Thursday, February 19, 2009

The Morgage Bailout Will Help Who?

He's gone and done it. Obama has unveiled his bailout for the mortgage industry to the tune of $75 Billion. Once again, it is a voluntary program to encourage banks and mortgage services to help troubled borrows refinance their mortgages or get their mortgages modified.

Those who know me know that I don't think the government should be spending any of our tax dollars to try and bailout mortgages or cars or banks or countries. Unfortunately, the government is going to spend our money, so I've resigned myself to complaining about how they spend it instead about whether they spend it or not.

The mortgage bailout is Obama's first attempt at actually trying to attack the heart of the economic downtown. It's about time somebody tries to do something about foreclosures, no amount of spendulus is going to help the economy until the housing market is turned around. But what is the program really going to accomplish?

I laugh at the fact that the bailout of mortgages amounts to $75 Billion, which is dwarfed by the spendulus package ($878 Billion) and the bank bailout ($700 Billion). Obama estimates his plan will help 9 million borrowers. A quick check of the math shows that amounts to $8,333 per borrower helped. The obvious question is how will 8 grand prevent anybody from losing their house over the long term? It doesn't add up!!

Troubled borrowers fall into one or more of three groups.

1) The economically challenged: those who have been laid off or have otherwise had income reduced due to economic conditions.
2) Sub-prime borrowers: those who got involved in crazy schemes to get them into houses they couldn't ever really afford.
3) Underwater mortgages: those who have seen the value of their home fall below the amount they owe on their mortgage.

Group 1 is out of luck. The bailout is only meant to help people who could afford their mortgage if the payments are reduced.

Group 3 is screwed. I'm especially bitter about this as I am a Las Vegas home owner and have watched my property value fall by about 45% over the past two years. I could not believe when I read the following passage:
...the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property, excluding many of the hardest hit.

My mortgage far exceeds the 105% threshold, as do most of the new buyers in California, Nevada, Arizona, and Florida. I just have to hope that I happen to be in an area that is considered the hardest hit. Certainly not a slam dunk decision for our government, as obvious as it might seem.

That leaves group 2 as the people most likely be helped by this program, but even that is a big maybe. Many of these borrowers did not provide income information for their home financing. It's entirely possible that the government can do nothing for them. Regardless, this group is the most irresponsible of the three groups, and deserves the help the least. So of course, they're getting the most help.

In my opinion, it's the responsible homeowners who are under water on their mortgage due to no fault of their own, other than buying at the wrong time, who could use the most help. My opinion is absolutely biased, since this is the category into which I fall. But I'm sure I'm not alone when I consider walking away from my house. My house must appreciate by 52% from its current level before I will break even. An optimistic holding period for reaching that goal is 10+ years. I never had any intention of staying in my house for over ten years. I look around at the homes I could buy now, and even at the homes I could now rent, and wonder why I should go on paying $500 more per month than the going market rate. I know I'm not the only one in this situation. But as a group, I don't see any help (from our own tax dollars) coming our way.

Questioning Politics


Sarah Kay said...

As much as I hate outright agreeing with you, I have to outright agree with.

Elliott said...

Are you kidding me? You LOVE to agree with me!!