Thu 3 Apr 2008
Senate takes on Housing Stimulus
Posted by DC Republican under Across the US , Campaign '08 , Congress , Conservatism , Democrats , Economy , Government , Politics , Spending , TaxesDespite the fact that I’m not a homeowner, I’ve become more and more troubled by the proposals I’ve heard buzzing around the Hill, all aimed at trying save those homeowners who are having a hard time making payments on their sub-prime mortgage loans.
While I think it’s unfortunate when people don’t have the money they need to pay down their debts, it’s almost impossible for me to feel sorry for those who are in trouble because they cant afford their mortgage payments.
These loans were initiated by the homeowner, with terms that were clearly spelled out and agreed to. Just like when you open a credit card, you know exactly what interest rate you’re going to get. The same holds true with any home loan, before you sign on the dotted line, the terms are clearly laid out. If you don’t understand, or something seems fishy, it’s your responsibility to get clarification.
Yes, even for those who borrowed sub-prime loans.
People who took out these loans knew that their teaser rate would only be temporary or else it wouldn’t have been called a “teaser” or “introductory” rates. Even with these temporary (teaser) rates, these people knew that there would come a time down the road when their payments would increase and they would be held responsible for ensuring those payments were made. Just like any contract, if you don’t meet the terms, there are consequences and penalties.
I was always told that part of being an adult was living up to your responsibilities and making sure you never take on more debt than you can handle. However, if you do, you have to pay the consequences and live with your mistake and learn a lesson for the future.
I guess it’s that logic that is making the latest housing stimulus proposal so difficult for me to comprehend and accept.
Here are some of the details of what it could contain if passed (via cnn.com) :
* $4 billion in community block grants for states and local governments to buy and refurbish foreclosed properties
* New bond authority for states that can be used to refinance subprime mortgages
* Tax credits for people who buy and occupy homes in or near foreclosure. Sen. Johnny Isakson, R-Georgia, has proposed a $15,000 credit, but no dollar amount has been agreed on so far
* Tax benefits for homebuilders to reclaim past taxes paid
* New disclosure and transparency requirements for loans
* New money for foreclosure counseling
* New Federal Housing Administration rules that would reduce down payments on FHA loans and an increase in the size of a mortgage the FHA can insure
What happened to holding people responsible for their action? Are people no longer required to live with the consequences of bad decisions? Is the government going to bail out everyone when they have a problem?
While these are all questions that need to be addressed, the more important question that needs to be asked is why are responsible people, those who decided to rent, or take on fixed-rate mortgages, being penalized because of the actions of those who didn’t do their homework? Why should I have to pay for people who made a bad decision?
Do people not realize that government bailouts only provide a temporary fix, but more importantly as I just mentioned, cause responsible people to have to take on the burden of those who weren’t prudent. This seems worse than welfare!
If it wasn’t an election year, I can guarantee that no conservative Republican would be supporting measures that had these terms. However, since it is an election year, it seems that ideology and party platform are commonly thrown aside to win points back in their states.
But what about those in the district who are being responsible, those who did their research and planned ahead? Are each of these members willing to go back home and say, “I’m glad you’re responsible, but because your neighbor isn’t, we’ll pass their bill on to you?”
Unfortunately, the congressional spin machine will deliver this bill as if it was a cure-all to cancer and nobody will have to break down the cost or long-term consequences.
The media will tout this as a great accomplishment, and the House and Senate leadership will receive many accolades. Getting credit for promoting responsibility, I guess it’s that logic that gives Congress its high approval ratings.
Once the final bill is passed, I hope to go through it and get a breakdown of how much this will cost per taxpayer so people can get a better understanding of just how much money the government is throwing away on these rediculous bailout efforts.
Beyond the dollar amount, the reality is that none of these bailouts are going to last long. People will still be irresponsible. Companies will still find themselves in debt. However, thats will always be a concern and things have gotten better over time.
Instead of the government fixing everything, maybe we should just sit back and let the market make its necessary corrections and see what happens from there. For those who made the poor decision of taking out these loans, I guarantee that they will be the first to Google “financial responsibility” and make sure everyone they know does the same. If not, let them learn the hard way.
I’ve noticed that every time there is a panic, at least $1billion (thats $1,000,000,000) is guaranteed to come out of Washington to try and solve the problem. However, these problems always seem to keep coming back in some form.
Maybe its Washington, not the economy thats really the problem. Thoughts?
April 3rd, 2008 at 2:58 pm
You are absolutley correct. I see little difference between this and raising children. You can’t reward a child’s bad behavior and then expect it to stop. But our government seems to want to bail out every bad behavior it can find. Just like with a child, the consequence is that the bail-out’s will be bigger and more frequent.
