Sunday, May 17, 2009

So Why Should We Bail Out Homeowners?

I am going to take a second to pose the question that I have been thinking over the past few weeks with regard to the proposed bail out of homeowners who now owe more than their home is worth. I understand that it's politically popular to help out people who might lose their homes, but to that I reply -- so what? It happens. At the risk of sounding heartless, I'll explain my position.

1) You should have bought your home to LIVE IN.

So if you did, then it shouldn't matter if you now can't sell it for more than you owe. It's called a paper loss. By the time you sell the house it might be worth more. That happens over the course of a 15 or 30 year mortgage. The bank isn't going to call its loan unless you stop paying, plain and simple.

2) You probably more than you could afford.

I acknowledge that bad luck befalls some people who have medical problems or other situations that arise unforeseen. If your gross income is $3,600 / mo and your mortgage is $3,500 a month, you weren't meant to be in that house in the first place.

3) The bank has the right to take your house if you don't pay.

When you sign a note and mortgage at a bank and close on the purchase of a home title passes to you from the previous owner. If you read the documents carefully, you should have realized that you granted the lender (and whoever the lender sells your mortgage to) a security interest in the property. This means you told them they could take the property if you don't pay. That security interest is also probably the ONLY reason a bank was willing to loan you money, because the bank knew it could get something if you decided to default on your loan.

4) Consumer protection laws are already stacked in the homeowner's favor.

When someone gets foreclosed on it is not a surprise. The process goes a little like this in most US jurisdictions. First, you get written notice that you haven't been paying your bills (which you should already be aware of). Second, the bank has to initiate a legal action which costs money and takes time (again the home owner is notified). Third, the legal action is completed and the house goes to sheriff's sale (again notices given to owner). Fourth, the sheriff's sale takes place after notices are posted and/or published in the paper. Fifth, the sale takes place. Sixth, the sale is "confirmed" by the judge (after notice to the owner). There is generally also a redemption period somewhere in that mix allowing the owner to catch up on any late payments. The whole process can take up to a year and this whole time the home "owner" is living there paying no rent, making no payments to the bank, and generally trashing the place.

5) Owning a home is not a right.

Take a look at the bill of rights, then read up on what they actually mean. People who claim that taking away a home (which they granted the bank an interest in and after they stop paying) is a violation of their rights, are like the people who you see on COPS screaming that the police are violating their Miranda rights (note: they don't apply until you are actually arrested). They don't quite get it.