Regular readers of my blog have probably figured out that I’m a pretty liberal gal. On just about every social issue, my views are pretty firmly on the left. I support the stimulus plan, primarily because I believe that its proponents in the government are honestly trying to do what’s best for America. I’m not an economist, and I don’t pretend to understand all of the nuances of how the stimulus will impact the country and individual Americans (to be frank, I think that most reps and senators don’t fully understand it either, but that’s another story).
And yes, on a broad level, I support the idea of stopping the flood of foreclosures and helping people stay in their homes. I know that this is what has to be done in order to shore up the economy – the housing woes were the start of this whole economic mess, so it makes sense that something has to be done to fix housing in order to fix the economy in general. And yes, I understand that if the government steps in and helps people who are in danger of losing their home, and if that in turn helps the economy recover, all of us benefit.
But I’m still frustrated by a lot of the chatter that I hear online these days about housing and foreclosures. ACORN’s efforts to get homeowners to refuse to leave their foreclosed homes bothers me. Come on, people. Owning a home is not a right. There is no guarantee that home values will always increase. If you buy a house and hang onto it for 30 years – without refinancing and pulling out cash – you’ll probably be able to sell it for a pretty good profit. But if you’re looking for a guarantee that you won’t lose money, don’t buy real estate. And I would say that only a life or death emergency could justify taking cash out of your home in a refinance. Refinancing a mortgage and taking cash out is basically trading the security of staying in your home for whatever it is that the money will be used for. Life or death emergency – fair enough. Anything else – is it really worth losing your home over?
I know that there are lots of people who were duped by unscrupulous lenders during the housing bubble in the first half of this decade. There were appraisers who fraudulently set the values of properties far higher than they should have, and unsuspecting buyers were underwater from day one. There were lenders who got people who didn’t speak or read Engligh to sign for ARMs that they didn’t have a prayer of being able to pay once the interest reset.
But there were also lots of people who just bought more house than they could afford. And people who refinanced and pulled out money, using their homes as ATMs. And people who bought houses they couldn’t afford using “creative financing”, counting on the idea that prices would continue to rise and they would be able to refinance a few years down the road. It’s frustrating to me that my tax dollars will be used to bail out these homeowners. Yes, I’m a bleeding heart liberal, but I still find this pretty hard to swallow.
My husband and I bought our house in 2003. Back then, loans were handed out like candy on Halloween. I don’t remember the specifics, but I know that we were approved for a more expensive house than we bought. The median house price in our town is $450,000. We bought a house for $190,000. Could we have bought a house for $300,000? Sure, but it wouldn’t have been very responsible of us. Could we have bought a more expensive house, financed it with an ARM, and tried to refinance after a few years? I suppose so, but I’m glad we didn’t. We chose to just stick to what we knew we could afford, even if our financial situation didn’t improve over the years, and even if our house didn’t go up in value. In the first few years after we bought our house, we struggled to make ends meet. But we never missed a mortgage payment (or any other payment, although there were times when we only made minimum payments on our credit card). Our cars are nearly 20 years old, and just about everything in our house was purchased second hand. But we now own about 25% of our home.
It’s frustrating to me that people are talking about bailing out homeowners whose houses are worth less than they owe on their mortgages. Tell me – if you buy a house and then it appreciates dramatically over the next few years, would it be fair for the previous owner to demand that you give them a share of the value gain? Of course not – that’s what real estate is all about. You buy and you sell – everyone hopes to buy low and sell high, but that’s not always the way it works. And if people aren’t comfortable with the idea that a piece of property might lose value after they buy it, they should probably stick to renting.
I’m a little bitter about the whole housing bailout situation. But I’m also hopeful. I’m hopeful that this whole situation will teach people about the value of living within their means. I’m hopeful that people will realize the importance of saving and of buying less than they can afford. I’m hopeful that the stimulus bill will be successful and that the economy will bouce back. I’m hopeful that this whole mess will not repeat itself.
As for me and my family, we will stick to our frugal lifestyle and feel fortunate that we didn’t take one of the many wrong turns that led so many homeowners into situations that require a bailout. I know that we’ve worked very hard, but I also know that we’re lucky. We were lucky to both be raised by parents who understood the value of a dollar and passed on that knowledge to their children. We were lucky to be born into families that valued education and encouraged us to go to college. We are lucky to have each other, and our son. See – it worked. I was feeling frustrated about the idea of foreclosure bailouts, and then I reminded myself of how lucky I am, and now I’m feeling all mushy inside.
What do you think? Should the government write down the amount owed on mortgages where borrowers are underwater? Should the terms of loans be changed to make it easier for people to pay their mortgages? (like the idea of setting a mortgage payment at 1/3 of a borrower’s income). Do you have any ideas for how the government could intervene to prop up the housing situation in the fairest possible way?