We cannot all be happy but for those of you who are not following this stimulus package and its finer print here is one part of it that is kindly helping some of the irresponsible and letting the rest of us know that we’re not appreciated for doing the right thing all along.
• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees.
That is directly from the executive summary of the Homeowner Affordability and Stability Plan. While that does help those that have lost income due to the recession it also bails out millions of people who knowingly ‘bought too much house’ for what they could afford.
While the rest of us (say 5 years ago) bought a home with a loan knowing exactly what we could afford currently and for years to come, some people decided to jump into loans that they willingly knew would balloon up over time in hopes that their salaries or incomes would change. That was their own stupidity. Their problems now aren’t that they lost income but the piper has come for his payment that they agreed to in the beginning and they can’t afford it. This happened on such a grand scale that the foreclosures across America have exploded over the last several years and are partially to blame for the current recession. Yet now, they are getting bailed out by the government. Uncle Sam is rewarding bad behavior and is encouraging it going forward. As you will be able to see in the links I will post below, the man speaking mentions his disdain for having (through being a tax payer) having to assist bailing out his neighbor who has a better house (“extra bathroom”) when he himself was responsible enough to make a solid decision in the beginning himself knowing he could only afford ‘X amount of home.”It is time for the government to assist those who will be able to one day help carry the water instead of drink it”.
(Example) Take two people. (Person A and Person B) Both persons make $50,000 a year and both decide to purchase a home.
– Person A shops around and decides to take a 30 year loan at a fixed rate of 6.5% (not a great rate but decent and steady.) He purchases a $150,000 home. He knows that 5, 10, 15 years from now his mortgage payment will continue to be the same thing. Something he could afford now and easy to assume later.
– Person B finds a subprime lender offering a 3.9% loan but the loan is an ARM (Adjustable Rate) and every 3 years it can (and probably will) be bumped up a percent or two. Because they have a low rate they decide to buy ‘more house’. They decide to buy a $230,000 home for the same monthly payment as person A (because the the percentage rate is so much lower). That person has to assume that their income will increase by a certain amount over the next 3-6 years in order to be able to afford this house.
6 years later, person A is paying the same amount and had his income increased over the years could possibly be able to make additional payments to reduce his principle. Person B now pays $300 more a month for his mortgage because his ARM has adjusted by 4% over the last 6 years. He hasn’t had a great income increase from his employer and is barely making ends meet as it is.
Person A is ok. Person B made a bad decision and is in danger of foreclosure.
Here is where Uncle Sam swoops in to save the day. U.S. encourages person B’s bank to drop his % rate back down to 4.75 in order to prevent his foreclosure. He gets to keep his lavish home and gets a lower % rate than person A who was responsible in the first place.
Person A (through increased taxes) has to help repay that multi-billion dollar aid package to Uncle Sam so indirectly he is bailing out his irresponsible neighbor.
And that my friends is how we the responsible are getting screwed.
This concludes part I of my rant about the government bailout of the irresponsible. More to come. In the mean time, check out The Chicago Tea Party.
Please tell me how you feel about all of this.