The memories are kind of fading now, but there is one thing I’ve never forgotten from my 11th grade civics class. On the first dayof class my teacher, Mr. Bailey, told us all to never forget one thing. It was to never use theword "fair" when making an argument about anything the government chooses to do.
"The government," he said, "is expedient and acts primarily in its own interests. Never forger that."
Of course, it was only much later that I understood exactly what he meant. Right or not, often times politics trumps commonsense.
And with Uncle Sam now bailing anybody and everybody out of messes of their own making, fairness is concept that has been put on the shelf indefinitely.
That has created something of backlash among those that failed to fall for the promises of the bubble. For them, there is nothing but the bitter taste of the collapse and the subsequent efforts to bail it all out.
They’re upset. They are mad as hell. And they are voicing their opinion.
From CNNMoney by Les Christie entitled: Taxpayers: Furious over homeowner bailout
"Ask most Americans whether they’re in favor of spending taxpayer dollars to help delinquent mortgage borrowers and you’re likely to get an emphatic "No!"
But the government didn’t ask its citizens before it committed hundreds of billions of taxpayer dollars to guarantee loans through various foreclosure prevention initiatives such as FHASecure and Hope for Homeowners, which let troubled borrowers refinance expensive mortgages into more affordable loans. Nor did it take a vote before it agreed to fund the new streamlined mortgage modification programs for loans backed by Fannie Mae and Freddie Mac).
And now there is the possibility that some of the hundreds of billions of dollars allocated for the Treasury’s Troubled Assets Relief Program will go towards bailing out borrowers.
Taxpayers are mad – especially those who held off buying their own homes or were careful not to spend beyond their means.
"All these idiots who bought homes they couldn’t really afford are going to be rewarded with loan modifications, but what about those of us who didn’t make stupid decisions?" asked Jay Black, a CNNMoney.com reader who rents in Queens, N.Y.
"I could have purchased two years ago using an option ARM, and now the government would be paying to reduce my balance. But I didn’t. What the hell do I get?"
"There’s always the issue – ‘I’m paying my mortgage even though I’m upside down and my neighbor is not,’" said Mark Goldman, a real estate professor at San Diego State University.
Letting delinquent mortgage borrowers slide into foreclosure will only do more damage to the entire financial system, according to Goldman. That’s the most fundamental reason to support government funded rescue efforts.
"The appropriate public rationale [for the bailouts] is to support housing prices," he said. "The reason they’re doing this is to stop plummeting prices and everyone benefits from that."
Still, it’s easy to understand how some people can feel taken advantage of. Consider the hypothetical case of one warehouse manager named John and his colleague Mary. The two make about the same salary and are both married with two young kids and stay-at-home spouses.
A few years ago both bought homes, John’s a modest three bedroom, two bath. He put 20% down and financed $240,000 with a 30-year, fixed-rate loan at 7%. His payment is $1,596 a month.
Mary went for an opulent five bedroom, four bath, 3,500 square foot McMansion that cost $500,000. She put just 5% down and financed the rest with an option ARM, making the minimum monthly payments of just $1,725. But that caused her mortgage balance to balloon, and now Mary has to start paying down her loan’s principal, which has reached $550,000. That means a monthly mortgage payment of $3,659, which she can’t afford.
Luckily for Mary, her lender has reduced her interest rate to 3% for five years, deferred payment on $50,000 of the balance and extended the length of the loan to 40 years, all with the help of one of the new, government-backed rescue programs. That reduced her monthly mortgage bill to $1,790 – not much more than what John is paying for his more modest home.
Mary is essentially able to hang on to her palatial home with the help of some of John’s tax dollars – and as important as that is for the larger economy, it’s hard to argue that it’s fair."
Meanwhile, they very homeowners the government has attempted to prop up have been falling back into default.
According to data released yesterday, more than half of delinquent homeowners whose mortgages were modified earlier this year ended up re-defaulting within six months.
"After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent," Comptroller of the Currency, John C. Dugan, said in remarks at the Office of Thrift Supervision’s National Housing Forum yesterday.
Now is that fair? Not hardly. But in the end it is an effort that can’t be stopped.
It turns out Mr. Bailey knew what he was talking about.
It kind of reminds me of something else I saw when I was much younger. You may remember this.