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February 25, 2009

Right Thinking About Upside Down Mortgages

Quote of the Day: “The whole reason we have elected officials is so we don’t have to think all the time.” — Homer Simpson

Subject: Right thinking about housing prices

Yesterday we called falling home prices “good news” because they’re helping to clear the housing glut. Some may quarrel with this — especially if they’ve watched their home value plummet. Our praise for falling real estate prices deserves more comment . . .

Two responsible DC Downsizers are affected differently by the housing market.
* One member of our Downsize DC Team has an “upside down mortgage.” He continues to pay it. He wants an end to the crisis. He views falling home prices as the precondition for rising value – sooner, rather than later. He also recognizes that Federal Reserve monetary policy is to blame for his situation.

* Another member of our Downsize DC Team has been saving to buy a home for a long time. He recognized that there was a housing bubble, and looked forward to the day when home prices would fall to realistic levels. He “hopes” to buy a home soon.

Both of these responsible men view real, free market prices as essential to their personal financial aspirations.

* The upside down mortgage holder sees the elimination of the current housing surplus as the way to higher values. Clear the excess and marginal home sales will start to occur at slightly higher prices. This is the only way the upside down mortgage can ever become right side up.

* The hopeful homeowner wants to pay the true value, not the bubble price created by the Federal Reserve and various government housing policies. The proposed government housing bailout will deny this DC Downsizer the ability to buy a home at a real market price.

Do you really think politicians can make this better? 

* Politicians lack power to help the upside down mortgage holder. The federal government couldn’t possibly borrow enough money to cover all the losses. Even the token attempts proposed by President Obama to stop foreclosures robs money from other people and other parts of the economy. This DC Downsizer’s only hope is that the housing glut will be allowed to clear, sooner rather than later.

* The hopeful home buyer is being robbed of the best opportunity to fulfill his dream by the politicians’ desire to rescue people who bought more housing than they could safely afford. This person’s prudence is being punished in order to reward the imprudence of others.

We reassert our claim: falling home prices are good news. Those who embrace liberty and reality understand . . .  

“Government is the great fiction through which everybody endeavors to live at the expense of everybody else” (Frederic Bastiat). 

* Should the upside-down homeowner who continues to pay his mortgage, bail out those who were irresponsible?

* Should the prudent man forgo his dream of home ownership right when it’s becoming a possibility, to help someone keep a house with an extra bedroom and bathroom they couldn’t afford?

Blame “predatory lenders” if you wish, but it’s hard to cheat the prudent. The irresponsible few over-extended themselves. The vast majority of Americans behaved responsibly and continued to pay their bills.

* The housing bailout threatens to harm the responsible majority for the benefit of the irresponsible minority.

* The housing bailout is UNFAIR to those who continue to pay their mortgage. 

Let’s go further. From Fannie Mae/Freddie Mac, to the Community Reinvestment Act, and so on, the politicians said affordable housing was a worthy political goal. Now, housing is becoming affordable, and they want to stop it?

The market process must be allowed to continue, unfettered. The housing bailout is bad news!
Despite both the injustice and economic stupidity of it, Congress plans to vote on the housing bailout tomorrow (Thursday). Today is probably the last day to express your disapproval.

We regret that we failed to provide the action link in yesterday’s Dispatch. We are correcting that oversight here. Please use our simple Educate the Powerful System to send Congress a message opposing this bad bill.

Use your personal comments to tell Congress that the bailout bill would reward the irresponsible minority while punishing Americans who have behaved prudently.

Jim Babka
President, Inc.

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