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The recent mortgage crisis has people blaming greedy homeowners for borrowing more than the value of their homes or the banks for handing out loans like they were chewing gum.
There has been stupid decisions made by owners and lenders but the difficult thing is to figure out which bad loans are due to poor decisions and which are a result of good people who made good decisions but were bitten by outside influences.
Many people are looking to President Obama for help and for handouts. I have no problem with government programs that offer short-term assistance to people in genuine need. I do have a problem with long-term welfare and people who think they have a right to a home they can't afford and demanding the government pay for it.
The problem is firguring out who deserves help and depending on the government coming up with a reasonable plan to help without it costing 100 times more than it should because some senators will want to add a billion dollars in pork to any aide bill.
Here's two examples of people I know that have been foreclosed on and one story of how things could get out of control for two roommates that did everything correctly. (Names have been changed to protect the innocent. Actually, to prevent them embarrassment but I've always wanted a reason to say that old line.)
First, my friend "Ted" is married and has four kids. Ted and his wife worked and they bought a small home in Eastpointe about four years ago with a reasonable mortgage payment of $1,200 a month.
They were doing well until Ted was laid off. Things got worse when the city informed them their escrow was miscalculated and they underpaid for a couple of years and would have to pay for the mistake over the next two years. Also, they were informed their taxes were being raised as well. Suddenly, with a one-income home, Ted's family was facing a $1,600 a month payment.
An accounting error and the usual government attitude of "tax, tax, tax" put Ted's family in foreclosure and into a rental situation. After a long layoff, Ted found a well-paying job, which lasted about eight months. Then, the poor economy caused his employer to lay him off. The family is having trouble finding an affordable place to live.
Ted is someone who could use real help and not a handout. I think there should be programs designed to help people like Ted.
The next story is about my friend "Chuck."
Chuck owned a home in St. Clair Shores with a mortgage of about $80,000. His girlfriend decided they needed a bigger home so they bought one in New Baltimore for $225,000. It was a great deal because the former owner couldn't pay the mortgage and the bank was trying to dump the property.
In walks Chuck with an $18 an hour job and gets a $225,000 mortgage on top of the $80,000 he owes for his first home. His girlfriend was not on either mortgage so everything was based on Chuck's income. Speed up 10 months, Chuck let his first home be taken back by the bank, he and his girlfriend break up and he loses his New Baltimore home because he couldn't afford it and anyone with a basic knowledge of math could have seen that coming.
By the way, the bank never asked Chuck for proof of income when he bought the second home.
Chuck made bad decisions and should have known better and the bank that gave him a second mortgage was irresponsible and should not be bailed out for making stupid decisions.
I don't think people like Chuck should get government help. While Ted was a victim of circumstances, Chuck was a victim of a desire to live beyond his means.
The third story is about "Jack" and "Ralph", owners of a condo in Washington Twp.
In 2000, Jack was finishing college and Ralph was about three years into his career. They weren't making a lot of money but were able to afford $600 a month rent on an appartment. A friend of their's was looking to sell a condo for $91,000. Including condo fees, Ralph and Jack's monthly payment was about $750 a month. They rented their basement to a friend to make that financial burden even lighter.
During the past eight years, the tenant moved out but Jakc and Ralph moved up in their respective careers and were earning enough money to make their payments. They did refinance the condo two years ago to pay off some personal debt. They refinanced for $97,000 and the condo was appraised for $126,000. Jack and Ralph have always paid their bills on time and each had credit scores over 780.
Today, both Jack and Ralph have been laid off from their jobs and have few prospects in Michigan's stagnant economy. So far, unemployment has been making the bills because each one has little debt other than the mortgage. Both have taken huge hits on mutual funds and IRAs in recent months along with the rest of America and their savings has been dwindling as they try to pay for COBRA health coverage along with the regular cost of living. Because of health reasons, they both need to maintain medical coverage.
Also, a recent tax assessment was made by the township and the condo was valued at $86,000 because of the recent housing market plunge. They owe $93,000, Ralph told me.
They did everything right but the bad housing market and no jobs in the state are hurting Jack and Ralph. They planned to get their own homes but that is now off the table.
One or both can't just pack up and leave the state. They owe about $7,000 more than their condo is worth. The each could afford a $3,500 loss if they could sell their condo for what it is worth. They would have to sell under-performing mutual funds to do so, thus losing another $1,000, but they could get out of their condo free and clear IF they could sell it.
And that is a gigantic IF!
For now, Jack and Ralph are okay, but they can't afford another change in their circumstances. They needs jobs and if they have to leave the state to find work, they run the risk of having their condo foreclosed on. In their condo complex, there are several units that have been for sale for more than two years and several for rent that have been vacant for more than three years, so selling seems out of the question for now.
Jack and Ralph could use some help with COBRA payments to bridge the gap between jobs and that would help them keep their condo. The Stimulus Bill has a provision for such help but we'll see if that ever gets to the people who need it.
However, there is no government program that will allow them to leave Michigan to work elsewhere and not be penalized for losing their condo and there shouldn't be.
Jack and Ralph are not destitute but are forced to watch their spending. A little help could go a long way but the best thing for them is to have the economy rebound so they can find jobs in state. That way, they keep their condo and good credit.
The government does not have to provide everything for us but help should be there for those in need. Even the people who made bad decisions should be able to find some help.
However, all help should be temporary and not permanent, unless someone has a disability that prevents them from working. In those cases it would be nice to be able to offer that help.
The best form of help is jobs. Ted, Jack and Ralph would not need any government assitance if they had jobs. As for Chuck, he has a job and is taking care of himself just fine even though he has made some poor decisions.
Wow, jobs are the answer to our problems, not multi-trillion dolllar handouts.
I hope someone passes that nugget of info on to the government.
Until next time, enjoy Michigan.
