President Obama, the Housing Plan and the Stupidity Tax - BITTER

"The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly," the President said, "by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments." - President Barack Obama

I could not be more infuriated by the above statement. President Obama says that he is trying to help those who played by the rules and acted responsibly. This plan is estimated to help 9 million homeowners with mortgages, out of roughly 52 million, I think. This is about 20% or 1 in 5. Are you trying to tell me that 1 in 5 current mortgage holders was in some way duped, swindled, or pushed into something that they didn't understand? Are you trying to tell me that all of these homeowners who are or are near underwater on their mortgages (owe more than the house is worth) had no idea that they were drastically overpaying for their homes? I refuse to accept any of this nonsense.

I'm not going to deny that some level of predatory lending went on, but the rules of real estate didn't get written recently, like so many other Wall Street financial instruments. Investors may have something to cry about given the complex nature of the things they bought and the potentially unscrupulous ratings agencies who left things rated too high for far too long. Homeowners had better think again.

The rules of buying a house have existed for a very long time. You should be able to buy a house that costs roughly 3 to 4 times your gross income. If you make $50,000 per year, you should be buying a house for about $200,000. That's not a $200,000 mortgage. That's the house price. Over the last few years, people and banks seemed to forget about that pesky 20% downpayment. The vast majority of people did not play by these rules. It was not uncommon over the last few years to see people buying houses as much as 10 times their gross income with ZERO downpayment. Banks didn't care since they were dumping the mortgage on Wall Street anyway. But no sane human being can honestly stand in front of me and tell me they truly thought they could afford these houses. And I don't care what kind of sub-prime, interest only, or even less than interest (kudos Washington Mutual on that one) mortgage product you were offered. The basic rule of a loan is, you eventually have to pay it back. All of it.

And then there are the other group of homeowners who are lining up for their personal bailouts, the fake home equity line of credit folks. These are people who had houses before the bubble but, upon learning that their houses were exhorbitantly valued now, decided that they would cash out massive amounts of money in home equity loans, sometimes in the hundreds of thousands of dollars. And what did these newly "fake wealthy" people do with this money? They went to Best Buy, BMW, and Bermuda. Seriously, has anyone even looked at how fast big screen TV's have made their way into living rooms in the last 5 years?

I was in the market for a new home in 2003, when I bought what I could afford at the time. I bought a 2 bedroom, 1 bathroom condo. I splurged on a new television because I had the cash and happened to watch a lot of TV. I bought a 46" widescreen rear projection model. I was the first person I knew with a TV that big. Now almost everyone I know has that size or bigger, and oh yeah, theirs are all LCD or Plasma. People spent so much money that for the first time in our history, we actually had a negative savings rate. This means people were spending, on average for the entire United States, more money than they were making.

I recall hearing a radio news program a few months back about some financial counseling going on outside Washington D.C. and the intent was to make you feel bad for the people whose stories they told. Then they paraded out the story of a young guy who saved for years, bought his house, but now couldn't afford his payments. But then the young guy starts talking about how after he saved his money and bought his house, he decided to upgrade everything inside the house to the latest and greatest appliances, etc. How can I feel sorry for that? That's someone making some very stupid choices.

That's what President Obama is doing to us now. He is creating what I will now call "The Stupidity Tax". People that have ACTUALLY PLAYED BY THE RULES AND ACTED RESPONSIBLY are being punished. People that did not spend outside their means and have been sitting on the sidelines waiting for house prices to come back down are basically being screwed by this administration and our President. Not only are we not going to be able to buy a house, because of the anything and everything the Administration (combined with the Fed) is doing to artificially prop up house prices, we now are having our tax dollars, via the Stupidity Tax, used to keep many undeserving and downright stupid people in the houses they can't afford!

On top of all that, the Bush Administration tried out some of these same tactics last year. What happened to all the homeowners that were helped out, whose mortgages were modified? Over 50% of them went back into default within the year. Absolutely ridiculous.

And what about the speculators? That's right. What about all the people who are holding mortgages on homes that they don't actually live in. A significant portion of the home forclosures involve vacant investment properties that were bought for the sole purpose of "flipping". Should we feel sorry for people who saw 1 too many shows on TLC about making easy money this way? I don't think so.

I really wish that Obama would stick to what he said in his campaign by forcing people to take responsibility for their own actions. It insults the intelligence of the vast majority of Americans who used good judgement over the last few years to claim that he is only helping those that acted responsibly. If he were doing that, he would accellerate the normalization of housing prices so those people who should really be able to afford one could go out and buy one.

Unfortunately, many of these people simply need to get out of these homes. They can move into rentals and jumpstart the economy by paying a landlord some money instead of a bank.

A special thanks to Patrick Killelea, whose website I have been reading for several years now. He has been one of the few advocates of truth in the housing bubble for years before it was popular.