So I've been thinking about the mortgage bailout plan.. err, the homeowner affordability and stability plan - and have come up with my own brilliant plan:
1. The government will buy "toxic loans" from banks that are holding them, at a substantial discount. I'm thinking 25 cents on the dollar, a number I came up with entirely by pulling it out of my ass.
2. The government will then go through those loans, and figure out which ones are owned by people who are several months behind on their mortgages. They will then foreclose on those homes, and evict the homeowners.
3. The government will then burn the foreclosed home to the ground.
Hey, it gets toxic debt off the banks balance sheets, allowing them to make new loans as well as for investors to have a better idea how they stand. It reduces the supply of houses, which should keep prices stable or increase them. And it doesn't reward people who borrowed to buy way more house than they can afford. And hell, it probably even will give firefighters some burning houses to practice on.
OK, it's a completely stupid idea. But no stupider than the actual plan, a summary of which can be found at the treasury website
in PDF format.
I agree with Rick's brilliant speech
- I don't want to pay the mortgage of my neighbor who has an extra bathroom and can't pay his bills.
The bill basically includes three parts. Part one is that the government will allow Freddie and Fannie to refinance mortgages for 105% of the value of the house instead of 80%, which will allow people who are upside-down to refinance. It's an idea that probably won't make a lot of difference either way - it probably won't hurt, and it will allow some people to refinance and save a few bucks a month thanks to lower interest rates. It's not necessarily bad, but it's also unlikely to make much a difference overall.
Part two is the part that gets people like Rick and I worked up - a host of incentives to people who are behind on their mortgages. The government will lean on banks to modify loans - through both interest and principle reductions - by paying part of the difference. They will also pay the bank $1000 a year for each year the borrower is current for up to five years, and also pay the borrower $1000 for each year they are current for up to five years. Yes, you read that right - the government is going to reward people FOR PAYING THEIR MORTGAGES - you know, something they agreed to do when they bought the house.
Maybe they will extend this program further, and reward people for doing things they should be doing anyway. I'd like to get a $1 every time I brush my teeth, and fidy cent for every time I pee in the toilet instead of going on the floor.
Part 3 is that Fannie and Freddie will continue to buy mortgages and the like. I don't have a whole lot to say about it, because I don't really know much about the subject. My guess is it's pretty much something they have to do now that the government took them over.
It's the middle part that pisses me - and probably quite a few other people - off. Our tax dollars are going to be going to subsidize people who bought way more house than they should of, who didn't bother paying their bills, and get them lower interest rates and even lower principles. Meanwhile, those of us who were responsible enough not to get too far over our heads, who made sure we kept our bills paid, and who happen not to own mortgages that fall under FHA, Fannie, or Freddie, will pay for it.
I don't understand why home ownership has suddenly become a right, how making people give up a house that they haven't paid for is considered such a horrible wrong that we need to take tax money - money that is taken by the government by virtue of the fact that the government has the guns and the jails - and give it to those people. Sure, some of those people had unfortunate events- medical bills or layoffs. But that's life. They can rent, or move in with friends and family, until they can get back on their feet. If you want the government to help them, give them section 8 vouchers or something.
I bought my house at the absolute worst time, in June of 2006. I can't find any comps that are less than 8 months old, but I would guess I'm probably about $30 grand underwater, despite having put down $20 grand when I bought it. But even though my house payment is a significant chunk of my income - probably about 60% after tax in a month with no overtime - I still manage to pay it, because I live frugally and am always looking for opportunities for additional income. It annoys me that people who made poor decisions will get rewarded, while people who made merely unlucky ones like myself will pay for it.