Thursday, November 13, 2008

Why Punish the Prudent?

Dear Lawmakers –

I have a couple questions I was hoping you could answer. Why is it that people, who put little to no money down on a home, are now eligible for 2.5% interest backed by the government, and principle reductions of 90% to market?

We would love to purchase a home using a 20% down payment, however all we can find are interest rates at 6% or higher, and market home prices? It seems to me that those of us who have excellent credit scores, and down-payments are actually being punished and asked to pay more when compared to others.

I honestly don’t mind the government helping out actual homeowners. However, I don’t consider someone a homeowner unless they put more than 10% down when purchasing their home.

So all this talk about keeping people in “their” homes, seems like rhetoric aimed at people’s heartstrings. How am I, a renter, any different than someone who moved into a home with little to no money down? For a renter, it’s called a deposit, but for these “homeowners” it’s called closing costs. Yet paying closing costs, now entitles them to lots of special government subsidies that I am not eligible for.

As I am sure you are aware, rewriting loans to keep people in “their” homes, will prolong the pain and keep home prices higher than they would otherwise be. If a loan is rewritten, the government /lender should be required to record the new principle balance with the county, so that us home buyers can at least benefit from the lower more affordable comp.

As evidenced in many parts of Sacramento, the housing market is not broke. People will buy homes once they become affordable (using responsible lending products). Right now homes under $250,000 in our area are receiving multiple bids.

Letting the market adjust back to affordable levels has many benefits. If people are spending less on housing, they will have more disposable income to fuel the economy. It also means people can buy homes closer to work, as opposed to distant suburbs. This had a dual benefit because it will cut emissions and energy demand, while allowing people to spend more time with their loved ones and less time commuting.

Best of luck saving the economy,

Your Average Buyer


Vanda said...


Mike said...

I nominate BT for Congress !!

Can't believe what is happening these days.

Reward the greedy, fraudulent, and irresponsible.

Punish the prudent, honest, and responsible.


alba said...

Don't worry about those who don't deserve a break. Be patient. The current government plan may help someone, but not very many. Extending loans to 40 years and lowering the interest rate amounts to servitude for those that are willing. Keep your cash.

Always think there's a real message when Paulson speaks, which is not what he wants you to hear.

Whatever downside we go through, it will be one in which cash will rule, even in housing. Timing will not be such an issue. Any socialism that props up prices and rewards people to stay in homes they can't afford is only extending the inevitable.

Once the financial institutions get through some attrition and contraction, they will have moved onto another resource of play money, and the housing market will collapse even further, and stay flat.

We all need to imagine managing in a tighter economy, with less jobs, less services, less, less, less; with everything costing more, more, more. Who's ready?

Cmyst said...

I confess to becoming increasingly miffed about this downturn. I've been living within my means for years, which meant I didn't get the new furniture, SUV, and McMansion. People making half what I made lived like they were making twice what I made -- but at least they got some joy from it. There are times that I could kick myself now for NOT buying into the whole charade, especially if I could renegotiate the terms.
But that's why they're trying so hard to re-inflate the housing bubble. That's where all the "growth" in the economy was. They think that if housing just stabilizes, people will start living on their HELOCs again. Why these geniuses think that, I can't figure. Maybe they are so far removed from reality that they don't realize that the American consumer is totally tapped out; to them, these are paltry sums and paltry debts.
I have been darkly amused by our Congress critters outrage that banks aren't lending money to consumers, which is what they wanted. And which is what got us into this mess, of course.

Mike said...

Just the other day, I was coming out of my neighborhood. I pass by these big McMansions which is near the entrance of my neighborhood.

In one of those Big fancy house, was a beat up truck with two lawnmower and gardening equipment in the pickup bed pulling out of the house's garage.

At first, I thought the it was gardener that was there to cut grass for the house but it actually looked to be the home occupant pulling out of his garage.

This is a home that was worth around ~600K-700K during the peak.

Due to the easy money, you have a gardener living in large luxury homes, while government is trying to bail them out by giving them more free money.

I am mad as H*%$ !!!!

PeonInChief said...

I'd be a lot more upset at the way in which the bankers are being bailed out. The mortgage brokers, lenders and creators of the SIVs were much more culpable than some idiot whose lender told him that he could buy a McMansion and refinance in a year or two. I didn't buy an overpriced house, hell, didn't even run up the credit card, but smacking down some landscaper just doesn't seem worth the trouble.

Buying Time said...

Don't get me wrong PIC, I am plenty flipping mad about that.

Wall Street mavens get away with millions, taking down our economy and the savings of many.

It pisses me off to no end that someone who takes 3 CDs from Wal-Mart gets jail time, yet these geniuses go free.

I had a long post on this prepared, but backed off, cause I am trying to stay on topic (house buying) and out of the political as much as possible.

anon1137 said...

Excellent post. I suspect the points you bring up are exactly the ones that are being discussed in high-level White House, Congressional and Treasury Dept. meetings. It's the moral hazard problem. If they aid borrowers and lenders who made bad financial decisions and the economy recovers, they've provided an incentive for more bad behavior in the future and for less good behavior (like people who save and invest). And the federal borrowing required amortizes the pain over the next several generations.

If they don't provide aid and the economy collapses for a long period of time, everyone suffers, the borrowers and the savers. But the consequences are suffered by our generation, the people who caused it. This is the choice they made in the 30s.

That's the way I see it anyway.

patient renter said...

I had a long post on this prepared, but backed off, cause I am trying to stay on topic (house buying) and out of the political as much as possible.

Someone raised a complaint about that on Max's blog, to which I responded that housing is political now, whether we like it or not. The future of the housing market, homeowners, buyers and renters are all being effected by government policies and politics. So in my opinion, discussing these things is fair game and still on topic.

Curious said...

Hey, Mike?

Don't knock gardeners. I actually used to date one and he made VERY good money...and I mean six figures plus. He ran an extremely professional and profitable business from his home.

At the beginning he started it by himself with one other guy. Next step was getting out of the physical labor end and drumming up more business, especially on the commercial side. He's been in business for more than twenty years now.

I also used to have a coworker whose husband quit his job as a drugstore store manager for a large regional chain and made MORE money starting up a business as a gardener/landscaper.

There is a lot of money to be made in landscaping if you run your business professionally and dependably.