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Location: Butte, MT
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Resentment Grows Over Paying for Others' Foreclosure Misery
Friday , February 20, 2009

By Gary Gentile

ADVERTISEMENTMichelle Fry is a suburban Atlanta homeowner who has seen the value of her modest one-family home drop by more than half in the past year. She now sees a national mortgage bailout plan that appears to reward people who bought more house than they could afford and can't pay their bills. And she has a simple question for President Obama:

"Why am I paying for them?"

"We are very frustrated and scared," said Fry, 32, a newly expectant mother who works as a creative director for a public relations firm. Her husband Sam, 38, is a truck driver for a local printing company. Their combined household income is less than $100,000.

"My husband and I always discuss, 'Why do we try to better ourselves, when it seems if you do nothing, you get all the help in the world?'” she said.

That kind of frustration is being expressed at dinner tables throughout the country. Middle class homeowners who worked hard, played by the rules and paid their mortgage bills and taxes on time are wondering out loud whether the government is interested in helping them, too.

Their frustration is justified, said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. But the economic risk of letting millions of homeowners default on their mortgages leaves the government with little choice.

"A year ago I would have been appalled at this plan," Green said. "Now I think we have to do something like this. The moral hazard argument is valid, but is trumped by the macroeconomic situation."

Obama's plan, which he announced on Wednesday, would provide $75 billion in incentives to mortgage lenders to refinance homes in danger of foreclosure. Another $200 million would be spent to shore up Freddie Mac and Fannie Mae, the two large government-controlled entities that back residential mortgages.

The plan would help 8 to 9 million mortgage holders -- a fraction of the approximately 50 million mortgages outstanding, according to Patrick Newport, a housing analyst at IHS Global Insight.

"The 40 million who aren't going to benefit from this will feel some resentment, because they are current on their mortgages and made good decisions," he said.

The president took pains to defend his plan against critics who say it bails out irresponsible buyers who spent more than they could afford.

"The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly," Obama said. "It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford."

But those assurances are little consolation to Danny and Sara Jovic, who own a condo in Delray Beach, Fla.

They bought their home for $275,000 in April 2006, putting 20 percent down and getting a fixed-rate, 6.25 percent mortgage to cover the rest.

Now their condo is worth only about $175,000, putting the two-income couple among the millions of homeowners whose mortgages are now "underwater" -- meaning they owe the bank more than they can sell their house for.

Their condo association has already whacked them with a one-time fee of $500 to make up for other homeowners who were foreclosed. And their monthly fees have gone up permanently by $100. That's a tough nut to swallow for Jovic, 30, and Sara, 28, whose combined income is between $80,000 and $90,000. They are thinking of starting a family, but they are unsure given the volatile economic times.

"I think the government should help people like me, or the bank should be willing to adjust the loan fairly -- at least make it based on market value now," Jovic said.

Green says the majority of Americans can be forgiven for holding their noses when they look over Obama's plan, but they should accept it nonetheless because it will help those who are in trouble through no fault of their own.

The plan will help millions of people who bought homes they could afford but now are unable to refinance or make payments because they lost their jobs.

"A decent number of these people have been completely responsible and have had the world come crashing down on them,” Green said.

And if the plan succeeds in bolstering sagging home values, that will help everyone, he said.

While the plan may help many who most need assistance, there may be some unforeseen consequences, warned David R. Henderson, a research fellow at the conservative Hoover Institution at Stanford University.

Bailing out homeowners who would otherwise be forced to find more affordable housing could hurt people who are ready to buy homes at rock-bottom prices, he said.

"All those people who have been saving their money, waiting on the sidelines, are being penalized," Henderson said. "The government is taking away this opportunity."

Philosophical arguments about Obama’s plan do little to comfort Jovic, who wonders if he should continue pouring money into a property that may never fully recover its value.

“Do I continue to invest, or do I cut and run?” he asked.

