Capitalism is vicious but efficient. Like nature. Survival of the fittest. Left to its own devices, the free market prices assets efficiently. That may be tough on you if you borrowed money to buy an overpriced house in a bubble market, but it's good news to those saving to buy their first house or those who were too prudent to take on excessive debt and pay excessive prices. Bailouts throw sand into the free market's gears. Political power becomes more important than sound judgment. Unfairness abounds. Why should my tax dollars bail you out of a failed real estate speculation? ******************************** Jay Somaney Another Bogus Bailout Plan 11/11/2008 3:32 PM EST This homeowner bailout plan is totally bogus and will end up helping people that should not be helped in the first place. Who out there has a mortgage that is over 38% of their net income? Not many people, except those in California or Arizona, where home prices were at a bubble level in the first place. Let's look at some examples: Say a husband and wife both work at Wal-Mart (WMT) and make $1,500 a month each, which is $36,000 a year combined income. At 2.5x annual earnings, they can afford a house worth $90,000 maximum. Let's assume a down payment of 20%, which leaves them with a mortgage of $72,000.Now let's assume their monthly mortgage payment is no higher than roughly $750 to $800 per month, which works out to around 27% of their combined monthly income. No help for them, even if they cannot make ends meet. Next, say a couple together makes $120,000 a year, which will qualify them for a house worth $300,000. With a 20% down payment, they would need a $240,000 mortgage, with a monthly payment of roughly $2,500 a month (or $30,000 a year), which is 25% of their earnings. No help for them. Final example, say a couple earns $200,000 but live in California, where a 50-year-old home will cost $1,000,000. A down payment of $200,000 leaves them with a mortgage of $800,000 and payments of around $8,000 a month (or $96,000 a year), for 46% of their earnings. Come on down, you big over-spender. So, the government will help those that had no business buying a home in the first place. Great job, guys. Our tax dollars could not be better spent.
My wife and I are taking on a mortgage payment of 14% gross income, which includes property taxes. We are nervous. 38% of gross income payment?? these people need to be allowed to be out on the street.
When I was financing my first home purchase, the lenders told me how much I could borrow based solely on my salary (no bonus, no options, no company stock). I told them they were crazy - I couldn't afford that much. Don't recall the amount, but it was about double what I thought was reasonable. And that was a FRM, not ARM or any of these exotic arrangements, and several years before the bubble began.
I'm extremely irate about this entire program. Our home has depreciated by almost 40% in the past 3 years. There are firesales of bank owned homes in the area going up that are priced incredibly low. This has killed all equity in our home. Unlike many others, we locked ourselves in with large down payment, we pay our bills on time and we do not live beyond our means. But seriously this plan is a joke, my house is now worth significantly less then our mortgage. If your getting a deal for being an idiot, then where are the perks for those who have been responsible. Where is my fucking bail out?
$800.00/mo in SoCal is a slum studio apartment. http://www.apartmenthunterz.com/california/studio/El-Monte/El-Monte.html
this bail out plan is bullsh*t. let me sum it up. who can afford to pay mortgage will pay, who can not afford it, will be bail out. isn't it little bit unfair? bailing out those stupid who can't count and took mortgage which can not afford?