Advice We Don’t Need

There’s nothing like having the Europeans tell us how to handle our housing crisis. “But as the housing bubble deflates, it also drags innocent victims into a wave of foreclosures” they crow! Please. What innocent victims are being dragged into a wave of foreclosures? Either you can afford the house you live in or you can’t. If you have a house payment that’s more than 28% or so of your monthly income, you’re probably not so innocent. You bought a house you can’t afford. Just because you now lost your job doesn’t make you any less innocent.

If you don’t have a rainy day fund of around 6 months expenses, you probably aren’t so innocent. You probably spend more than you save. That article makes it seem like thousands of people who are the epitome of financial purity are about to be foreclosed upon and I find that ridiculous. Sure there are some out there who played by the rules and just have had a string of bad luck. But $275 billion worth of mortgages in that category? I seriously doubt it.

This bill plunges $200 billion back into Freddie and Fannie who have already proven to be poor stewards of the public’s trust. They are allowed now to finance up to 105 percent of a home’s value. That sounds like a fantastic idea. Really it does.

“But the plan is well targeted: the administration aims to contain the fallout, not to keep everyone in their home. The plan helps only those with a reasonable chance to retain their house.” How can people who have a debt-to-income ratio of more than 38% realistically have a chance of keeping their house? That’s a full 10% over the accepted norms and doesn’t even begin to take into account the overall debt ratio that includes other debt payments like cars and credit cards. These people don’t have a reasonable chance.

Most crucially, fighting foreclosures is a political imperative. The administration needs a lot more money to save the US banking system – money that will be forthcoming only from voters who feel they, and not just Wall Street, are being rescued. This plan may help win them over. At $275bn, that seems like a bargain.

Finally we get the real meat. Like all government handouts, it’s a way to slip future ones by us without us noticing. For that, the Europeans probably are the ones that ought to be giving us advice.

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