There is absolutely NO WAY that any kind of a mortgage bailout will be fair. The people who would benefit from mortgage assistance are generally the ones least likely to deserve it.
Hardest hit are people who either bought a bigger house than they could really afford, and people who snagged one of those great “no money down” loans. Are YOU willing to subsidize someone who is living in a luxurious home they shouldn’t have been able to afford in the first place? Is that the kind of behavior that we are trying to encourage?
Absolutely not!
While I do have great sympathy for someone who is losing their home after 20 or 30 years, let’s look at the reality of who this might be:
Assume someone bought a house twenty years ago, with a conventional 30 year fixed rate mortgage and a 20% down payment. At the time, the national average home price was just about $75,000 (not inflation adjusted). Our example homeowner has been paying on their mortgage for twenty years – and even with a fairly high 9% fixed rate loan, the payments are only $483 a month (not including taxes and insurance). If they’ve kept up on their payments, they now owe $38,000 on a home that is worth at least $200,000 – which is the average value of our example home today, after the latest downturn in prices.
How in the world could their mortgage be in trouble? Our example homeowner should be able to afford a mortgage payment of $483 a month, even if they are living on a salary of $25,000 per year. And although the value of their home has dropped some $50,000 in the last two years, they should still have over $150,000 in equity.
“But”, you say, “they probably re-financed along the way, or they took out a home equity loan, so they actually owe a lot more than this ...”
EXACTLY MY POINT – we are not bailing out their mortgage, we are bailing out the cash that they took out of their home and spent on who knows what ... vacations, cars, impulsive shopping, and a widescreen TV to go with their X-Box ...
Sure, some people refinanced and used the money for home improvements, medical expenses, and college tuition for their kids. But in general, the twenty year homeowners who have acted responsibly are not the ones that are in trouble.
The system should be rewarding those who have managed their finances in a prudent fashion. I am tired of being held responsible for other people’s poor choices.