Monday, February 23, 2009

The Voice of First Hand Experience

In this week's mix, you'll find some items about the Obama housing plan. There is the whole moral hazard argument, as in you will be rewarding deadbeats and penalizing responsible homeowners. Then there is the thousand dollar incentive, which doesn't seem to be much of one. What raised my hackles however was the provision that judges will be able to lower not only the interest but also the principal. Wait right there! If I've got this right, these people entered into a legally binding contract for, say, 200 thou. Now because the property in question in worth 100 thou, the lender will potentially lose part of the principal dependant on which testicle itched on some judge? Now, that does not seem right. What happened to the assumption of risk? Do we demand car loans reflect the diminished value of the vehicle the minute you drive off the lot?

That's a stimulus too far. I'm just a naif about these things, although I did come close to losing a home once, but it seems to me that there are other, fairer ways to handle the mortgage problems. What kills you as the distressed homeowner is the punitive nature of late fees and interest charges. I mean here you are, you can't make your payments, so they add on extortionate amounts. In the end, there ain't no way you're ever gonna pay. Despite having plunked down about 100 thou, by the time we sold the house for roughly what we paid for it, we were left with 400 dollars. At least thirty thousand went to my friends at Citibank, a substantial part of which where late fees, etc.... They were horrible.

So here's a thought. Since it's pretty obvious that the situation is causing grief in the economy, how about the novel notion that we set back the clock? Interest rates are now low, so the adjustables should be back to acceptable levels. In the common interest, forgo the late fees and assorted schemes and tack the missed payments on to the back end of the mortgage, extend the term by the missing payments. For those teaser rate mortgages, extend the teaser rate period for a longer terms, so the adjustments do not come all at once. The lenders will still have to take a bite, but it is infinitely preferable to some judge giving away their stockholder's money, not to mention that they made a bad business decision.

Obviously, people whose life circumstances have brought them to foreclosure would not fall under these provisions. I'm also no expert, but there is something inherently wrong in the way we are approaching the situation at present.

No comments: