Imagine for a moment that the top wage earners in the land were forced to throw their funds into a common pot that would be shaken up and redistributed to those less fortunate than themselves – a sort of a take from the rich and give to the poor scheme.
No, it’s not a promo for the new Robin Hood movie. It’s the next big bailout in the US: the Hardest Hit Fund Initiative.
The initiative represents pretty groundbreaking stuff: a blatant redistribution of the wealth. Sure, we’ve had social programming in our tax structures for years. Wealth redistribution has been a key element of many of our tax schemes (the federal estate tax, for example, was founded on that very premise). But Congress’ efforts to spend our tax dollars have taken yet another remarkable turn with this initiative. Let’s see if we can work through this newest scheme together…
The federal government has divvied up billions of dollars as part of a plan to help the unemployed (this I get) and help homeowners keep their houses (okay, I’m still with you) by giving people free money to pay their mortgages. And you see, there, you just lost me completely.
Despite the fact that the economy is making what appears to be a recovery, and despite the fact that the media has been screaming about the “surge” in housing sales during the month of March, Congress is still fiddling with ways to boost the housing market. Yes, the housing lobby is apparently *that* powerful.
So this is what they’ve come up with. Four states (Florida, Michigan, California and Arizona) are going to get $1.4 billion in aid part of which they propose to hand over – for free, no repayment required – up to $50,000 each to homeowners to pay off their mortgages. The funds are targeted for those homeowners who don’t qualify for one of many loan modification programs floating around – remember, the criteria for this round of funding is that it’s for folks who don’t qualify for the previous loan modification programs, which covers a mortgage of up to $729,750 for a conventional, one unit home – almost twice that for certain other properties (see eligibility requirements here). The hope, in this rosy world that Congress has painted, is that the loan investors will turn around and reduce the amount owed by the homeowners by a matching amount, thus saving the house. A double win for the homeowner!
And yes, a win for the banks! Free money from the government (cause that’s where the money is coming from), no real restrictions, no public TARP taint and no need for messy and expensive foreclosures.
Everybody wins!
Oh wait. So, not everybody wins. Those taxpayers who are paying their own mortgages don’t win. But it’s all for the common good, right? We’re all in this together? Rah, rah, rah?
Yep. Even I can’t muster up the enthusiasm for yet another short-sighted bill. Throwing dollars at a problem doesn’t make it go away (unless that problem is Rachel Uchitel, but that’s a whole other blog). It’s clearly a lesson that Congress hasn’t learned since another slew of banks states will be getting money, too: ten states including Nevada, North Carolina, South Carolina, Rhode Island, Ohio and Oregon (some of the hardest hit, according to data) will split an additional $2.1 billion to do more or less the same thing. You can read how states are being selected and what differentiates a “first round state” from a “second round state” on the NCSHA website.
But then, I could be wrong. This whole taking from the rich and giving to the poor thing worked out for Robin Hood, right? Ooh, wait, no, it didn’t. Ironically, he bled to death.
Giving money to struggling homeowners to repay their mortgages seems a lot better to me than bailing out the banks. This way the banks end up getting the money anyway, while homeowners reap benefits as well.
Mark, true, but at least the banks are required to pay back the funds they get via TARP. Nobody is paying anything back in this scenario.
ok…wait…
I currently rent in Northern Ca – $3k a month…Owe Federal and State taxes about $45k…
You mean I can buy a house, default on the payments and get a 50k handout?
Where do I sign???!!!!
Robert, I think there are a lot of people asking that same question…
I’m all for helping out people that are in legitimate trouble but they should not be rewarded with free money. If they want to avoid foreclosure and stay in their home they should agree to forfeit all future appreciation when the housing market returns to normal over the coming years. When ever that house is sold the person that accepts help will have to pay up the difference if it’s greater than the current market value when they sign for this assistance. If they are not willing to accept these terms then they are free to try and hold on to their hom through other means but no free money! Without some sort of penalty there is WAY too much incentive for others to game the system and reward the irresponsible.
Thank you for calling it like it is – “the housing lobby is apparently *that* powerful”. That’s all these bailouts and programs boil down to – who has the best lobbyists. But who’s the lobbyist for the little guy? For the folks like me that follow all the rules, get no reward, and end up paying for the folly of others?
Here’s another idea…I know it’s drastic but it might help stem the foreclosure mess. What if all outstanding mortgages were reset to 4% for 30 or 40 years. This would be fair to all homeowners. Those that don’t need the help get lucky and those that do should be able to keep their home. Even the people that rent could get in on the action if they could really qualify for a loan. Pick one date for the reset and then let everyone else have access to the same deal for one year. Then after 1 year let the regular market forces take over and of course tighten up the lending standards so we don’t find ourselves in this position again. No principle reductions at all. Just a simple refinance at low rates. If you bought too much house and can’t afford 4% then you should be a renter any way. It doesn’t help those that don’t have jobs but if you don’t have income you should’t get to live for free.
HK, I think it’s a good start for an idea but the banks would never go for it. They created this mess – and they really wouldn’t want to fix it on their own dime.
Jill – Become your own advocate. Write your Congressmen. Organize a group of like-minded neighbors. Vote. See where politicians have connections to people back in the local districts. Regular people have leverage too.