How Taxpayers are Making Your Home Affordable

March 6, 2009 by  
Filed under Debt and Credit

The Treasury Department this week released more information about Obama’s “Making Home Affordable”  program.  It should be called the “The Taxpayers are Making Your Home Affordable Because You Won’t” program.

Mr. ToughMoneyLove has a few comments.

First, I don’t want to hear about how heartless I am because of all the unemployed homeowners who have no income to pay their mortgages.  This program will not help them unless they manage to lie about being unemployed.  (That will probably be another program that we haven’t been told about yet.  It depends on how many voters the government can sign up with this first program.  It is all about securing votes, after all.)

If your total debt load (including credit cards, student loans, and car loans) exceeds 55% of your income, you can still have the taxpayers rescue you.  All you need to do is “promise” that you will get financial counseling.  You don’t have to shed any of that other debt,  You don’t have to receive the counseling first, just promise.  What is the government going to do if the promise is broken – take their sweet new loan away?  Please – don’t even bother with promises.  This is a joke.

You do not have to be behind on your payments.  You just have to show that due to lower income or increased expenses you won’t be able to pay your mortgage.  That should be easy to do.  Go out and buy a new car (thereby increasing your monthly expenses), then have the taxpayers help lower your mortgage payment to compensate.  A fantastic way to encourage financial responsibility.  Will it be long before we hear car salesman pitching this strategy in the showroom?

So how does one establish that he or she can’t afford an existing mortgage payment and needs taxpayer help?  Easy – just sign an “affidavit of financial hardship.”  Welcome to “Liar’s Loans – The Sequel.”  Don’t tell me no one will lie about this.  There are plenty of incentives, including getting $5,000 in taxpayer dollars to pay down your principal just for making payments on time.  This is also part of the program.

Oh, and remember those ridiculous sub-prime loans that bubble buyers in California and elsewhere jumped all over in 2006?  The loans that were interest-only and/or with 40 year amortization schedules?  Lenders are free to use those loans under the program to get the payments down.  Welcome to “I’ll Never Build Equity – The Sequel.”

The program guidelines state that your loan principal cannot exceed 105% of the property value.  The problem is that a “broker price opinion” can be used to value the property.  It shouldn’t be difficult to shop around for a real estate broker willing to give you the opinion you need.   I can see unemployed brokers developing a side-income stream just providing these opinions.

Finally – this is the worst part that I don’t hear anyone talking about.  The guidelines state that taxpayer money will be paid to lenders and borrowers to facilitate short sales (for those loans that can’t be modified), pay-off second mortgages and HELOCS, and compensate the lender if the property depreciates.  Are you kidding me?   My money to pay your HELOC?  May I send a moving truck over to get you in a rental that you can afford instead?

The hard truth is that this program is even worse than I could have imagined.  The fall-out from this disaster will be felt for years to come.


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16 Responses to “How Taxpayers are Making Your Home Affordable”
  1. 100% agree! This is a program my grandchildren will be paying for and I don’t even have grandchildren yet. This is the biggest example of rewarding bad behavior that I have seen. Once again, more reason that we should all get behind Fair Tax!

  2. I’m on board with you, TML. The programs coming out of Obama’s spendulus package have some of the most ridiculous terms and objectives. I couldn’t have even imagined some of the ideas they’ve come up with as a solution to the problems we have.

    Almost everything they’re doing in D.C. is just going to continue to reward and encourage the stupid and bad behavior that got us to this point in the first place…

  3. Kacie says:

    I’m so mad. This is ridiculous!

    I’m trying to be responsible with my money. I’m on target for paying off my last debt (a car loan) in just a few months. I have a 6-month emergency fund.

    And I’m a renter. Why? Because I can’t afford a house. So I live in an apartment.

    There is absolutely nothing wrong with renting! In fact, it’s really convenient and affordable for my family.

    I’m sick of so many people thinking they need to be in a house. They say they’re home “owners.” Puh. The lender owns your house, fool.

    I’m not even going to think about buying a house until I can put a hefty down payment on it.

    So it’s really crappy that as a taxpayer, I have to help out people who have extended themselves beyond belief.

    I agree with you — let’s send moving vans to these people instead and get them into rental properties that they can actually afford.

  4. Chrysta says:

    Hmm. Whatever happened to the laissez-faire policy that the Fed used to uphold, I wonder? I don’t think we’ve ever seen government meddling on this scale before (well, in the U.S., at least).

  5. MasterPo says:

    110% agree!!

    This is total BS!! My wife and I struggle to make the morgage every month and no one is going to bail us out!! Even if we did get late or stop payments I guarantee we wouldn’t qualify for whatever these programs are!!

    If we allow this to happen with mortgages then why not cars too? Gotta get to work, to the doctor, to the supermarket.

    For that matter, why not student loans, credit cards – oh hell, just take money and who cares about paying it back!

  6. Tom says:

    This program is insane and doesn’t fix the fundamental problems.

  7. K-money says:

    Oh, this is making me so sad. How about asking Americans to hold onto their honor and live up to their obligations? That was Change I believed in.

  8. Bekki says:

    I find this infuriating.

    My husband and I each had debt (student and consumer) when we got married, and unfortunately, we aquired more during our first year of marriage because we stupidly felt that it was the only way to survive.

    One year later, my husband ended up with a much better job and a roughly 100% increase in salary.

    At the time, we could have bought ourselves a home with a bad mortgage (adjustable rates, no money down), but we decided instead to use that extra money to build savings and pay off debt.