Location: Butte, MT
Joined: 01/02/2006
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As I've indicated before on similar topics, I'm not all that smart when it comes to the ins and outs of this subject, but I can say that my wife and I have very similar thoughts to this couple in the article. We don't make a lot of money, so when we bought our house, we intentionally bought one that would be well within our means. It was actually a repo we bought from a bank (which had foreclosed on its former owners). It had an addition that was roughed in and we finished it with our own little hands on a pay-as-you-go basis. The result is the house is now, even in the current crisis, worth a lot more than we borrowed for it. Not that this makes me or my wife hot shclitz, but I do think I can safely say we were wise about the way we approached this. Yes, I feel a little resentment about all this tax $ going to people who basically were buying far more house than they could afford (to save their mortgages). Don't mean to be judgemental, but I have the impression that the majority of the folks loosing their houses these days also have car payments they can barely make, swimming pools, their kids have the fanciest new cell phones and ipods on the market, and they likely have somewhere in the neighborhood of $15K in credit card debt alone. My opinion is, this sort of thing is what really needs to change in our society. It's a culture of credit, and I think it's the real problem; and it goes back to an individual's own responsibility.

-end of rant-

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I'll just add this, I bought my first home as a single guy in 05 and then in 07 met my now wife who owned her own home outright. When we made the commitment to each other we decided build a home for all of us together, me her and her children now my stepchildren.

And, yes we made sure we could afford this. I am luckily in these times to have a solid job with a company that surprisingly is doing very well in light of the times. We have both of the prior properties in the rental market hers making us an income and mine getting the mortgage paid with the rent I make. I was lucky in that I bought a town home three bedroom two and a half bath in a nice neighborhood by Ft. Carson. Meaning, I've never had a problem renting it to military folks who up to his point have been model renters.

However, I would like to sell my property at some point obviously with a profit and due to the subprime affair and the current housing market couldn't do that without taking a huge loss. So, I have a vested interest in seeing this thing turn around and I am glad to see the action being taken to avoid a dramatic increase in foreclosures and the further sinking of home values. We can hang in there for the next few years or more if need be, but like all of us would definitely like to see the market improve sooner then later.

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Sage, you've posted a topic my husband and I have discussed frequently as well. It frustrates us that we've spent 30+ years being frugal, living within our means, not running up our credit cards and just generally being responsible. Now we're faced with a loss on our 401K and losses on the stock market on the money we have carefully saved, plus our home is devalued. We were hoping for an early retirement, but that doesn't look too hopeful now.

It is not fair that people have lived it up and spent beyond their means and now wish to be bailed out. The only ones I feel should receive help are folks that have lost jobs due to the economy - but not if its due to their own lack of ambition.

I do not believe our tax dollars should be spent on people who have been irresponsible.

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cowgal wrote:
Sage, you've posted a topic my husband and I have discussed frequently as well. It frustrates us that we've spent 30+ years being frugal, living within our means, not running up our credit cards and just generally being responsible. Now we're faced with a loss on our 401K and losses on the stock market on the money we have carefully saved, plus our home is devalued. We were hoping for an early retirement, but that doesn't look too hopeful now.

It is not fair that people have lived it up and spent beyond their means and now wish to be bailed out. The only ones I feel should receive help are folks that have lost jobs due to the economy - but not if its due to their own lack of ambition.

I do not believe our tax dollars should be spent on people who have been irresponsible.

Your rationale like other extremist repubs is always 'people that lived it up," as if the only people in trouble are lazy irresponsible welfare rats who somehow were given a home. I think many of the people who are in danger of losing homes are and were hardworking people some of whom are losing their homes due to losing their jobs. If they lacked ambition they probably wouldn't have been able to buy a home in the first place. How many people have lost jobs in the last three years due to outsourcing and layoffs. Do you count these in the irresponsible group?

Also, who were the guys in charge and who bailed out the guys who ruined our investments?

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Did you even read my entire post SoCo? I stated the exception would be people who lost their jobs!

I know people personally that overextended themselves and ending up going bankrupt, yes they lived it up or tried to keep up with the Jones's. They bought the latest toys, cars, whatever... then cried foul when the economy tanked. So maybe its not lack of ambition but simple stupidity and lack of basic math and budgeting skills that got many in the boat they're in.

Hey, there's lots of blame to go around. I blame the lending institutions just as much as the individuals that overspent and over borrowed.

I've already lost my shorts in this stinkin' economy, I don't need to be spending my hard earned money bailing out people who made crappy financial choices. I'm well aware that my tax dollars will be spent in this manner anyways, whether I like it or not!

