More Complaints about the Mortgage Bailout

A story on CNNMoney.com is backing up the points I was trying to make yesterday about the problems with the mortgage bailout.

Don't have a job?

Struggling to keep up with payments on a home worth less than half the mortgage?

Owe way more than your home's value, but can still afford the payments?

Sorry, but you likely aren't among the 9 million people who may get help under President Obama's $75 billion foreclosure prevention program.

The article went on to tell the story of a homeowner who is facing a similar situation to mine and thousands of others here in Vegas and in the Southwest in general.

Take Joe Martinez of Bristow, Va., who fits the profile of the "responsible" homeowner Obama cited in the plan. The government contractor and his wife thought they did everything right when they bought their brand new $600,000 house two years ago. They put 5% down and got a 30-year fixed-rate mortgage they could afford.

Others in their neighborhood, however, couldn't keep up with the payments. As foreclosure rose, the value of the couple's home plummeted to $450,000, leaving them doubtful they'd ever recover their investment.

Martinez called their lender to try to get into the Hope for Homeowners program, which would reduce their loan balance to 90% of the home's current value. But they were turned down because they weren't in default.

So two months ago, the couple stopped paying their mortgage, hoping they could then qualify. But even if they don't, they are willing to take the hit on their credit scores to stop throwing money down the drain.

"There's just no point to stay here," said Martinez, 29, adding he could rent the house across the street for half his monthly mortgage payment. "We don't want to give up our home, but it's never going to come back."

Martinez isn't interested in having his interest rate lowered. He would like to see some of his principal forgiven.

"Why would it be such a big deal for them to modify my loan?" he said, noting that his tax dollars are being used to finance the program. "Wouldn't that stabilize the economy?"

Is it time for we the people to all just stop paying our mortgages and walk away from our houses? The banks have already received our money in the form of taxpayer funded bailouts.

"Cutting principal is really what's needed to contain foreclosures," said Christian Menegatti, lead analyst for economic research firm RGE Monitor.

The next wave of mortgages may very well be instigated by those of us who are under water on our mortgages and just don't have any hope of ever getting back on the plus side. Nothing in the current mortgage bailout will do anything to solve the problem. We've been abandoned by our government after stealing our money to save irresponsible lenders.

Some experts, however, say Martinez is the exception. Those who can make their payments aren't likely to walk away because still need a roof over their head, said Howard Glaser, a mortgage industry consultant.

"Homeowners aren't day traders in their homes," he said. "The investment value is not an issue."

Really? Homeowners don't care about the value of their homes? Really?!!! We're the exception to the rule?!! REALLY?!!! That's exactly the kind of thinking that disappoints me most about this administration.


Questioning Politics

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

Oil Independence

I am not an environmentalist. I am against forcing people to go green. It should be the choice of the individual to spend the extra money to buy environmentally friendly products.

However, I am very concerned by our dependence on foreign oil. I received the following e-mail from the T. Boone Pickens Army. It's a good read.

Army!

We have to stay on offense! We can’t let the new Congress and the new Administration shove our dependence on foreign oil to the back burner. Here’s why. When we started the Pickens Plan last July, oil was at about $147 per barrel, gasoline at the pump was $4.11, and we were importing about 70 percent of the oil we use. Today oil is $100 per barrel less, but we are still importing about 70 percent of our oil. Why is this important? Because we are still at the mercy of foreign governments and unstable areas of the world for our oil supply. It is still a crisis, but it’s also an opportunity for us to fix it. Look at the headlines from just the past couple of days.

- Oil up $5 on OPEC cuts.
- Russia cut off natural gas supplies to Ukraine.
- Iran calls for oil embargo for supporters of Israel.

Just before the holidays, OPEC met to try to raise oil prices. OPEC delivers 40 percent of the daily oil supply. They decided to cut their output by 2.2 million barrels per day to try and get the price back in the $70 range. You've heard me tell you before that if consumption runs short of supply, then the only way to balance the books is by raising the price. What have we seen? Gasoline at the pump has jumped back over $2 per gallon in many areas and is moving back up.

Next headline: On New Year’s Day, Russia cut off natural gas supplies to Ukraine in a dispute over prices and payments. According to Reuters news service, “That has hit natural gas supplies to countries in eastern and southern Europe facing freezing temperatures and has worried European countries, which get one fifth of their gas through pipelines that cross Ukraine.” Think about that: The Russian government is willing to force its customers to pay whatever price it sets by cutting off supplies; not threatening to cut off supplies, but by actually doing it in the coldest part of winter. We don’t rely on Russia for our natural gas. We don’t import any of it, and we have plenty of our own natural gas supply.

