Saturday, March 14, 2009
Obama's Mortgage Bailout Rewrites The Rules
(Published by the Salt Lake Tribune March 2009)
During the run-up to approval for his mortgage bailout plan, President Obama frequently claimed it provided necessary and justifiable aid for those who “played by the rules” and “through no fault of their own” were being forced out of “their homes.”
Like all of Obama’s rhetoric, it was delivered well, sounded great and tugged at compassionate heart strings everywhere. But like too much of his rhetoric, what he read so convincingly from his teleprompter was a solution for a situation that doesn’t really exist. And unlike many of the clever but dishonest straw men that Obama has created to sell his programs, this is one most Americans will see through.
That’s because the rules of homeownership have been around for a very long time. It’s almost certain that the ninety-two percent of homeowners who are making their mortgage payments and the millions of renters who are saving up for a future home purchase understand them as follows:
1) Enter into a mortgage agreement only if you can afford the payments, including any increase that might occur because you chose to accept a variable interest rate.
2) The home has no fixed intrinsic value. It’s worth only what someone else is willing to pay for it at a given point in time. Its value can go up or down.
3) You don’t really own the home. The mortgage holder owns it until the mortgage balance is paid off.
It’s clear to anyone who is willing to be honest about the situation that most of those who will qualify for Obama’s bailout didn’t play by the rules. They agreed to mortgages they couldn’t possibly afford, some right from the start, others when higher interest rates they agreed to kicked-in at a later date. Still others would have been fine with their original mortgage payment, but when the perceived value of the home skyrocketed they took out second mortgages to fund home improvements and all sorts of other things—things they couldn’t really afford unless they continued to suck additional artificial equity out of the home.
The root causes of the problem are so obvious and so different from the straw man created by Obama that it makes one wonder whether his life experiences have been so different from life in suburban and rural America—where most home ownership is concentrated—that he never learned the rules of homeownership.
In the end, it doesn’t really matter why Obama mischaracterized the problem. The fact is he did and we will all live with the consequences. Some are immediate. Everyone who has been playing by the rules—or their children or grandchildren—will pay hundreds of billions of dollars in additional taxes to cover the bailout of delinquent homeowners who broke every rule in the book. Many of those paying the bills and living within their means remain in homes of less value and comfort than those whose mortgages they will subsidize. It’s an even more pronounced injustice for those who lived within their means, rented instead of bought, and will now pay for someone else’s home while they continue to rent.
But the short term consequences pale in comparison to the long term consequences. It’s likely that many will conclude they were chumps for playing by the conventional home ownership rules. Then when the next housing bubble grows and bursts—and it surely will—so many will be playing by Obama’s straw man rules that it just might put all of us in foreclosure.
During the run-up to approval for his mortgage bailout plan, President Obama frequently claimed it provided necessary and justifiable aid for those who “played by the rules” and “through no fault of their own” were being forced out of “their homes.”
Like all of Obama’s rhetoric, it was delivered well, sounded great and tugged at compassionate heart strings everywhere. But like too much of his rhetoric, what he read so convincingly from his teleprompter was a solution for a situation that doesn’t really exist. And unlike many of the clever but dishonest straw men that Obama has created to sell his programs, this is one most Americans will see through.
That’s because the rules of homeownership have been around for a very long time. It’s almost certain that the ninety-two percent of homeowners who are making their mortgage payments and the millions of renters who are saving up for a future home purchase understand them as follows:
1) Enter into a mortgage agreement only if you can afford the payments, including any increase that might occur because you chose to accept a variable interest rate.
2) The home has no fixed intrinsic value. It’s worth only what someone else is willing to pay for it at a given point in time. Its value can go up or down.
3) You don’t really own the home. The mortgage holder owns it until the mortgage balance is paid off.
It’s clear to anyone who is willing to be honest about the situation that most of those who will qualify for Obama’s bailout didn’t play by the rules. They agreed to mortgages they couldn’t possibly afford, some right from the start, others when higher interest rates they agreed to kicked-in at a later date. Still others would have been fine with their original mortgage payment, but when the perceived value of the home skyrocketed they took out second mortgages to fund home improvements and all sorts of other things—things they couldn’t really afford unless they continued to suck additional artificial equity out of the home.
The root causes of the problem are so obvious and so different from the straw man created by Obama that it makes one wonder whether his life experiences have been so different from life in suburban and rural America—where most home ownership is concentrated—that he never learned the rules of homeownership.
In the end, it doesn’t really matter why Obama mischaracterized the problem. The fact is he did and we will all live with the consequences. Some are immediate. Everyone who has been playing by the rules—or their children or grandchildren—will pay hundreds of billions of dollars in additional taxes to cover the bailout of delinquent homeowners who broke every rule in the book. Many of those paying the bills and living within their means remain in homes of less value and comfort than those whose mortgages they will subsidize. It’s an even more pronounced injustice for those who lived within their means, rented instead of bought, and will now pay for someone else’s home while they continue to rent.
But the short term consequences pale in comparison to the long term consequences. It’s likely that many will conclude they were chumps for playing by the conventional home ownership rules. Then when the next housing bubble grows and bursts—and it surely will—so many will be playing by Obama’s straw man rules that it just might put all of us in foreclosure.
