying about this just last week. She said she keeps seeing on TV and hearing on the radio how you should just call your mortgage holder and work out something. But hers won't even talk about it.

The other friend is in a similar situation but the difference is her husband was the one who handles all the financial stuff and he was the one who worked with the mortgage broker and got them into their fabulous new dream home. Well, the ARM reset about six months ago, the going got tough and her husband of eight years just walked out one day. Now she is stuck with the house as she is included in the loan, has two kids and no support from her husband who has literally disappeared. I think she is just fucked. I would have to agree that she was stupid for letting her husband handle everything and not really paying attention to what she was putting her name on. But she is struggling hard to hang onto the house. The woman is working two jobs just to break even.

[MadHound]

17. Sorry about your friends,

But it sounds like they succumbed to greed and/or stupidity. By your own admission, one got more house than they could afford and the other got an ARM(in a "fabulous new dream home"). Sorry if I sound harsh, but they both really failed to do much planning, or thinking ahead. If they had, they wouldn't be in this mess. When my wife and I bought our house, we both made sure that the payment was a fixed rate, and low enough that one of us could pay it if something happened to the other one. This sort of planning, foresight and thinking was common a generation ago. Now, apparently not so much:shrug:

[Tesha]

18. We might look at the borrower's PITI vs. income ratio at the time the loan was originated.

If it's (say) 70% or so, it's a good bet they knew
they couldn't ever afford the loan they were
taking out.

Tesha

[Mojorabbit]

2. I am all for it

If nothing is done to help people stay in their homes the economy will continue to tank. The more homes foreclosed on, the more house values drop. The more people put out in the streets the more states have to shell out in assistance when they are in dire straits already financially. Jobs and homeowner assistance is paramount right now. I don't mind that people are being helped because in the end it benefits us all.

[MadHound]

7. I don't mind helping, I do however seriously mind rewarding these people

And frankly, giving them an interest rate that's half of what the going rate is, on top of extending the mortgage to forty years and possibly a principal reduction, sorry, but that pisses me off. Help would be reducing their rates to 5-6% on a thirty year fixed, but this is simply rewarding stupidity.

Hmm, maybe I should get ninety days behind on my payments and get this great interest rate:think:

[Mojorabbit]

19. I have a mortgage at 4.5% with six years left.

If you read books about the depression. A lot of people had the same attitude that still were employed. It was the people who were in dire straits own fault. Then these people lost their jobs too and were in the same position as the dominoes fell. There however remained a percent of the population who did well thru the hard times and kept the attitude blaming the people for the horrible position they found themselves in. Nothing changes.
Helping people stay in their homes helps all of us. The alternative is a nightmare.

[dysfunctional press]

20. the same terms should be made available to everyone, or no one.

fair is fair.

[mrreowwr_kittty]

3. Just how far are you willing to go to punish people?

To the extent that you are living in the gutter along with them? Your neighbor's foreclosure means your home is worth less. The misfortunes of those you deem unworthy of help cascade through the economy and will bring you down along with them. But hey, just as long as they're not being "rewarded for his stupidity and lack of personal responsibility", right?

[MadHound]

5. Continuing to bail out the greedy and stupid on Wall St. and Main St. will also drag us all down

How much are you willing to give? Until this country, this government, we the people are bled dry? There comes a point where you've got to say no, or go under yourself.

Frankly, this wouldn't burn me so much if they were resetting loans to 5-6% interest rate on a thirty year fixed. But instead, they're rewarding these people with a fucking three percent, forty year fixed rate. Where's the justice in that? Oh, and where to you think that principal reduction is going to come from? Certainly not out of the banks' pocketbook, but rather yours and mine.

[gcomeau]

8. The alternative being...

...we don't do that, those irresponsible people get their punishment and default on all their mortgages, housing prices plummet, the housing market tanks even further, the economy goes more to hell... and we all still get screwed. Even worse.

Do you always get rewarded for being responsible? No. Do you always get appropriately punished for being an idiot? No. Is it fair? No.

Welcome to real life.

[MadHound]

10. The thing is, by continuing to add to the burden of those who did do the right thing

All you're going to do is drag them down too. Then what?