The problem comes from that second headline – what happens if Iran and other Mideast and African countries decide to use oil as a weapon against us like Russia is using natural gas as a weapon against Ukraine? I’m not making this up. Here is what the Iranian News Agency reported over the weekend: "Pointing at Westerners' dependence on the Islamic countries' oil and energy resources, [Iranian leaders] called for cutting the export of crude oil to the Zionist regime's supporters the world over.” Iran understands how to leverage our over-dependence on foreign oil. OPEC understands how to manage output. We are left without any weapons in this price war. We have to remind our leaders in Washington that whether oil is a $50 a barrel or $150 a barrel it is the level of our dependence on foreign oil, not just the price, which puts us all at the mercy of unfriendly foreign governments and you don’t know when they will move against us.

-- Boone


Questioning Politics

Quote of the Day

Walter Williams, Professor of Economics, George Mason University:

"Imagine you see a person at work taking buckets of water from the deep end of a swimming pool, and dumping them into the shallow end in an attempt to make it deeper. You would deem him stupid. That scenario is equivalent to what Congress and the new President proposes for the economy."


Questioning Politics

Libertarians and Israel

The following is a mass e-mailing from the Libertarian party dated Jan. 5, 2009. I fully support the viewpoint held by the Libertarian Party on this issue. I don't understand what we have to gain by supporting Israel when there are many issues that ought to be addressed within our own borders that to me seem much more pressing. Enjoy.

Your Monday Message from the Libertarian Party:

Since its creation as a Jewish state in the late 1940s, Israel has been one of the main sources of tension and unrest in the Middle East. Now, more than 50 years later, Israel once again finds itself at odds with its Palestinian neighbors, forcing the hand of the United States to show where it stands on one of the most polarizing issues in modern history.

The tension between Jews and Arabs in the Middle East goes back thousands of years, and there is no easy solution to the issues in the Israeli/Palestinian dispute. Many U.S. presidential administrations have tried to act as brokers of power or arbiters of peace without any success. Libertarians aren't foolish enough to think we have the answer to solve the Israeli/Palestinian conflict. However, we do realize that steps can be taken by the United States to remove itself from injury in the conflict, and perhaps begin the process of long-term stability in the region. The biggest of these steps is to eliminate all economic and military aid to Israel and all other foreign countries. It's the general opinion of Libertarians that as far as the U.S. government should be involved, Israel should look out for its interests so long as its actions are not subsidized by the American taxpayer and Israel does not look to the U.S. for assistance. However, because Israel is the top recipient of foreign aid (aside from Iraq), it is reasonable to assume that some of the money given to it by the United States in foreign aid is used to either directly or indirectly support Israeli military operations.

Therein lies the problem.

There are several complications with U.S. foreign aid going to Israel. One, it makes the United States culpable for the actions of Israel that many times come with international condemnation. Secondly, it opens up the United States to cries of extreme bias in favor of Israel—a main catalyst for terrorism against U.S. interests at home and abroad.Critics of removing foreign aid from Israel cite that this is the United States turning its back on a staunch ally. However, this couldn't be further from the truth. The United States is not "giving up" on Israel by removing foreign aid as much as it is adhering to a principle of non-intervention—in Israel and across the world as well. Israel will still be a trading partner with the United States, and will benefit greatly from this trade. Additionally, Israel has a strong and effective military along with nuclear arms to deter aggression.

The United States' top priority needs to be the United States, and our billions of dollars of foreign aid to Israel have hurt our national security and international standing. "Contrary to the warnings of the do-something buffs, U.S. interventions in the Middle East have likely unleashed more anti-American terrorism and more pressure on energy markets than they have prevented," says Leon Hadar, a research fellow in foreign policy studies at the Cato Institute. In essence, the interests of Israel are not always those of the United States. However, it is not an analysis of what we have gotten in return from our relationship with Israel as it is an adherence to the principle of non-intervention. There is great wisdom in remaining disconnected from the problems facing other nations, especially when these problems are complicated and have negative consequences for getting involved. At issue for Libertarians in the current situation with Israel and Palestine is not so much who is right or wrong, but whether the United States should continue to support other countries with foreign aid. Libertarians may all feel differently on whether Israel is "justified" in invading Gaza, but Libertarians all agree that taxpayer-subsidized foreign aid to other countries is bad for business and bad for peace.

Treating Israel like any other country is not abandoning an ally, but freeing the United States from a cumbersome relationship of the likes George Washington, Thomas Paine and Thomas Jefferson all warned against hundreds of years ago. In the words of Jefferson, "peace, commerce, and honest friendship with all nations; entangling alliances with none."

Live free,

Andrew Davis
Director of Communications
Libertarian Party

Questioning Politics