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Good post Sage.

I'm in a similar place as you, or even more lucky, I bought way down while our freinds were buying half million dollar tract houses we moved to a working class town because it's an old town and people have lived here forever, good place for kids to grow up. I also sold the rental and got out of the big real estate partnership (that took 3 years and lots of lawyers but I got out) Didn't put it in the market but spread it out in savings of under 100K per bank. So we lost 20K in IRA so far, we didn't have much in the account. We are well situated even though I probably have little work. We don't spend, haven't been to a restaurant in 7 years. Have an old small TV, two cars all paid for, no debt other then a mortgage.

But.

All around us things are tanking. I see houses half built. Multi million dollar houses. Food banks are overflowing with the new poor. I think the main idea with bailing out homeowners is to keep a roof over peoples heads. Everyone I know is less responsible with money than us, and many are extremely irresponsible. But their kids had nothing to do with it, and I still don't wish them to live in a shelter.

The homeowner bailout is just an attempt to slow things down. I don't like other people getting a multi thousand dollar discount on thier loan when I get nada for being responsible. But I don't want to see them on the street. This year we are going to pay some substantial taxes, in preparing the stuff for the CPA I see it's unavoidable. Oh well. So I'll be paying for any bailout.

More important than a financial bailout of homeowners I'd just like to see them be able to stay in thier houses until things get sorted out. And health care and food.

There are going to be a heck of a lot of people that are going to need a roof, food, and health care. Today former fed chair Volker said things were accelerating. Notice the market keeps looking for bottom. Gold topped 1000. I don't think it's because of this or that, it's because no one is buying anything and the whole economy is grinding to a halt.

I seem to have wandered off topic.

Everyone should think about how long they can last without any money coming in.

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All SoCo can come up with is the same old Bush and the Republican ruined everything for everybody rhetoric. That is so tiring. I thought you guys won and we were supposed to "get over it". Well why don't you guys "get over it" also.
I would like to challenge SoCo and his sidekick to find one single bill, budget, bailout or stimulus that a president, any president, has passed in the 233 years of this country's' history.
To make assumptions about cowgals thought process and make irrational conclusions about the topic at hand is just...well irrational.

Surely anyone who lives in this world with their head outta the sand knows that a great number of the foreclosures do in deed involve people who bought more house than they could afford. ARM's have forced many mortgage payments thru the roof, no pun intended, and these folks simply can not afford them, many by design I suspect. They counted to the housing market to keep growing at the astronomical pace that it was and gambled that they could unload the property before the ARM expired and the rate went up 5 or 6 points. Unfortunately the market peaked at the worst possible time for these folks and now they are stuck with property they can neither afford or unload.It is not about Dem and Repub it is about gambling and losing and expecting to be bailed out and prevent the losses that should be forthcoming. The market will stay depressed until the properties are allowed to devalue and then become affordable again and then and only then will things start the upswing again. This Bailout has only kept the property values artificially inflated so that the Banks can keep it as an asset instead of counting the true value of the property and accounting for the loss on their books.

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Quote:
challenge ........... to find one single bill, budget, bailout or stimulus that a president, any president, has passed in the 233 years of this country's' history

If you could give me a hint as to what you are looking for maybe I could help more. Anti bank regulation? Break the Bank by paying off the rich bills? Change the Constitution Patriot Bills? Just what are you looking for?

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civetcat wrote:
Quote:
challenge ........... to find one single bill, budget, bailout or stimulus that a president, any president, has passed in the 233 years of this country's' history

If you could give me a hint as to what you are looking for maybe I could help more. Anti bank regulation? Break the Bank by paying off the rich bills? Change the Constitution Patriot Bills? Just what are you looking for?

Thats easy,
ANY BILL, BUDGET, BAILOUT, or STIMULUS.

Once again.........ANY......just a single one.

And FYI
Anti bank regulation..........................Passed by Congress
Bailout.................................................Passed by Congress
Patriot Act............................................Passed by Congress
Change the Constitution..................Passed by Congress and Ratified by States.

Got any more?

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SoCo and his sidekick?

More like SoCo and his evil ASSistant............You know..........kind of like Dr. Frankenstein and Igor.

You two shouldn't get your panties too bunched up......I'm only joking.

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