Archives For Housing Crisis

FHA Raising Its Premiums

August 28, 2008

Saw this in yesterday’s Wall Street Journal.

Beginning October 1, the FHA’s upfront premium charged to most borrowers will increase to 1.75% from its current 1.5%. The WSJ gave an example that the upfront premium on a $300,000 loan will be $5,250, which is $750 higher than the old premium. The annual premiums will remain at 0.50% to 0.55% of the loan balance.

I found the last part of the article ($) quite interesting as it echoed a lot of the thoughts coming from me and the readers of this blog. Check this out (emphasis mine):

Congress has given the FHA a prime role in backing new, more affordable loans for people who are struggling with their current mortgages. Those refinances are likely to be risky because borrowers who are rescued once often fall behind again later.

Let me repeat that:

BORROWERS WHO ARE RESCUED ONCE OFTEN FALL BEHIND AGAIN LATER!!!!

This makes perfect sense when you think about it. Think about a kid who constantly gets into trouble and gets bailed out by mommy and daddy—only this time the kid is a borrower and mommy and daddy is the U.S. taxpayer.

It’s time to cut those apron strings.

Most of the comments on my last post were in agreement with my point of view. But, there was one comment that I want to highlight. It follows:

I suppose I am one of the irresponsible home buyers. I purchased my home 3 years ago (at the high) I now realize I payed too much, because the value has come down. I also have a 3 year ARM with IndyMac which is due to reset soon. So, being able to refinance with the governments help is essential. For the past year I have been trying to refinance my home into a conventional 30 year. It has been impossible because the 20% I put down has disappeared. Actually my home value is down close to 25%. No bank wants to touch me. I am one of the homeowners with an upside down mortgage. I obviously regret not getting a conventional loan in the first place. But I can’t second guess myself now. What I need to do is refinance and the government is making it affordable for me to do just that.

For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.

I truly believe people are not in this housing predicament because they are reckless with their financing.

I for one pay all my bills and will continue to do so. I intend to continue to stay in my home with the help of the government. That is what our government is for. I have paid into the system for the past 20 years, my hard earned tax dollars are finally helping me. I will not regret it one bit.

Where do I start?

“I intend to continue to stay in my home with the help of the government. That is what our government is for,”

What she is REALLY saying: “I intend to continue to stay in my home with the help of my fellow taxpayers. That is what my fellow taxpayers are for.”

THAT IS NOT WHAT YOUR FELLOW TAXPAYERS ARE FOR! We are not here to support people who make bad decisions.

“I truly believe people are not in this housing predicament because they are reckless with their financing.”

I believe this is EXACTLY why people are in this housing predicament. People got into this mess thinking that housing prices would continue to go up and that they could refinance whenever it became necessary. They were counting on two things:

1. Housing prices would continue to rise.

2. Lenders would continue to lend at favorable rates.

They took a gamble and they lost.

Look, I feel bad for this person. She bought her house at the wrong time and with the wrong type of loan. But, she got herself into this mess and it should be up to her to right the situation—even if it means losing her house.

Lastly, she says…

“For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.”

So, lots of people didn’t think ahead and now responsible people are being accused of not looking ahead. Interesting… Yes, prices may drop but they will eventually even out as new buyers will emerge (law of supply and demand). It’s not going to be the end of the world.

When my wife and I bought our house nearly nine years ago, we made sure to buy a house we could afford. No, it wasn’t our dreamhouse. In fact, we drove by it several times before we decided to give it a look. It needed tons of updating, which we could not afford to do right off the bat. But, we bought it anyway. Why? Because it was the house we could AFFORD!

We were “informed” that we could afford a much larger mortgage than the one we needed but the thought of spending more just because our mortgage broker told us we could afford more, was just stupid. So, we bought our house and lived in it for years before we started making it into the house we wanted. In other words, we practiced PATIENCE!

So, as a responsible, tax-paying citizen of the United States of America, I find it offensive that our goverment is bending over backwards to keep irresponsible people in houses they can’t afford. Our government’s actions are a slap in the face of every responsible citizen who did things the right way.

Seriously, what kind of fairyland do we live in when a person can take out a mortgage on a piece of property and then when things turn sour, get ANOTHER smaller more-favorable loan on that same property? Besides, who’s to say that these borrowers will be able to afford even these new loans? What then? Just give them the house?

Where does it end?

My solution will hurt but it’s what’s best in the long run:

LET PEOPLE (and companies) FAIL! Let people lose their homes. They can rent an apartment for a few years until they can get back on their feet. Let those who actually practiced prudence and saved their money for a house while living in an apartment buy these foreclosed properties. Eventually the prices will come down enough to attract buyers.

When companies fail because of stupidity, go after their executives and take everything from them. An executive of a failed company should not be allowed to keep his spoils. Allowing them to do so, just sets a precident for everyone else to beg for government intervention. Executives and companies should not be allowed to ride the coattails of capitalism when it favors them and then request taxpayer help when things turn sour.

Maybe we need a new political party called The Responsibility Party!