No, I Won’t Get Over It: The New Mortgage Bailout Plan Stinks

Hello all.   It’s me again.   Your mean, uncaring, personal finance blogger with the heart of a lump of coal and a soul from the depths of Hades.

Yes, I am still steaming at this Obama rescue plan.   No, I won’t get over it.

And the more I read some of the posts out there in the blogosphere, the more frustrated I become.   This weekend I came across a couple of personal finance blogs and message boards talking about why Obama’s mortgage “rescue plan” is a GOOD idea.     Of particular note was this post at Money Hacks that deftly summarized the benefits of the Obama rescue plan this way:

As your neighbor loses his house…and sells it low just to get out from under it, what do you think is happening to the value of YOUR house?   So give this one a try: If your neighbor can somehow keep his house, it won’t decline in real value (it may decline in perceived value), but until it hits the market, “comparable sales” will not show a decline in your neighborhood, and that’s GOOD FOR YOU!!!

Stop foreclosures –> stop bad loans –> start credit flow –> people buy stuff

A couple counterpoints here:

1.   The above point of view seems to assume that declining home prices are something that needs to be avoided at all costs.     For the financially responsible who refused to overpay for homes and sat on the sidelines during the last few years, declining home prices are a GREAT thing.   The lower the better!

2.   For the most part, in the home real estate market, a falling tide drops all boats.   If your home value is declining, it is a good bet that home values are falling most everywhere else too.   Sure there are exceptions.   But for the most part, it’s all relative.   So I don’t care if my home value drops 10% because my neighbor’s house got reposessed.   Call me a heartless fiscal conservative, but it is not my responsibility to make sure my neighbor keeps his house payments current.     At least I didn’t think it was.

What’s that?   Obama’s plan makes it my responsibility now?     Sorry.   My bad.

3.   Since we’re talking about “value” here, doesn’t it stand to reason that real home values have been artificially inflated across the board because in the aught decade lenders allowed people to buy more home than they could reasonably afford?     As I’ve stated before, the Obama plan penalizes: 1. the financially prudent who correctly sat on the sidelines waiting for prices to drop to levels that could be reasonably supported by their incomes; and, 2. those who refused to trade up into a bigger house (and presumably bigger mortgage) at the height of the bubble.

4.   What if I wanted to take advantage of my neighbor’s bad fortune to buy that house at a reduced price?   The Obama rescue plan continues to artificially prop up home prices by forcing the rest of us to subsidize those who wouldn’t otherwise be able to afford the home they are living in.

5.   The author’s claim that stopping foreclosures will stop bad loans is categorically incorrect.   It is bad loans that beget foreclosures.   Not the other way around.

Please forgive me for continuing to rant on this topic, but I am still trying to come to grips with the fact that it now takes a village to make sure that everybody can own their house — even if that house is more than they can afford.

Is this a great country or what?

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