The government is at it again and as usual, they are bowing to industries whim. First they wanted to give us 'tax rebate' checks that will assist with either making a car payment or buying a few Chinese-made goods (hold the lead, please). Now they want to put a moratorium on home foreclosures.
While I like 'free' money as much as the next person, this cash-back plan is flawed. Theoretically, pumping a whole bunch of money into the economy should prop the economy up. The reality is that our society is mostly based on debt. House payments, car payments, credit card payments, second mortgages, student loans, personal loans, and any other payment made to pay off a debt consume a vast amount of most people's income. So when you get your check, are you going to pay down a debt or buy a big-ticket item? If you buy something, will it be American made? Or are the profits leaving our shores?
Now they want to stop lenders from foreclosing on people who are 90 days late on their mortgage payments. Actually, the plan is to give an additional 30 days to negotiate a more affordable mortgage before the house is taken.
Who came up with the idea of a moratorium on home foreclosures? The very same lenders that are trying to take the homes! Is this a favor to the homeowner? Or a way for the lenders to claim that they were forced into holding the bad loans by the government when they report even more dismal earnings throughout the year?
The real question to me is what happens at the end of the moratorium? Will these people magically have four months worth of mortgage payments to give to the lenders? Presumably the past-due payments would be rolled into a new mortgage, along with a closing fee, origination fee, servicing fees, and a new requirement for Private Mortgage Insurance. (Don't be surprised if some of the fees are waived as a 'favor' to the distressed homeowner. I can hear it now - Hey folks, we're all pitching in!) By refinancing, the lenders can claim income from the fees. When the impending default occurs, which it will for many, they will be able to pass the buck to the PMI companies instead of having to absorb the losses themselves. With the lower value of houses, more people will be above the 80% threshold for required PMI. I'll bet this requirement won't be waived...
How effective will this moratorium be? It could be very helpful for people who have lost their jobs and are starting new ones, or have a temporary illness or something that hasn't allowed them to work. However, for those who have lost their jobs and haven't been able to find a new one, it gives them 30 extra days to pack and find a cheap apartment to move into while applying for government assistance.
There is another group that is getting foreclosed on that couldn't care less - 'investors'. I use the term loosely because many of these people were actually gamblers, speculating on the industry and continued property appreciation (known as 'flippers'). They overextended themselves, rolling profits over into more and more plays. Many of them ended up with pretty close to the same money as they started, with the addition of a really bad credit rating. As a real estate investor, I know several 'flippers' who have stopped paying mortgages for properties that are no longer worth as much as the debt owed. Do these people deserve a bail-out too? Most likely they will be left out of the moratorium. Just as likely - they wouldn't use it anyway. Remember this the next time they talk of a record number of foreclosures. The more useful information is the number of primary homes that are being foreclosed on. Leave out the beach homes, the vacation homes, and the 'investment' properties.
The latest effort sponsored by the mortgage companies is a thinly veiled attempt to protect themselves from poor profits and loss of stock value due to their own foolish lending practices. Some home buyers will benefit in the short term, a few will benefit longer term, and many more than the companies would like to admit have already moved on. The mortgage companies were speculating just as much as the flippers, and don't deserve the luxury of blaming the government for their losses or a bail-out because of their poor decisions.
And what about this economic stimulus plan? The government is ignoring the larger problem facing our economy - job loss. All of the foolish band-aids they try to apply to prop up the economy for the short term are either useless or detrimental in the long term. Primary homeowners could pay their mortgages if they had jobs, even if their home lost value - assuming they didn't overextend themselves in the first place. However, someone without a job is unable to afford their current mortgage, and will be unable to afford their mortgage after the moratorium ends. Yes, even with their $500 tax rebate check. The government is in the mode of giving our jobs away, promoting off-shoring and encourages bringing in people from other countries to take our jobs on shore. How about giving companies tax breaks for creating new jobs in the country and giving them to American citizens? Maybe giving incentives to bring jobs back on shore? Encouraging industry to manufacture more things here? How about investing in the country's infrastructure? There are many ways to invest the estimated $150B - $180B that the stimulus plan is supposed to cost. Giving me a check for $500 that I will use to pay off a bill isn't going to help - assuming I qualify in the first place.