October 31, 2008

"Why am I being punished for having bought a house I could afford?"

People who owe more on their house than it's worth will want in on the new mortgage plan too. The fact that they can meet the payments may make them feel even more entitled.

"If the lunch truly is free, the demand for free lunches will be large."

48 comments:

Freeman Hunt said...

Hey, I don't owe more than my house is worth. Why am I being punished for making a substantial down payment and having bought a house I could afford?

I demand my free lunch.

Quayle said...
This comment has been removed by the author.
Quayle said...
This comment has been removed by the author.
EDH said...

Some propose a "shared appreciation mortgage"(SAM) approach.

Mankiw reviews the pros and cons.

Quayle said...

If Obama actually has the understanding and ability to unilaterally stop all foreclosures and preserve the value in our 401Ks without other bad side-effects, the only question that remains is: why stop there?

Why is he so mean that he won’t fix all our problems.

I've got a car that has been giving me a bit of trouble.

And we need a new Miele vacuum.

SteveR said...

Life's not fair in case you haven't noticed.

Original George said...

It's a problem.

“This is not about trying to create fairness,” said Michael H. Krimminger, special adviser for policy at the Federal Deposit Insurance Corporation, which is working with Treasury on the latest plan. “The goal is to keep people in their houses.”

If people leave their houses in large numbers, banks will own them, weakening their balance sheets. Banks will have to rehab and rent the houses. Neighborhood property values will continue to decline, worsening the housing bust, causing banks to own even more property.

Yes, it stinks to help people who bought what they couldn't afford. It's worse to let them suck down the economy. Better to let them refinance at lower monthly rates.

When the markets crashed in 1929, people didn't wake up the next morning and say, "Oh, hey, this is the GREAT depression. It will last 12 years. There will be newsreels of soup lines." It took a long time to unfold. Sneaky.

It's also worth looking at this video posted by Instapundit, showing an ecstatic young black woman who believes that Obama's election will make her life a dream...she says she won't have to worry about paying for gas or for her mortgage...delirium. Fantastic.

Meade said...
This comment has been removed by the author.
AJ Lynch said...

I brought my lunch today. It saves me money and helps me pay my mortgage.

Seriously, we can't just prop up home values artificially. We should look at a successful program like the FDIC bank deposit process and try to create a mortgage insurance structured the same SOLVENT way. This of course does not address the sins of the past but will help us avoid future meltdowns.

SGT Ted said...

I am upsidedown on my mortage. I am retiring in 2 months and will have to walk away from ym house, because I cannot sell it and I will no longer be able to afford the payments.

I don't want a bailout. It's not the Gobernments job to steal from you all to prop me up. I'll survive and get back on my feet.

FDR and Hoover made the 29 crash worse by enacting idiot laws. Obama is set to follow suit.

Vote accordingly.

dbp said...

If somebody purchased a home they could afford, then why can't the still afford it even if it has declined in value?

I mean, if you get fired or layed-off then your income will go down, but this has always been the case. What here is unique?

peter hoh said...

Sgt, sorry about your predicament. I was in an upside down house when an earlier hot market out east cooled down.

peter hoh said...

dbp, the suggestion is that if the program is tempting enough, the Connecticut pilot will stop making payments in order to qualify. If he has to lower his income, he may be willing to do that by reducing his hours, if that's what it takes to qualify.

Bissage said...

"If the lunch truly is free, the demand for free lunches will be large."

I am still under the effect of Peggy Noonan’s post-hypnotic suggestion and I still believe I am a chicken.

I live on a farm in a chicken coop.

I have good food and veterinary care and protection from the predators that would eat me.

I HAVE GOT IT MADE!!!1!1!!

Cluck, cluck, cluck, cluck, cluck . . .

LarsPorsena said...

dbp:

If you read the story the subject bought the house at an inflated price. Now he's making payments on a theoretical value of $500,000 while
the house is currently valued at $350,000. Why shouldn't he walk away from the payments when he knows there's a government rescue on the way. He will get his payments restructured for $350,00 and save $$$. At 6% on a 25 year mortgage he saves $1000 a month.

The government continues to invent
programs that reward the improvident and screw the remainder.

dbp said...

This is exactly why plans like this are a very bad idea. This pilot isn't being "punished" any more than any other taxpayer.

Taxpayers are insuring against risk, but certainly would have never gotten a piece of the upside. If there is any kind of bailout there ought to be some kind of provision for recapture of future appreciation.

William said...

In the long run, those who live within their budget and honor their commitments will prosper more than those who game the system.

Pogo said...

Incentives matter.

If the incentives reward the squanderer and punish the thrifty, you get more squandering and less thrift.

Liberalism, getting something for nothing, is the perpetual motion machine of finance, the AIDS of economics.

MadisonMan said...

I am not upside down. If I become upside down, Madison will be in a world of trouble financially.

But I want not only my free lunch, but freelunch hunt's lunch as well.

Actually, I don't. I don't pay a lot in taxes to the federal government (unless AMT kicks in this year, but I don't think it will). Maybe a couple hundred a month.