I'm not against switching over ARM's to thirty year fixed at 5-6%. But fucking 3% for forty years? That's just obscene.

[Lance_Boyle]

16. what if they tack on prepayment penalties, such that

the people who get bailed out are *locked in* to that 40 year mortgage, with no early escape unless they refinance out of it?

[The2ndWheel]

14. That's the price of living in such a large system which

requires growth to survive. More and more people need to be able to do what that system requires them to do. That's why the ARM's were invented in the first place. Sure, if the good paying jobs stayed in the US, those ARM's may not have been needed. However, those jobs moving is basically inevitable in a global world. The same way 13 colonies became the United States of America. The same way the European empires found America by expansion in the first place. The way we live requires growth in a finite physical reality.

The requirement of growth in the system is the weakness of the system. That's why civilizations rise and fall. The wealthy have everything, the middle class wants what the wealthy have, and the poor, in the interest of fairness, have to be brought along with some sort of protection. So we end up with a house where there is a floor, but no ceiling. Which wouldn't be the worst thing in the world, if we had more than one house. However, since all 300 million(and of course the problem is now global) people are living within the same walls, with a floor and no ceiling, if it rains, we all get screwed.

[librechik]

15. Don't forget, Democrats FORCED those minorities to get those loans

so it's all Obama's fault.

:sarcasm:

[sinkingfeeling]

21. If my mortgage company (I have two with same lender) cuts rates for those not paying to 3%, you bet

I will be on the phone requesting my mortgages be reset to a lower rate. Don't want any extension on them, but want a lower interest rate.

[SammyWinstonJack]

22. Same here.

[melonkali]

23. Why is a fair case-by-case analysis no longer feasible?

If such a case-by-case analysis is truly not realistic, then it seems we are forced to choose between the lesser of two evils. We simply cannot throw families out onto the street who were victims of job loss or other financial catastrophe. And even if someone did make an irresponsible decision -- again, you don't just throw families out into the street.

BUT I'd argue that the government MUST find a way to offer this proposed assistance on a case by case basis. I fully agree with you that extraordinary terms like a 3% 40-yr mortgage on a reduced principle seems unfair UNLESS the same deal is offered to ALL homeowners in a "blanket" deal. Of course, such an all-encompassing "blanket" deal would cost lots more than just offering aid on a case by case basis, wouldn't it?

So that would be my addendum to the government's proposal: go case by case, and include those of us who did things "right" and who are struggling to pay our standard 10%-down fixed 30-yr mortgage because of extenuating circumstances (like health care costs).

As things stand, my family probably would not qualify for the assistance package since (a) we have a standard fixed mortgage and (b) we're not behind on mortgage payments -- the first thing we pay each month is the mortgage. In order to do so, we live VERY sacrificially these days. We could use some help, but it looks like we're going to fall through the cracks.

You know, the people I really feel for are the renters whose landlords are in foreclosure -- these renters do the right thing, pay their rent on time, then get a knock at the door giving them three days to vacate. That's just plain WRONG.

And while we're talking about about unfairness -- let me add the TV advertisements I see every day where folks who owe tens of thousands to the IRS "get off" for pennies on the dollar. How fair is that to us honest taxpayers? Why is that something an honorable person would be proud of, would advertise?

We once made a sincere mistake on our taxes; when we found out we owed more money, we didn't even think of trying to get out of it -- because that would have been WRONG, unfair to other taxpayers, wouldn't it? We could only afford small monthly payments, but we kept them up for years until our IRS debt was paid off. (By the way, our IRS agent, when he determined that we wanted to do the right thing and pay ALL of what we owed instead of engaging in "creative negotiating", was most considerate in working with us to be sure the monthly payment was something we could afford without undue hardship.)

[Winterblues]

24. Everybody is seeing the value of their homes decline

Some have seen the decline so drastic that they now owe more on their homes than they are valued at, and yet some still manage to keep paying their mortgage. Why should those folks not get the same relief? In fact why are some folks going to be treated more favorably than others? I believe there could be a Constitutional challenge about this. If one American is permitted to receive lower interest rates all should...