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Looking at the other side of mortgage relief

I have lived in my house for more than 20 years.  It’s a nice size for two people, and I think it’s safe to say I know everything about it.  I know what the sub flooring is made of, the condition of the attic vents, where the leak is in the garage, and just how desperately the kitchen floor needs to be replaced.  I am keenly attuned to any change in pitch that might indicate that there is something wrong with the heat pump.
However, it’s not an expensive house.  Mind you, my income and that of my wife has gone up considerably over the past 20 years.  We’re very fortunate, but prudence, and yes, and being honest about it, a little bit of indecision, has kept us in the same property all that time.  I also have to admit that I have a low threshold for debt.  

I probably overdo that aversion to red ink a little more than I should.   I could have easily moved up to a fancier home, and maybe we should have.  Perhaps we could have bought something on the water, or if I had taken complete leave of my senses, bought one of those McMansions that have become so popular.  But we didn’t.  Every time I think of getting something more expensive, or spending a lot of money, I feel as if those frugal Scottish ancestors of mine are advising me against it.  However, I am not alone in this.  A lot of Americans are exactly the same way.
In the end, this hasn’t been a bad approach.  We stayed in a house we could easily afford.  That’s why the administration’s decision (which is popular with the Republicans too) to spend $75 billion more taxpayer dollars on mortgage relief programs disturbs me so much.  It’s called the Home Affordable Modification Program.  What the president wants to do is take some of the money paid back by the banks to the Troubled Asset Relief Program (the Bank Bailout) and divert it to help homeowners in distress.  However, just what constitutes distress is what bothers me.
On the surface, this sounds like a good thing.  Foreclosures and short sales make everyone nervous.  However, there are features about this initiative I find troubling.  Most distressing is the provision in the program that is designed to help homeowners who are “underwater.”  This is still a relatively new term when it comes to business, and it refers to homeowners whose homes are now worth less than they owe on them.  It’s a terrible situation to be in and I have a lot of sympathy.  The fear is that these homeowners, rather than sticking to their mortgage obligations, will simply walk away. This leaves the banks, many still on a financial edge, holding the bag.
Mind you, I have no love lost for the banking industry.  Their behavior these past few years has been awful.  However, they nonetheless lent the money, signed a contract, and reasonably expect the borrower to repay it.  And as long as that homeowner has the income to honor their obligations, there shouldn’t be an easy way out.  A contract is a contract.  And indeed, while this argument is considered old fashioned and unsophisticated by some, there is also the matter of a personal obligation as well.
Unfortunately, using our taxpayer dollars to provide relief to these underwater mortgages is exactly what this bill does.  It will pay the banks to lower the amount owed as an “encouragement” to keep the homeowner paying the mortgage.  The money lost in writing down the loan, however, is real, and the cost isn’t borne by the banks.  Rather, it’s you and I who are footing the bill.  
In many cases, the very kind of home that owners are walking away from are houses that thanks to a lack of prudence, and an overly aggressive mortgage lending industry, are ones they should have never bought in the first place.
That’s not to say I don’t have sympathy for the position these folks are in.  If I decide to sell my house in the next few years I will be lucky to get what I paid for it 20 years ago.  I know it hurts, but I am not expecting the Federal Government to come in and make things better.   The ironic part is that if I had bought a much more expensive house, leveraged myself to the hilt, and then, inevitably found myself underwater, this program would be perfect for me.  But alas, that, like it was for most Americans, just wasn’t in my nature.
You may reach David Kerr at This email address is being protected from spambots. You need JavaScript enabled to view it.

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