As for the bailout not being fair, well neither is life.

People whine too much.

peter hoh said...

C'mon, get with the program. We're all punished by paying taxes.

And we're punished when someone else gets a handout.

It's only okay if we're getting a handout.

MadisonMan said...

But I do think: if the govt bails you out, it should get a nice return when you sell the house for a profit.

MadisonMan said...

So make people think before they take the handout: Do I take this money now and sacrifice my future profit? Or do I gut it out for the sake of all the future profit.

dbp said...

This pilot is $150,000 underwater. He should threaten his bank that he will walk away from the place if they don't give him a break. It would be in both of their interests to make a deal.

If he walks, he can just buy a similar house for $350,000. He already has the income to support a mortgage on a $500,000 house, so he will be better off.

Bender said...

Folks whose homes at present have a market value below what they owe on it are not any more worse off or poorer than I am made better or richer by the fact that my home appreciated in market value since I bought it. Again, the fact that my home has doubled in market value since I bought it has NOT made me twice as rich. The ONLY one who has benefited from the situation is the government, which has reaped the windfall of sucking higher taxes out of me.

In buying a house, there are only TWO values that are important -- what you bought it at, and what you sell it at. The up-and-down market values over the intervening years is totally irrelevant. The fact that someone's home might be "worth" less than what they owe on it is relevant only if they are trying to sell it today. And most homeowners do not buy in order to sell in the short term. They buy to live in the house for the long term. The fact that someone's home might be "worth" less today does not matter if they are planning on living there and selling in 10-20 years. And in 10-20 years, the home will almost certainly be worth more than what they paid for it.

Original Mike said...

While life is unfair, it becomes much more unfair when the government tries to "fix" things. And the truly galling thing is that, rather than it being bad luck (or your own foolish choices) that are screwing you, when the government does it, it's one group of people screwing another.

Pogo said...

"In buying a house, there are only TWO values that are important "

But when owning a house, those fluctuations are taken into account by your local governments determining your property taxes. Recently those valuations have increased wildly, increasing the associated taxes.

So yeah, the variations on the "price" of your house matters, even if you plan to stay until taken out in a box.

ricpic said...

I agree with Bender. How does the fact that this airline pilot's home is worth less temporarily than it was when he bought it make him poorer? And anyway, however the value of his house fluctuates his monthly mortgage payment remains the same. So again, how is he poorer?

MadisonMan said...

If he walks, he can just buy a similar house for $350,000.

I think it would be hard for him to find a mortgage if he has just walked out on one, but yes, the rest of your post rings true.

Bissage said...

True, so very true.

But the postman always rings twice!

TosaGuy said...

Your house is worth what you sell it for, not what you think you can sell it for. This guy is confusing his loan with the asset he invested in. The bank doesn't get to come in and up your mortgage amount when the appraised price jumps and the owner doesn't get to change the mortgage downward when the appraised price falls. He borrowed a pile of money, spent it on an overpriced house and remains obligated to pay back what he borrowed regardless of the home's present value. His whine does not take into account that 10 years from now the house may be worth $700K.

downtownlad said...

If you owe more on a house than its worth, there's nothing wrong or unethical about simply walking away. Although it might hurt your credit rating - so you need to weigh the risks vs. rewards.

I'd strongly consider it. You'd be a moron not too..

bearbee said...

If somebody purchased a home they could afford, then why can't the still afford it even if it has declined in value?

Many bought with Option ARMs in which there is a low introductory interest rate subject to reset at some point in time AND in which the homeowner can select an option to pay only a minimum payment amount. If the value of the house depreciates the loan payment amount is recast and reverts to full monthly payments. Barring other events, it is the reset/recast that they cannot afford.

Doubtless many they did not fully grasp the financial consequence of the reset/recast.

Others who purchased low ARMs may also be struggling.

How Many ARM's Set To Reset in 2008...?

The Next Housing Catastrophe Waiting to Strike

Original Mike said...

Your house is worth what you sell it for, not what you think you can sell it for.

Exactly. Your primary residence should not be viewed as an investment. It should be viewed as a place to live. And when it comes time to move, it's worth what the next guy will pay for it. So many people don't seem to understand this.

Pastafarian said...

"If you owe more on a house than its worth, there's nothing wrong or unethical about simply walking away. Although it might hurt your credit rating - so you need to weigh the risks vs. rewards."

There's nothing wrong with agreeing to pay a debt, and then choosing not to? Is that because the fat cats at the bank can afford to lose some money on the deal? Would it also be perfectly ethical to reach across the counter and pull a wad of 20s out of the teller's drawer when no one is looking, since they can afford it?

I think that DTL has very clearly expressed the difference between liberal and conservative philosophies, at their heart.

Revenant said...

If you owe more on your house than your house is worth, you do not own a house. Calling a person who owes $300,000 on a $200,000 a homeowner is like calling a guy who borrows $4 million and then loses half of it "a multimillionaire". The correct term for both people is "debtor".

People invest a lot of emotion into their houses, but we need to think about this crisis rationally.

