Mortgage subsidies: Homes for everybody
Today's Financial News - Posted February 13, 2009
The government cannot stop itself from creating new bailouts and emergency programs. Absolutely nothing has been remotely successful so far, yet it continues to pump out more garbage. The latest homeowner solution looks great on paper, but so did communism.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): I do not know whether I should be shocked, worried, or mad that I did not see this news coming. If the federal government is subsidizing America’s farmers, its automakers, its banks and its energy producers, why in the world should we be surprised to learn that it will now likely be subsidizing homeowners?
In news that broke late yesterday afternoon, which was strong enough to quickly and violently turn the equities markets around, we learned the Obama administration is working to pump out legislation that would allow the government to step in and aid underwater borrowers before they fall into arrears on their mortgage payments.
The idea makes great sense. It keeps the troubled banks from getting involved and ensures homeowners get the help they need before it sends their financial lives into a downward spiral. But as is always the case with the American government, the devil lies in the details.
How in the world is a government that can barely run itself going to run a program that involves so many homeowners and nearly as many bankers? The problems start jumping off the page almost immediately.
A magic act
First, we still have no idea what the magic benchmark level will be. Will it be the typical 38% of a homeowner’s gross income or will it be a more “liberal,” and much more expensive, figure like 30%. Either way, Washington is going to have more applicants than it ever imagined.
When American homeowners learn there is even the slightest chance to take advantage of Washington’s addiction to handing out money, they will lie, cheat and con their way into free money. I am not saying you or I will do it, but we all know somebody that will.
That leads us to the question of just how the government will appraise houses and qualify homeowners. We all know home appraisals are subjective and are shaky at best and downright fraudulent at worst.
I have a good friend that could not get a 110-acre tract of land appraised because somebody had dumped an old trailer onto one corner of it. The county appraiser told him because there are no similar pieces of land with a trailer on them in the area, an accurate appraisal is impossible. Apparently, an old rusty Airstream makes it a subdivision.
Simple dilemmas like these appear to be easy fixes, but we all know no government, especially our current one, understands the definition of simple.
The news may be enough to create a one-day pop in the equities market, but once federal appraisers start carrying clipboards and calculators through American neighborhoods, few folks are going to be happy.
The simplest solution to this mess? The free market.
If we take a deep breath and let the free market do its magic, we will be out of this hole in no time. Until then, our government will pull all sorts of tricks out of its magic hat.
Just remember, magic is not real, no matter what they promise.
Next Article: The New Math: The effect of Oprahnomics
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February 13th, 2009 at 5:02 pm
For your information, Airstreams are made from aluminum. Your friend can just put out an offer for someone to tow that Airstream away. Many Airstream afficianados are looking for such an offer. 60% of all Airstreams made are still on the road. The club that is made up of Airstream owners is wbcci.org.
p.s. That appraiser wasn’t an out-of-the-box thinker.