At times like these I find myself conflicted. You see, for most of my life I've held the view that government should be small and the free market allowed to take care of itself. Confirming that point of view was the fact that at 32 I'd held the same job for 12 years and been with my wife just as long. In all that time we worked hard (me on average 60 hours a week) and each year we were a little better off than we'd been the previous year. It was easy to believe that the government needed to stay out of our business as we were doing "just fine on our own thank you" and paying the taxes to prove it. Like I said though, now I'm conflicted about government help. You see.......we bought a house (or three).
Very early in our twenties my wife and I decided we didn't want to pay rent anymore. So it was time to go house hunting. Though pre-approved for $320,000 we decided on a 1000 square foot house in need of a full remodel for a $62,000. For six years we lived in a house with no drywall while we labored nights and weekends to try to build our future a little at a time. News of our first child put the remodel into high gear. We moved into one my parent's more needy investment properties (yup they were the dreaded investors, but back to that later) while attempting to fast track the remodel of our little piece of America. Our son however had different plans. He decided to come 2 months early and we were just getting to the drywall.
There we sat in the hospital looking at our son. At birth he was not quite four pounds. Kept in an incubator, hooked up to a feeding tube, respirator and a bunch of wires he was so fragile we weren't allowed to really even touch him at first. Grandparents and parents alike began wonder aloud whether or not we could really get all that drywall and concrete dust from the AC ducts in our house. Was the mold from old roof and plumbing leaks really innocuous? What about all the pesticides from fighting palmetto bugs? After a bit of prodding we relented to just "take a look" at a house my parent's realtor had brought to them. We looked. We loved it. We bought it. Now are you ready for this folks? Because I'm gonna say something now that you'll not often hear from people in our situation.
We screwed up! Bad Investment, Bad Timing, Bad Loan.......Bad Decision!
On a short sale we purchased a 3/2/2 with a pool, on a canal in Florida for the unbelievable sum of $325,000. By the time closing came around we were nervous as it was a stretch to afford it. But there was some profit to be made in our house if we completed it, I had a big raise on the horizon, and for some reason the bank actually gave us the loan. After a few months our son came home, the company I worked for grew along with my workload and time passed. The old house wasn't done, my raise wasn't coming and my wife needed to stay at home with our son longer than we'd expected. It was time for mistake number 2.........Second mortgage! Now we were in even deeper but we had some funds to survive for a bit. We also had mortgage and utility bills that went way beyond our income levels. Our little pile of money just wasn't enough to last for long.
It became time to listen to the advice of the folks as well as our new friends the mortgage broker and the real estate agent. Just typing this up right now I feel like the guy yelling at the screen when watching a midnight horror movie. "No, don't do it!" But.....we did. It was time to buy another house. The guy that had repeatedly argued with his parents that real estate investing would end badly for them just umm...decided to get into real estate investing. Try as I might I can't recall any guns, swords or knives in the process leading up to the purchase of our 3rd home so it must've been our decision. What we both remember were restless nights, fights, and feeling less at home in a house with walls than we ever did in the one without.
We now live in that 3rd house. It has a first and a second mortgage. It is homesteaded but it is not being paid for as of this month. The other 2 are already 90 days back and should enter foreclosure process soon enough. My raise never came as the job went away instead. The same has happened or will be happening to my folks as well as most of those we came to know along the way. We've attempted to speak with the mortgage company for the little house and found them to be inflexible on a workout. We'll talk to everyone before we give up but the likely conclusion may well be bankruptcy and renting. Anybody out there wanna rent a house to a bankrupt family with 2 dogs, 2 cats, a 2 year old boy and no recent rental history? The line forms to the left.
It'd be really easy to look around and blame others for the events of the last few years. From time to time we've even tried. The fact is though every step of the way we had 2 decisions and chose over and over to grab the shovel instead of cutting and running. We probably deserve what will happen to us and going forward we should be a little smarter. Point is please don't worry about us if you are, and please don't tell us how damn stupid we are 'cause we already know and we're paying for it. Like I said, we'll be ok but I still parked my car this week to make sure my wife had enough gas to get back and forth to work. Now that's it's clear where our interests lay you can take the rest as you please.
Having told the story of how we got here, it's time to tell you why I'm a little out of sorts about whether or not the government should help people like us. Hell, there are definitely those that are more deserving of assistance though my libertarian side can still find a reason they should fall as well. The more legitimate excuses such as health problems (no matter what the cost, always carry health insurance), job loss (you didn't save?), divorce (never build a house on shaky ground), all sound better than "we screwed up and got in over our heads" but are still arguably not reasons for government intervention. After all it's simply not the government's job to bail out "speculators" using "liar loans", right? (Sorry George but you're pissin' me off a little these days) That is of course unless those speculators happen to be the lenders and builders of the properties being foreclosed on.
