No rest for the weary homeowner
By Marty Richman
Three sectors of the economy got very fat off California’s
overheated housing bubble – the real estate industry, the lenders
and the government. Now, those same groups are working together
trying to re-stoke the fires that burned us so badly. Too many help
programs target those who can barely afford a house instead of
those working hard to fulfill their obligations. This is not an
accident
– it turns maximum profit for everyone except those who were
caught at the top of the market who can’t or won’t just walk away
from their mortgages.
No rest for the weary homeowner
By Marty Richman
Three sectors of the economy got very fat off California’s overheated housing bubble – the real estate industry, the lenders and the government. Now, those same groups are working together trying to re-stoke the fires that burned us so badly. Too many help programs target those who can barely afford a house instead of those working hard to fulfill their obligations. This is not an accident – it turns maximum profit for everyone except those who were caught at the top of the market who can’t or won’t just walk away from their mortgages.
I attend most of the city council and county board of supervisor meetings and almost every presentation regarding housing aid programs apply to low income buyers, people facing foreclosure or first-time homebuyers. I’m told there are plans out there for the struggling-to-get-along group, but if there are, they are buried somewhere in the government alphabet-soup so deep that only an expert can navigate to them, which means they are well-hidden from those who need them.
At the same time the first-time homebuyers programs are providing massive giveaways like $50,000 loans at 2 percent simple interest with all payments deferred for 30 years. To qualify all you have to do is come up with 3 percent down and make the low-income and debt-ratio requirements. The system will then find you another government program to cover up to $8,000 in closing costs. To call this a loan is an insult to the English language – this is a giveaway, pure and simple. With simple and deferred interest, it’s more of a grant than a loan.
Let’s pencil it out. A first-time homebuyer can buy a $160,000 home with only $4,500 down and a $50,000 government “loan’ at 2 percent simple interest deferred. That means public housing money is making a 30 percent downpayment on the house. Meanwhile the neighbor who bought the same home near the top of the market paid $250,000 and put down 20 percent, $50,000 of their own money.
The first buyer has only $4,500 skin in the game while the second has $50,000. Both buyers get a mortgage at 5 percent for 30 years. The first-time mortgage payment is only $567. Meanwhile the existing homeowner is paying $1,073 for the same house. Additionally, the existing owner is upside-down at least $40,000, but the government is helping the first-timer. Why?
The reason is simple; the state has been living off the artificially inflated property values and the property taxes they generate. They know that many existing owners are stuck, with $50,000 into the property they cannot walk away. At the same time by giving $50,000 to the new buyer, they can backdoor the payments to the real estate industry and the lenders.
If they gave the money directly to the banks they would never hear the end of it, but doing it this way the government ‘buys’ the distressed properties indirectly and the banks get to unload them on the taxpayer. Logically, the existing homeowner needs help the most. The first-time buyer could never afford that house without that $50,000 gift.
The state relies on the real estate and lending industries to keep the prices up – even with government money – so they can continue to bring in the property taxes from those still in their homes.
If you’re in that position, struggling to make your payments and your lender will not give you a significant rate reduction on your mortgage take a look in the mirror – you may have the word SUCKER tattooed on your forehead because odds are that as a taxpayer you’re buying two homes, yours and someone else’s.
