The Yanks Are Pissed Off Too

[rolf]

By Jim Jubak

MSN Money

You played by the rules.

Invested conservatively. Looked for company names you could trust, like Lehman Bros. (LEHMQ, news, msgs). Didn't sell out at the first or even second downturn in the markets.

Saved up for a down payment. Paid your bills on time and kept your credit card balances down so you could build up your credit rating. Shopped around for a fixed-rate mortgage. Didn't buy more house than you could afford.

Managed your company for the long run. Built up trust with your bank. Earned the trust of your suppliers and customers. Kept debt to a minimum even if it meant growing more slowly.

Now, don't you feel like a chump?

Virtue goes unrewarded

Your retirement portfolio is worth 40% less than at the end of 2007. Your house is worth 20% less. Your company is scrambling to stay afloat because your oh-so-friendly banker has cut your credit line.

But the worst is that you see people all around who behaved like fools, people who lied on their mortgage applications, who piled on debt like there was no tomorrow or who ran their companies into the ground and who are now getting bailed out by the federal government. With your money.

You know it's not fair. You're angry as hell. You want someone to pay the price. You want the good rewarded and the evil punished.

I'm not here to talk you out of that. You're perfectly right to feel like you've been played for a chump, to be angry and to want to lash out. I feel that way myself many days.

What's making our blood boil

So, what to do about it? I'm still in the middle of figuring that out for myself. But first to the reasons we feel like chumps and why we're so angry.

From my e-mail I know that the Obama administration's plan to bail out homeowners who are facing foreclosure is the last straw for many of you. President Barack Obama is talking real money -- even these days, $275 billion is real money.

Now, I don't know anybody who isn't in favor of helping folks who are in danger of losing their homes -- if they were lured into a bad mortgage by a lender or broker willing to do just about anything to close another mortgage deal, or if they're in danger of losing their homes because they've lost their jobs.

But we also know that mixed in with those victims are millions of people who hoped to make a quick killing in a can't-lose real-estate market. These people gambled, and they lost. Why should taxpayers make them whole?

Why does home value matter?

In introducing his plan, Obama rightly said that we're all in this together. Helping families avoid foreclosure would prop up the value of every house in a neighborhood, so we all have an interest in keeping these people in their homes. That justifies the use of taxpayer money.

Or does it? Step back for a minute and think about the assumptions behind the president's logic. They show the same mind-set that got us into this mess. If you saved for years, built up a big down payment and then bought a house you could afford, you're not really thinking of a decline in the value of your house as an immediate problem. You intend to live there. It's shelter. An asset for the long haul.

Propping up the price of your home in the here and now is important if you still think of your house as an ATM. Forking over tax dollars to prop up home prices in your neighborhood is worthwhile if you need a higher price so you can increase the size of your home equity line of credit to finance a lifestyle you couldn't otherwise afford.

A shelter or an investment?

From the point of view of someone who sees a house as a place to live -- and not as an ATM -- that's just nuts. And once you reject the president's logic that spending taxpayer money like this helps us all, the plan starts to seem even more unfair to us chumps.

The administration's plan to help 7 million to 9 million homeowners with unaffordable mortgages isn't going to make any effort to separate the victims from the venal. I know the task of discriminating the real-estate sheep from the wolves in sheep's clothing can be horrendously difficult, but let's at least try before we spend taxpayer money. Some effort to detect fraud on the original application should be part of the plan, no?

What about the careful folks, prototypical chumps in this financial world, who have been saving while renting and waiting for the day that housing prices would come down. In today's mortgage market -- if they can get a mortgage at all -- they'll need not 10% down but 20% down. And they'll need a FICO credit score of 740 to get the best rate.

[tomandlu]

I largely agree - my one caveat (and I write from ignorance) is that, if you have a mortgage for £75000 on a house that cost £100000 (and you put up the other £25000), doesn't the bank start behaving in a rather unpleasant fashion when you house's value drops below £75000?

So, my caveat is that the banks also need to recognise that a house is a home, and not some ATM as well. As long as you pay your mortgage, the "value" of your house should not be a factor.

[AteMoose]

I largely agree - my one caveat (and I write from ignorance) is that, if you have a mortgage for £75000 on a house that cost £100000 (and you put up the other £25000), doesn't the bank start behaving in a rather unpleasant fashion when you house's value drops below £75000?

So, my caveat is that the banks also need to recognise that a house is a home, and not some ATM as well. As long as you pay your mortgage, the "value" of your house should not be a factor.

Only in the UK, in the US if your house falls below the value you can walk away with no record against your name. The bank is left with the asset and your free.

[bungy]

I largely agree - my one caveat (and I write from ignorance) is that, if you have a mortgage for £75000 on a house that cost £100000 (and you put up the other £25000), doesn't the bank start behaving in a rather unpleasant fashion when you house's value drops below £75000?

So, my caveat is that the banks also need to recognise that a house is a home, and not some ATM as well. As long as you pay your mortgage, the "value" of your house should not be a factor.

I agree. If I can afford to pay a mortgage at 4 times my salary, and I have a very secure job, and an excellent credit score, I don't see why the equity in my house should exclude me from getting a good mortgage.

[billybong]

In introducing his plan, Obama rightly said that we're all in this together.

+++++++++++++

Some are more "in this" than others to be candid and that especially applies to a lot of politicians and their pals.

So it's seemingly bail-out the banks and also bail-out those who are most "in this" and it's likely those most "in this" are paying the least tax when talking about taxpayer money to be used for this "plan". Help the truly needy by all means.

[Elizabeth]

Only in the UK, in the US if your house falls below the value you can walk away with no record against your name. The bank is left with the asset and your free.

That is a great system. Once again the good of fashioned USA show us that decency and capitalism can be wrapped in a single sensible package (if you forget about health care and food stamps )

[kilroy]

I agree. If I can afford to pay a mortgage at 4 times my salary, and I have a very secure job, and an excellent credit score, I don't see why the equity in my house should exclude me from getting a good mortgage.

erm, because the house is worth less than the mortgage? This means that the mortgage is partly unsecured, which obviously attracts higher rates.

[Diabolik1970]

Only in the UK, in the US if your house falls below the value you can walk away with no record against your name. The bank is left with the asset and your free.

and isnt that part of the problem ? thats a rather strange thing isn't it considering they care to think of them selves as free marketeers.

ie you get a loan buy an asset reap benefits if it gains value but the moment it doesn't you can walk away ...