Currituck

Raines : The Devil is in the Details

A Liberal’s Viewpoint

by Mike Raines

Email : raines@nencnews.com

      First a little humor… Remember when banks used to offer little “perks” or teaser gifts if you opened a new savings or checking account with them? Today a friend sent me a “Super Saver” coupon supposedly from the Federal Deposit Insurance Corporation. It features four toasters for $19.99 each. But wait! With each toaster purchase, you get a coupon for a free bank. Some of the coupons are for Bear Stearns, Countrywide, and Freddie Mac, you get the idea. Limit one per customer.

      Seriously, though, it seems that the White House,Democrats, and Republicans have finally realized what most of us already knew – that the housing crisis is what most Americans think is our most pressing economic problem and we should fix it right away. This is encouraging news. Now, if we could just get them to agree on how to do this it would be great.

      Republican Senate leader Mitch McConnell and Republican Senator Lamar Alexander on Monday proposed an amendment to the Senate Stimulus Package that on the surface, seemed to be just the right solution. Call me a sucker, but I keep hoping that the Republicans will stop being obstructionist and get on board trying to fix our economy. That is why I got so excited about their proposal that I printed out several articles on it at lunchtime and took them home to read.

      McConnell said “We believe that a stimulus bill must fix the main problem first and that’s housing,” [Our plan would] “offer fixed mortgages of 4 percent to “any credit-worthy borrower.” [also] “new and refinanced mortgages would be available to homeowners for 4 to 4.5 percent.”  Their amendment would require banks to issue these lower fixed-rate mortgages on primary residences, “both for new homes purchases and for refinanced mortgages for responsible homeowners.”

      As quoted in “The Fox Forum” on Monday by James Pinkerton, McConnell explained, “…low interest mortgages would boost house
hold income. The average family would see its monthly mortgage payment drop by $466 a month, or $5,600 a year. Over the life of a 30-year loan, that’s a savings of $167,760. Now can you see how I was excited and caught up in the hype?

      When I got home and revisited “The Fox Forum” web site, I continued to read some of the comments posted below the original article. One of the first comments knocked most of the wind out of the sails of the argument. A poster named Tom BB wrote, “That is pretty much the case now. Creditworthy homebuyers can get loans under 5%. Money is readily available, the standards have just reverted back to what they were before banks were forced to lend to those who couldn’t really qualify.” Even though I disagree with Tom BB’s last point somewhat, this comment jerked me back to reality. This Republican backed plan would do nothing for homeowners struggling to avoid foreclosure. It would charge us taxpayers a lot, and give well to-do homeowners a huge break on their mortgages. Another financial break for the wealthy – and guess what? I discovered that the plan was principally developed by none other than R. Glenn Hubbard, a former senior economic adviser to former President George Bush.

      Here’s where the “devil details” cause the plan to be worthless as a stimulus and as help for struggling homeowners. The details are the use of the words “creditworthy borrower” and “responsible homeowners.” I have several friends who are now trying to secure mortgages either to buy or build a house. Mortgage conditions are now much more stringent than they have ever been in my lifetime and much more stringent than is economically prudent in any normal times. These folks have excellent credit, good down payments, stable jobs for more than a decade, etc, etc. Their houses are currently valued at much more than the amount of the requested loans. Yet they cannot qualify for a loan. The interest rates are great – you just can’t get a loan.

      The “struggling homeowner” that everyone says they want to help probably bought his/her home in the last 5 years or so. Now, their home values have depreciated 25% or so, devouring their down payments and the payments they have made so far. Right off the bat, they can’t qualify because the house is not worth what they owe. You can say that’s their fault, but they relied on the appraised value prior to sale. In most cases, they paid for the appraisal, and the lender picked the appraiser. Even if they have managed to have some equity, most banks now will only lend 75% of the current value of the property. That cuts out most others from qualifying for these loans. Add to these poor unfortunates anyone who has been laid off or otherwise lost their jobs in the last 5 or 6 years. You don’t qualify either. Who does qualify? Only those well off enough to not need the help!

Mike Raines is a resident of Currituck, N. C. and is featured as a regular columnist, in the spirit of offering different viewpoints and opinions on issues of local, state and national levels. The writer can be contacted via email at:
raines@nencnews.com

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