Wisdom is something you don’t acquire until right after you need it (Anon). I wish the government would allow us to develop some wisdom–and not encourage irresponsible, childish behavior. You signed the contract, now “be a man” and take responsibility.
This is all bred by “entitlement mentality.” It’s not the government’s role to save everyone from their poor judgement.
April 3rd, 2008 at 3:30 pm
I’m going to have to agree with David. Unfortunately, I think this “entitlement mentality” that he is referring to has grown so far out of control that it’s going to take a massive effort to reduce it even marginally.
If we keep giving the impression that every time a large company suffers financially, or people make bad decision in taking out loans, what are we really telling people about taking control of their own destiny?
How can we be a “free country” if the government is going to be there to bail us out each time. To me, one of the truest components of freedom is the ability to make a mistake and learn from it.
I’m really curious to see which Republicans support this. If people only knew what was really happening, I’m certain that there would be a huge effort to stop these actions.
After all, isn’t it only a small portion of sub-prime borrowers that are in trouble? Furthermore, isn’t there a geographic component to this?
If any of those are true, why should the Nation bail out a small percentage of the population that isn’t responsible. I don’t get it.
Good post DCR!
April 3rd, 2008 at 5:55 pm
Unfortunately, people do know about these details and they’re voting for candidates that push them. Can you imagine when they take office and they learn that this $4 billion didn’t help keep people in their homes after all? If they couldn’t pay before, how can they pay now? It big government mentality. And I surely don’t think it’s fair for the rest of us who have worked hard (and sometimes scraped by) to ensure our mortgages were met in tight months of unforeseeable circumstances. Why should these people who are irresponsible be rewarded? It is the epitome of entitlement and when I see things like this I can’t help but wonder if we are truly our brother’s keeper.
April 3rd, 2008 at 6:11 pm
All excellent points.
I cant help but wonder what impact all these bailouts are going to have on the perception of the role of government amongst our young people.
While it’s clear that we understand the problems, what about the large portion of the population who doesn’t look to the blogosphere for perspective?
To those who are just relying on what they see on TV and read about in the newspapers will most likely see the sugar coated version of what is really happening.
I don’t really see the media presenting opposition to this, because from what I’ve read so far, it seems that for them, this is the greatest thing to happen here since the DC Madame Scandal.
However (unfortunately), this time it’s everyone OUTSIDE of Washington who is getting screwed.
April 3rd, 2008 at 6:20 pm
I agree with most of what’s been said above on principle, but sometimes that just has to be tossed aside because the consequences of standing on principle are so dire.
I’m really biased when it comes to this. I work as an over-the-phone Spanish/English interpreter and a good percentage of the calls I handle are between Hispanic homeowners and their banks/mortgage companies, and it is usually people who are in deep trouble with their loans and on the edge of foreclosure.
Dealing with these situations day in and day out, I think I have a pretty singular point of view on it. On the one hand, it’s absolutely true that much of this crisis is the product of people getting into really bad loans, not doing intelligent financial planning, being somewhat irresponsible with their money, etc. But most of the time this isn’t due to some sort of gross negligence, it’s simply due to the fact that they are dumb, uneducated people who lack the intellectual capacity and sometimes even the math skills to really figure out what’s best for them.
Now, of course, this doesn’t necessarily excuse them. Ideally, people would be aware of their limitations, would get people they trust to advice them and go from there. But if you don’t think the banks setting up these loans can recognize this type of person from a mile away, you’re kidding yourselves, and it is true that they have sometimes been targeted and that loan managers have been those “trusted” advisers that tell people “Sure, you can do this!” when they know very well that if one little thing goes wrong, there’s going to be trouble.
Then, add to that the people who really did plan things out, who really did do things right and simply ran out of luck. They lost their jobs in a worsening economy, their son got cancer, etc. Things that we all say we can sympathize with but that it is truly hard to come to terms with unless you’ve listened to people cry over the phone because of them, time after time. Again, I will say that sometimes some of these people are people who shouldn’t have bought property in the first place because they weren’t in a good enough economic situation to survive being unemployed for a few months or having a catastrophic family event. But that’s America, the place where poor people are sold the American Dream that involves a house all your own with a white picket fence and people kill themselves to make that happen.
A few weeks ago, on Good Friday, the first call I received was from a woman who had simply run out of options. She was living in a motel with her husband and child and was going to be kicked out on Monday because she had no more money. All they could do for her was give her the phone number to a homeless shelter. Again, I agree that personal responsibility is an extremely important lesson for people to learn and that it is in short supply in the U.S. for many reasons. But this is not the time to teach it. Not when teaching it would create a whole class of homeless or semi-homeless people. I understand that this measure is nothing but a stopgap, but if water is leaking onto a ship and it’s sinking, you have to plug the holes before you fix them. In this case, the holes are people. I know that this is a fundamental difference between liberals (which I am) and conservatives, but if a little more of my tax money means that one family can get just one more month to work things out, one more month before they have to move into that homeless shelter, that’s a sacrifice I’m glad to make. If Americans are truly the great people they claim to be, you should be willing as well.
