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Friday, August 31, 2007

Bailouts for McMansions, nothing for New Orleans homeowners
Posted by Jill | 6:13 AM
I realize that it's easy for me to sit here in a house we bought ten years ago and say that I have no sympathy for people who bought houses they can't afford and should have known they couldn't afford. But when we started house-shopping, we worked out what we could afford based on what we had to put down, current fixed 30-year interest rates, and our monthly income. When the houses we saw in that price range weren't what we wanted, we decided to wait a year and save some more money. A year later, when we once again had a price point in mind and went to be pre-approved, we heard mortgage brokers tell us that we qualified for $60,000 more than we were looking to borrow. Did we then jump at the chance to buy a more expensive house? On the contrary; we stood firm, ended up buying a house within our price range, and as a result we've been able to withstand some financial setbacks without losing the house.

I understand that 1996, when we bought, was the bottom of the market, but our first mortgage was at 8.5% and the fundamentals are the same: If you can't afford it, don't buy it. Even if option mortgages and interest-only mortgages had been available in 1996, we would still have gone for the 30-year fixed at 8.5%, our logic being that if fixed rates drop, we can always refinance. And so we did -- three times.

You didn't have to be a genius to see that what was going on in real estate was unsustainable. With decreasing wages and a diminishing professional job base, who the heck was going to be able to pay a half-million dollars for a Cape Cod? But people continued to buy houses with no money down, taking mortgages that built no equity, not even considering what would happen when someone finally cried "uncle!".

It's funny how the Administration has sat by while jobs were sent overseas and jobs here paid less and offered fewer benefits; while more and more Americans lost their health insurance and started taking loans from their doctors for medical care. But now that the housing market has collapsed and the financial markets are feeling the pain, suddenly a bailout is necessary:

President Bush, in his first response to families hit by the subprime mortgage crisis, plans to announce several steps Friday to help Americans who have credit problems meet the rising cost of their housing loans, administration officials said Thursday.

The officials said Mr. Bush would call for the Federal Housing Administration to change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next.

The administration is offering his plan, which will include what one official called jawboning of lenders to persuade them not to foreclose on some borrowers, at a time of growing attacks on Mr. Bush from Democrats who say he has remained on the sidelines amid increasing anxiety over whether millions of Americans could end up losing their homes. Other elements of the plan would need legislative action, requiring Mr. Bush to win over the Democratic leadership in Congress.

Administration officials, who asked not to be identified, briefed a handful of news organizations on the proposals to be announced by Mr. Bush at an appearance in the White House Rose Garden on Friday morning.

The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.

“The primary focus is to help individuals who have an opportunity to stay in their homes to stay in their homes,” this official said. “The subprime mortgage situation is having a crushing effect on a lot of communities right now.”

Despite the assertion that affecting the markets is not the goal, one administration official said Thursday evening that concern about Wall Street’s reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be.

But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss.

Don't kid yourself for one minute that this is about helping low-income Americans stay in their homes. If helping low-income Americans stay in their homes were the goal, the 9th Ward of New Orleans wouldn't still be in ruins two years after Hurricane Katrina, its citizens dispersed elsewhere, the better to turn Louisiana into a Republican state and a cash cow for Bush's corporate cronies. This Administration has dragged its heels on helping the most high-profile poor people in the country, but when the wealthy start to feel the effects, suddenly this president rushes into action.

If you don't pay your credit cards on time, but some schmuck was willing to loan you upwards of a half-million dollars to buy a McMansion, the Administration wants to extend a helping hand. If your living comes primarily from your investments in the financial markets, and the housing bubble has caused the value of your investments to drop, the Bush Administration is right there to staunch the bleeding. But if you're guilty of nothing but wanting to return to your home in the 9th Ward, as far as this Administration is concerned, you don't even exist.

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