That beautiful little home that we purchased when our son was born will most likely soon be subject to foreclosure proceedings by EMC mortgage. This lenders parent company has been in the news a bit as of late. You may have heard of them.....Bear Stearns. The government had no problem helping out with a very large check when this company was heading towards bankruptcy. We're clearly on the wrong side of the fence here as the homeowners. To add insult to injury the Senate recently passed a bill that will allow builders and lenders to write the losses incurred for the next few years against the massive profits of the previous few retroactively. Tax breaks for those that buy foreclosures are also on the bill along with money for the states to buy up foreclosed properties that are considered eyesores. Pardon me for interrupting here, but don't all those things, along with the very big bailout checks encourage lenders to kick people out of their homes instead of working to keep them paying? Let's face it, if the governments going to foot the bill there's no reason to use sound business practice to resolve a problem.
To date the fed has pumped hundreds of billions have been pumped into the lending market with no end in site to the problem. For those that don't spend hours every day looking into this mess (I got time) let me tell you this. It started with sub-prime loans failing, will next move to prime loans and will then be followed by credit card defaults, personal loan defaults, and auto loan defaults. I'm bettin' that if your name is Citi, Bank of America, Wachovia, etc. that the government will continue to write checks on your behalf as long as the losses keep rolling in. Good thing Washington doesn't bail out speculators, isn't it?
For those that think the lenders were victimized by brokers and real-estate flippers you need to know that they created the game. The rest of the people just played along. Mortgage brokers were told how to write the loans so they'd go through by the lenders. They didn't just figure out how to work the system by themselves. Hell, forget the brokers; I've sat in a national bank branch while the in-house loan officer encouraged me to remember a renter I'd forgotten to find a little more income after being denied a loan. They wanted to write them no matter what. In an era where loans were made then quickly packaged and sold on the bond market it didn't pay for the loans originator to look too hard too see if people could afford their payments. The creation and subsequent misuse of non-qualifying loans proves the point. They created and offered a product for sale with a poison pill in it. Wall Street gladly bought it up. When everyone's making money it's easy to ignore the elephant in the room. One could even argue that if the loan's never stopped, we wouldn't be having this conversation right now.
The senate bills other primary beneficiary is none too innocent either. In Florida you could literally follow the line of cars going from model home to model home looking for spec houses to buy and flip. As fast as houses and condos could be built they were snatched up by investors. For a time it was actually hard to find a home to buy. Most units were being sold in the pre or mid construction phase. Inexplicably, when that demand began to dry up most companies just kept building. Some have survived to see the coming help from Uncle Sam but many others went under with half completed projects scattering the city. People were left on the hook for a home they couldn't get finished and couldn't live in. Some people were sued successfully by sub-contactors as the contractor never paid them from the construction loan proceeds. To add insult to injury a few counties and homeowners associations are leveling fines to the homeowners to clean up and complete the properties. Many of these people already have or will be forced to declare bankruptcy when they've done absolutely nothing wrong.
Speaking of guilt it should be mentioned that maybe (just maybe) those in Washington, DC were a bit complicit as well. For a period of time the entire nation was lifted on a wave of newfound wealth as home values rose. Any of those in a position to seek re-election surely felt they would benefit from leaving well enough alone. This is a group of people with access to the best financial minds in the country. This whole mess was predicted. Most predictions were ignored as being overly negative. But you have to know that our representatives were well-informed as to the possible consequences of the volume of bad lending going on. Much like tax and social security reform, it just didn't pay to rock the boat.
All this makes me wonder. Our federal government will likely spend trillions to clean this mess up and keep the lending and construction industries on their feet while continuing to do nothing to help individuals stay in their homes. We keep hearing about the help that's on the way while intermediary measures that only help the banks foreclose are passed and put into effect. Every foreclosure and subsequent fire sale mean roughly 50% of the funds lent to the homeowners will be counted in the lenders loss column for the year. Isn't it better to keep homeowners in place at reduced payments? My wife and I don't want to keep all of our homes. Just one will be sufficient. If the first mortgage was modified to get the payments down to a level closer to the areas rents we could continue to pay. We have to live somewhere right? Plus it would mean a lot fewer homes in the neighborhood with overgrown lawns and green pools. If the government will help the lien holder make up the difference after foreclosure through a tax write-off or a check then why bother working with debtor? Don't believe the hype folks, HOPE NOW, EMC's mod squad, and similar efforts at good publicity are doing little to help people keep their homes. Most of the loan modifications being done are simply repayment plans to get people caught up. The new payments are higher than the ones they couldn't make before and set the homeowners up to fail all over again.
So why am I conflicted? I agree it's not the government's responsibility to save my home. Washington does not exist to bail out people that make poor decisions with their money. But if the previous statement is true then isn't it also true that it's not the government's responsibility to bail out companies that make bad decisions? It really should be an all or nothing proposition. If the government is going to foot the bill for an entire industry's misdeeds then it must also insist they maximize their profit while reducing losses in whatever way they can. You'd think that keeping as many people in their homes paying interest monthly would be a large part of the plan. Otherwise, let 'em fall along with us. We'll rebuild. America always does.