Terry said...

DTL: "If you owe more on a house than its worth, there's nothing wrong or unethical about simply walking away. Although it might hurt your credit rating - so you need to weigh the risks vs. rewards."

There is everything wrong and unethical about just walking away from contractual obligations.

Unless you are sociopathic.

That would explain a few things...

Revenant said...

If you owe more on a house than its worth, there's nothing wrong or unethical about simply walking away.

There's nothing *illegal* about simply walking away. But it is certainly unethical!

Arturius said...

If you owe more on a house than its worth, there's nothing wrong or unethical about simply walking away.

This statement is indicative of the behavior that brought about good chunk of the financial problems we're facing.

Arturius said...

If you owe more on your house than your house is worth, you do not own a house.

I'd argue that you don't truly own the home until the bank hands over the title. Until the mortgage is paid off, the 'homeowner' could be more accurately described as an equity renter for lack of a better term.

blake said...

But when owning a house, those fluctuations are taken into account by your local governments determining your property taxes. Recently those valuations have increased wildly, increasing the associated taxes.

Proposition 13, suckers!

Say, any word on municipalities factoring in the possible wild fluctuations by capping the amount they raise taxes by?

I thought not.

blake said...

Here's the thing: The housing market MUST go bust.

How else are people going to be able to afford it?

Seriously, the value of a little "starter home" quadrupled here in So. Cal. (In a regular boom, it would have spiked at around 2.5x its low price.)

I didn't understand how people could afford it then, but I guess now I understand.

Seriously, how do you reconcile this nonsense with the concept of "affordable housing"? They didn't make affordable, they just made it easier to get in over your head.

chuckR said...

I too am underwater. Oh, wait. What year is it? Never mind, that was 1981 and because the rules then required skin in the game - a down payment that had to be earned, not gifted, it was easier to stick it out and more onerous to walk away than today.

Blake is right, especially for boomers who think a house is a retirement plan, even if its a damaged one at this point. Answer the question - who will buy our houses? Not individually, but as age cohorts. I don't see my twenty something kids doing it and I don't see a lot of 30 somethings doing it either. They will once houses are marked to market, or if future events inflate the currency significantly.

jaed said...

What blake said. I live in Oregon and housing prices here have tripled in ten years. The reason so many people got into these hideous mortgages in the first place is because it was impossible to buy a house on an ordinary income without financial shenanigans in a lot of the country. How on earth is it "responsible" to keep housing prices hyperinflated?

Also: Why am I being punished for not having bought a house I couldn't afford? Shouldn't those who didn't buy inflated housing because they knew they couldn't afford it be able to dip their beaks too?

X said...

If he walks, he can just buy a similar house for $350,000.

if he walks it will be impossible for him to get a mortgage for years. for some strange reason mortgage lenders never liked borrowers with foreclosures on their credit report, now less than ever before. current fannie/freddie guidelines won't allow loan approval if you have been even 30 days late on your mortgage in the last 24 months.

blake said...

Actually, X, if you're clever about it, you can swing the new mortgage before the old one goes bad.

I have a friend who did that, but in her case it wasn't a matter of buying more house than she could afford, it was that the county decided that the property she bought wasn't legal with the two houses on it she needed to make it affordable. (She shared the costs with a family member.)

Freeman Hunt said...

I've got a car that has been giving me a bit of trouble.

And we need a new Miele vacuum.


I'm with Quayle; there are a few other things I'd like to get for free. I'm tired of one of our cars. Also, we financed a car for someone else, and that person is a slow payer, so I would like the government to bail her out and pay us off. And groceries, tired of buying those.

I guess I could just not pay any bills anymore; then the government could take over my finances and pay for everything. Here they'll give you welfare AND buy you a brand new car if you're unemployed. That plus food stamps, plus a discounted mortgage: it's Easy Street courtesy of Uncle Sam.

bearbee said...

I guess I could just not pay any bills anymore; then the government could take over my finances and pay for everything.

I hate doing my own cooking and cleaning. I could hire someone then not pay up but how do I swing a permanent government bailout?

How about a government program where rich Hollywood and other types are required to sponsor assigned lists of us less fortunte folks and directly send us monthly checks covering all expenses.

I'd like to be assigned to Oprah.

Maybe O-man can arrange it.

britesun2 said...

I'm a single mom who got bought a house to keep for a few years and then sell. Well, that didn't happen. I had no job and got approved. So, to all you married couples with the big mouths, I'd like to see you do that. I had no job, get it???? you have 2 incomes and still cant afford your house. I got screwed by my realestate lady. I had no lawyer present thanks to her. I had cash and ivestment money. Thank god the bank wont get the rest of it. I dont feel bad walking away from a home I tryed to sell with 4 different realators. So, all of you who critisize others about the payments is just plain stupid. Its not all about making the payments, like you think your hot shIIIII. Its about the banks giving people and approving loans, that they agreed upon. They had 3 months to think about my loan and it went thru. SO, dont knock consumers for getting approved. The Banks are all crooks. GET IT?????????????