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Taking Care of the Deadbeats
By David Glenn Cox
The garage where I live has a concrete floor; the cold seeps right through your shoes and chills your feet. I’ve tried using an old shirt bundled up between my feet and the floor but the cold concrete mass seems to win out every time. I live in a garage because I don’t have a job and can’t seem to find one although I continue to look daily.
A new business opened up behind us; I saw the “Help Wanted” sign in the window. I went back at eight in the morning the following day. There was no one there, but I got their name and checked it out on their website. They were XYZ Home improvement Service and what they do is sell you their service and then they act as an intermediary with your home insurance company to identify hail damage on your roof.
Strange that, I thought, there was a hailstorm last summer, but with the torrential rains we’ve had this year how could anyone be that slow to identify roof damage? Unless, of course, the roof damage wasn’t really there in the first place. Home insurance companies are pliable. If you have a dead tree in the back yard and tell them it was hit by lighting, it's cheaper for them to pay out five or six hundred dollars to have the tree taken down than five grand when it falls and hits the house.
I worked with a man who did that when his hot water heater exploded he wasn’t happy that the insurance company would only pay to have the carpet cleaned. He insisted that they pay to replace the carpet, which they did, and boy, did he show them! Until his home insurance policy came up for renewal, and then, boy, did they show him! His premium soared as well as his deductible. Take it or leave it, fat boy!
This gave me insight into what XYZ Home Improvement Company was all about. You pay them, you get a new roof. They disappear and when your policy is up you get a new premium. This is what kind of jobs are out there. All you need is avarice, a ladder and a pickup truck, and I lack all three. Commission only, of course.
We have become a cockroach economy, an economy where we feed on each other. Title loans and “We Buy Gold” are feeding on the relics of our lost prosperity. I have been selling my possessions to stay alive, an electric guitar and amp, a projection TV, a car, and soon I will go sell my wedding ring. You don’t need a wedding ring when you don’t have a wife because you can’t keep a wife when you don’t have a house and you can’t have a house when you can’t find a job.
Last year there were two million eight hundred and twenty thousand home foreclosures in America. That’s about the average annual attendance for a major league baseball team with eighty-one home games. The year before saw two million five hundred thousand but next year they anticipate real growth in the field, expecting to top the three million mark.
The Bush administration, to their eternal detriment, decided early on to leave the banks in charge of their home mortgage rescue scheme. Criticisms abounded because when W left office only 1% of eligible homeowners had been offered a mortgage rescue. Thank God we voted for “Hope and Change.” The Obama administration moved quickly and decided to leave the banks in charge of their mortgage rescue scheme. Oh well, there’s still hope.
“U.S. lenders permanently modified 31,382 mortgages, or 1 percent, of the 4 million loans targeted under the Obama administration’s foreclosure prevention plan through November, the U.S. Treasury Department said last month. Fewer than half of the 3.2 million homeowners estimated as eligible for mortgage relief by the Treasury actually qualify, according to Herb Allison, assistant secretary for financial stability.”
I’m not unsympathetic to the Obama administration. My God, it would be a huge undertaking costing billions and billions of dollars, money that the government simply doesn’t have. And where would they find the staff to handle such a huge program for direct mortgage rescue? Where could they possibly find people knowledgeable in real estate? Nationwide they would probably have to employ thousands of people. At the very least it would be a risky undertaking, the government taking over the direct rescue of troubled loans.
It has only been tried once in our long and storied history as a nation. During the Great Depression the administration set up the Home Owners Loan Corporation. Founded in 1933 with $200 million in seed money and authorization to issue up to $2 billion in tax exempt bonds, HOLC would buy up the distressed mortgages from the bank and refinance them for a longer term at a lower fixed interest rate.
HOLC would finance up to 80% of assessed value for homes under $20,000, which in 1933 was a pretty nice house. The big bureaucratic government was swamped with applications, so many in fact that in the first two years of operation they were only able to rescue one million homes. During that time the price of homes stabilized from its prior plummet which in turn helped to rescue the banks holding the rest of those shaky mortgages.
I know, I know, I’m just a damned liberal anxious to spend someone else’s money to help a bunch of sniveling deadbeats, AKA the greatest generation. HOLC applicants were appointed a case manager who helped to funnel applicants into work programs like the WPA. They even made personal visits to the home because that’s how big, nosey governments operate. Especially when the money was geared to help people in the middle class who would have lost their homes in the free and private market.
Can you imagine how much this big spending program must have added to the national debt? Imagine, the federal government went out purchased almost 10% of all the mortgages in America.
“Obama’s loan-modification program is 'destined to fail' because it doesn’t confront the problem of negative equity that is driving foreclosures, Laurie Goodman, senior managing director at Amherst Securities Group LP, told Congress Dec. 8. Homeowners with negative equity, where a property is worth less than the loan, have little incentive to keep paying the mortgage and will strategically default.”
But where does negative equity come from? It comes from falling home prices. Why are the home prices falling? Due to the large numbers of foreclosed properties on the market. Will three million more foreclosures this year make it better or worse?
Under the Obama rescue plan, participating banks can earn from $1,000 up to $1,500 for every mortgage that they modify. Now, if you can go purchase a new home you can receive an $8,000 tax credit. So, like Cash for Clunkers, if you’ve got money and good credit you get a tax deduction, but if your mortgage is in trouble then the bank gets paid to help you and it all seems inverted somehow.
Over ten million homeowners have negative equity in their mortgage right now. That’s 23% of all mortgage holders, and so dire is the threat that a $200 billion credit line has been granted to Fannie Mae and Freddie Mac to keep them solvent because each mortgage that goes under makes your house worth less.
But I guess that it is a problem without a solution. After all, the Bush administration tried mortgage rescue and it didn’t work, and now the Obama administration is trying but it just doesn’t seem to work. Oh, what am I thinking? I forgot to tell you that astronomical number that the big spending liberal government spent to save the homes of over one million deadbeats. That number was “Zero,” not one thin dime; when HOLC was phased out in the 1950s, it returned a small surplus to the Treasury.
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