I can’t tell you how disgusted I am by the apathy over the Paulson/Bush/Pelosi/Reid wealth confiscation program in full swing. Every time I hear someone yammering on the radio or TV about Barack Obama’s plans to socialize this or that, I want to hurl.
The stigma of default is gone. Political rhetoric absolving borrowers of their responsibilities — and encouraging them to spend, spend, spend even more — has made it possible. And so has federal legislation intended to “help.” The omnibus spending bill passed last year prevents the IRS from taxing mortgage forgiveness as income up to $1 million for a two-year period.
Finance blog Calculated Risk reported last week that increasing numbers of homeowners are walking away from their homes by choice. A Wachovia executive noted during a conference call that they are “people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…” Some are bailing for cheaper homes in the same neighborhoods. There’s even a term that’s become popular over the last couple of years — “Jingle Mail” — that describes when homeowners cut loose and mail in the keys to the bank. Ho, ho, ho.
The true victims in this “crisis” are those who paid for homes within their means and those who waited to enter the housing market.
Eight months and trillions of dollars in mega-government bailouts later, my message is being reinforced. Peter Schiff, founder of Euro Pacific Capital, writes in the San Diego Union Tribune today. He rips the perverse incentives of the bailout orgy:
Just stop paying your mortgage
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government’s message is clear: relax, don’t bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom.
Here’s why. Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.
To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don’t make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
I'm just one of the chumps, paying down my 30-year fixed rate mortgage, and my fixed-rate home equity loan used to remodel/expand the house. No credit card debt, no car payments. Kid going to college in a couple years. Man, am I ever a CHUMP.
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Fight Organized Crime... next election, elect no one. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"It was often pointed out during the election that Obama lacked management experience. While having a president with no experience is bad, it's not nearly as bad as having a president with experience as a community organizer."
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"Enlightened statesmen will not always be at the helm."
- James Madison, Federalist No. 10
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I'm just one of the chumps, paying down my 30-year fixed rate mortgage, and my fixed-rate home equity loan used to remodel/expand the house. No credit card debt, no car payments. Kid going to college in a couple years. Man, am I ever a CHUMP.
Yeah, well. What goes unsaid is that losing your home is only one of the many things that can happen if you stop paying your mortgage. Sure, the bailout and the mortgage workouts being discussed now can stop your foreclosure, reduce your principal, reduce your interest, etc. etc., but what are the long-term effects on your credit? What are the long-term effects on your equity?
__________________ Then the LORD said to Cain, "Why are you angry? Why is your face downcast? If you do what is right, will you not be accepted? But if you do not do what is right, sin is crouching at your door; it desires to have you, but you must master it." [Gen. 4:6-7]
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I'm just one of the chumps, paying down my 30-year fixed rate mortgage, and my fixed-rate home equity loan used to remodel/expand the house. No credit card debt, no car payments. Kid going to college in a couple years. Man, am I ever a CHUMP.
Wow, you are a chump. Don't you know Obama is going to pay for your kids education??? I say start buying more guns with all that free ed up money. Maybe put an indoor shooting range in.
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