Beggar Man, Thief

Beggar Man, Thief

I listened very carefully to BHO’s plan to help fix the home mortgage problem. Most all agree that the home mortgage situation is the root problem of the current financial meltdown so until someone comes up with a viable way to fix the root problem, flailing away at the overall problem will continue to be the rule of the day. Unfortunately, I don’t think what is being offered is going to help all that much, but to be truthful, BHO and company should get an attaboy for coming up with a well thought out plan to address as much of the problem as possible. But, the mortgage fix plan is mostly a political façade to address as many of the concerns of the electorate as possible, and cannot possibly fix a problem that only the marketplace can solve. Well duh. I guess people will never understand that politicians will always do political things when the government “solves” citizen’s problems. Most all of you know I have a Real Estate Company with my son and so I have some first hand knowledge of how the problem evolved. Until five or six years ago, the real estate market was responding to traditional forces and then in response to Barney Frank and the Congress to get as many people into housing as possible, interest rates began to rapidly go down unrelated to any normal financial or market forces. For example, I was looking at property in Cape Canaveral Florida as a winter home and most of the Mon and Pop houses were going for about $130-150K. Within three of four years, the same house was selling for $300K instead of $150K. The inflated price was being driven up by low interest rates and easy money and because money was so cheap and banks were lending based on the inflated price with little regard to ability to pay (because of the implied Government backing and guarantee), many people bought at the inflated price. When everything crashed, the price of the Mon and Pop house quickly returned to the traditional market determined price of about $150K. The financial problem is that the banks require real estate prices to go back up to the inflated price in order to fix their balance sheet problem because people are walking away from a house that has a $300K mortgage and has a value of only $150K. In other words, the market will always determine the price of a house and when the artificial loan rates and the inflated prices that the government intervention caused are removed (the financial crash) the price of a home will revert back to its market determined value and not the artificial political social engineered price. So the BHO plan can in no way drive the current price of a home back up to the artificial inflated price to really fix the value problem and the plan will be mostly ineffective. Now stick with me as I put the finishing touches on this perfect storm of irresponsibility. Because of government inspired (make that directed) low interest rates providing cheap money the prices of all homes were going up regardless of whether you were selling or not. So the easy money scumbags began to offer home equity loads based on 100-120% of an artificially inflated price. Voila, free money for the masses. I have set at the real estate closing table and tried to explain to a seller that he has to pay $35K to sell his house because of his home equity loans and the fact being he has already spent his equity in the house and the buyer is not going to bail him out by paying over market price for his house. Remember all of my raving about people thinking they can get something for nothing? Now lots of people who took out home equity loans are upside down as hell and can’t afford their mortgage payments because everything has crashed which is causing jobs to be lost, etc., etc.; the cascade to ruin I’ve been talking about. Oh well, I hope that BHO’s plan can fix the mortgage problem, but I really don’t think it can.