My apologies for the length of this comment.
April 3rd, 2008 at 7:43 pm
A.C. - I understand where you are coming from, and trust me, I understand the logic. Living inside the Beltway you see tons of people go in over their heads and its not always a pretty sight.
But I think that what the previous comments are getting to is the fact that it seems that our government has established a mentality that as soon as there is panic, they’ll just throw money at it and hope it goes away without really addressing the problem.
I agree with you 100% that there have been lenders who have taken advantage of people. However, this isn’t something that is new, there have been junk-mortgage operations in existence for years. While I’m generally not in favor of more regulations, when it comes to banks, I have no problem with their being more direct disclosure regulation, or even a 24 hour grace period that allows people back out of a loan before the check is handed over, so they can make sure what they are signing is legit (I know some states have similar measures for other things).
My problem isn’t with the family who is experiencing an illness, death, etc. My heart goes out to them and if they were in my community, I would help them, as would other charities.
But the people I do have a problem with are those people who took out these loans, knowing the rates would go up and made assumptions based on “what if’s” for determining what was affordable. If you cant afford the post-teaser rate payments when you take out the loan, you shouldn’t take out the loan at all.
This is definitely a tricky situation, I’ll give you that - and there probably isn’t a perfect resolution.
However I just think its extremely dangerous when the government goes into the business of fixing other peoples mistakes.
What’s more troubling that in less than 90 days, there has been a massive stimulus package to fix the credit problems (that wont work), the Bear Stearns Bailout, and now proposals of what could be a massive blunder in American economics.
What happens when one of Bear Stearns competitors finds themselves in the same condition, is the US obligated to step in and provide similar treatment? Or, what if the people who took out these subprime loans still cant afford their homes even after this bailout? Do we have another one?
To me, if these people cant afford their homes now, they probably wont be able to do so even with the government stepping in for this short term fix.
The problem more than anything, is that people are living way beyond their means.
The government shouldn’t step in and fix it for these people.
Yes, their are some special cases as you said, however it seems that for the majority of people affected by this, the problem was a lack of research and better judgment.
We shouldn’t have to spend taxpayers money fixing their mistakes.
It sounds harsh, but if we keep this up, we’ll be in even worse shape than when we started.
(Great posts btw, you’ve all been great on this topic and I hope to continue this!)
April 3rd, 2008 at 8:29 pm
Again, I agree with you that the “philosophy” behind bailouts is a bad idea, though I’d be careful to make a distinction between corporate bailouts and trying (admittedly, probably in vain) to help people stay in their homes.
I also agree with you that there is a large amount of people living beyond their means and that it’s probably part of a huge cultural problem — rampant consumerism come home to roost. As I said on the last post, while a lot of this can be attributed to people being irresponsible individuals, I would suggest that the idea of the “American dream” and that “If you work hard, you can have everything!” myth have also had a role in propelling this. The truth is that, for 90% of people in the United States (and everywhere, probably) it’s more like “If you work hard, you might just get by.”
Finally, the Bush administration hasn’t exactly been a shining example of fiscal responsibility. They thrown tons of money at everything, and have had to borrow in a worse way than some of the homeowners to do so! Not only that, but they have encouraged that culture of spending; who can forget Bush telling people, post 9/11, that the best way for people to “not let the terrorists win” and go on with their lives was to keep shopping!
I’m guessing you probably agree, at least to some extent, with some of that last part.
April 3rd, 2008 at 8:56 pm
I definitely agree, the Bush Administration has by no means been the best example of fiscal responsibility. It’s one of my biggest problems that I have with the Republican party right now, the fact that they aren’t sticking to their roots and cracking down on all this wasteful spending.
Just doing a way with earmarks would open up more funds in one year and any of these bailouts, but that’s for another post :).
I definitely agree with your assumption on the American Dream. I think a lot of that can be attributed to what people see as “making it.” I know people who who make 100,000 a year, but because they don’t drive a Bentley they assume that they are sub-par.
For me, I’ve learned many of my lessons with finances the hard way. You max out a credit card, its going to take you awhile to pay it off. If you don’t pay it off, more debt is going to pile on.
However, those experiences teach you the financial responsibility you need to make it on your own, but more importantly teaches you what you need to know to have the “American Dream”
I read somewhere that one academic area that most Americans fall behind in is Mathematics… I think that these problems are a confirmation of that.