Yesterday, Thursday March 25th, the White house announced a new initiative to be revealed at 10:00am Friday. Immediately upon the release of the report, blogs went crazy with arguments for an against: “Why should I pay for others’ mistakes?” or “It’s about time”. The new plan from the administration is focused on giving lenders incentives to reduce principal balances for individuals that are significantly underwater, for those that are unemployed, or both.
I am sure the debate will continue for several months to come, and be the new polarizing factor du jour for political junkies.
Since I have been in the mortgage business before and during the Great Recession, I can honestly say that I understand both sides of the arguments. What scares me is the vehemence with which the self-proclaimed “responsible homeowners” have expressed against bailing out the alleged ”irresponsible homeowners” . (Big sigh!)
Once again we have a severe case of grotesquely misplaced and unreasonable blame. Not every homeowner that is facing forclosure is in a subprime loan aquired by hoodwinking their lender or any other ill-gotten means. Most homeowners that will benefit from an extension of the bailout are more than 20% under water (oweing more than current median value) or still without employment (and not for lack of trying). This piece of the bailout encourages lenders to take some indirect accountability for the crises (that they ignited, mind you) by lowering the book values of a small portion of their inventory. Breathe: only $14 billion is being used to tease the banks to adjust the values of their inventories vs. the $700 billion handed to AIG and the like for their atrocities, which also covered after-math parties. Deal with it!
Importantly, let us not forget that the AIGs and Morgan Stanleys, who incidentally managed most of the 401Ks and portfolios of the primary beneficiaries of the subprime boom (your basic everyday investor and pensions) are also the authors of the very guidelines that caused the subsequest subprime super nova. What? You shouldn’t eat where you poop!
The issue at hand remains. Count your own blessings if you’ve managed to remian unscathed, but until we halt the unfortunate and mostly undeserved forclosures of our neighbors, our own home values will drop (by some estimations) another 15%. Would you rather continue to protest the government’s aide and see your own net worth tumble or allow the intervention? Lets not forget that during the great depression most lenders where writing off entire mortgages on homes and farms because the alternative was grim. I was not alive during the great depression but I know that many survived it and lived to tell!