    Now here we are, mere months away from being 100% debt-free, and now the government is teling me that I have to bail out people who weren’t smart enough to resist those loans?!

    It feels very much like we’re being punished for being responsible with our money. Had we gone for one of those mortgages a couple years ago, we would likely be getting bailed out right now, too!

    How are we supposed to save up a 20% down payment for a house when we have to shell it all out in taxes to help other people who couldn’t act responsibly?

  9. I feel like the rest of the responsible citizens and companies left in the States have to clean up after errant adults who have seemed to have run around pooping all over the floors and flinging food at walls without concern about the mess they were creating.

    Felt a bit sick reading your post, and I agree with you 100%.

    I also feel like these people should pay for their mistakes (companies and people alike). If they couldn’t afford the mortgage to begin with, then they can’t afford a house in that area and need to move.

    Maybe, 50% of Americans would have to rent for the rest of their lives based on my logic, but that’s the way the cookie crumbles and so be it.

    Not everyone can own property in NY, Boston, or SF. It just isn’t in the cards if you plan on staying in that city.

    Everyone just feels too entitled to the American Dream.

  10. I have to agree with you, TML. I never thought that I’d be subsidizing irresponsible people for their pipe dreams. It took a long time for my family to get out of debt. It also required sacrifice. I don’t see the sacrifices that the bailed-out people are making.

  11. kitty says:

    I think most responsible people don’t like to subsidize those who bought homes they couldn’t afford. I paid off my mortgage a few years ago. I also have always bought properties I could afford, and have paid my bills on time.

    But I am also sick of watching the market drop every day. I lost about 20% of my money last year, and more this year, and it is a large amount. Many friends of mine – all responsible people – lost their jobs, and I am worried about mine. If stemming the tide of foreclosures is going to help the economy, then I am willing to give it a chance – it just may be cheaper to help some of these people than let more houses foreclose. I don’t know if it’ll help, I do have my doubts about it, but I am willing to give it a chance.

    Also, since I own a (townhouse) condo, I am aware of how foreclosures in a condo complex can affect very responsible neighbors. With houses, the foreclosures simply affect the value of other houses. With condos, the responsible owners who are left may face an assessment, a considerably higher common charges, or inability to get anything done. My complex is fine for now as NY state hasn’t yet been affected as much, but there are a lot of condo owners that live in complexes where there is a number of foreclosures. If they do, foreclosures in a subset of units can result in significantly higher bills for other owners – many of them very responsible – and may lead to more foreclosures. If bailing out irresponsible owners help their responsible neighbors, I can see some merit in it.

    I am not sure this would help, I have my doubts. I’d much rather they concentrated on buying up toxic assets – something they seem to be dragging up their feet about – or if they (finally) did something about mark-to-market. But maybe stemming the tide of foreclosures a bit will help too. I am willing to forgo my rightful indignation, if this plan helps the economy and our jobs.

  12. I appreciate all of the comments here, most of which seem to express feelings similar to my own.

    Kitty: I understand your concerns about foreclosure effects spilling over into neighboring properties. But what evidence is there that government bailout programs will do anything other than prolong the pain and delay the recovery. It is all too artificial. Also, I have no confidence that rescuing people from their own irresponsibility will cause them to become responsible. Some would argue that we are simply enabling them. In fact, that thought has inspired me to write something about the government as enablers of bad money decisions.

  13. I’m with Kitty: the foreclosures around my paid-off house and my son’s modestly priced house are pushing our property values down to below what they were before the bubble started to inflate. And the result of the economic collapse occurring just as I’m on the cusp of retirement very likely means that I will never be able to retire…period. Luckily I didn’t retire when I planned to, a year ago. I now expect to work until I die, or until they throw me out of the place. It’s not a prospect I relish.

    Am I thrilled about the government having to put the next six generations or so into hock to try to revive the economy? Heck, no. But something needs to be done; the alternative is worse.

  14. Louise Rimel says:

    I am a homeowner. Unfortunatley when we purchased our home my husbands job seem to be very stable and we were doing just fine. I do not work and am on disability due to a serious injury. My husbands work became very unstable fortunatley he still has a job. But his hours have been cut drastically at times causing us to fall behind. I agree with what you are saying but we have tried to refinance but because of where we live our home has dropped at least 11,000 dollars from what we payed for it so now what do we do. We have exhausted our savings in trying to keep up. We have worked very hard to keep our home and by the way it was very much in our bugdet when we first purchased so now what do we do without help just let the bank take it back so that it can sit empty for months for anyone can afford to purchase it or the bank has to sell it for what it is worth which at the time is not very much. I know that there are allot of irresponsible people out there who have bought homes way above what they can afford. But we are not one of them.

  15. One of the things I found interesting from the plan was that if you prove hardship (not hard as mentioned above) you can have your interest rate reduced to as low as 2%. If that STILL isn’t enough to make the home “affordable”, your loan term can be extended to up to 40 years, part of the loan deferred and/or forgiven.

    Let’s be honest here, if someone’s loan isn’t affordable at 2% interest, they’re in a house that is way more than they should have bought. I have a hard time helping out people who got in over their heads due to their own fiscal mismanagement.

    Will I take advantage of the refinance program if I can? You bet! May as well try to recoup some of my lost tax dollars!

  16. Sherry says:

    I agree that many people are going to break the rules….however, I use to work, had all of my bills paid accept for my home and one low balance credit card….life was looking pretty good…that is until some low life DRUNK ran into me while I sat at a RED light…yep, he broke my neck and back.

    Did he have insurance? Sure $15,000 but did my three major surgeries cost only $15,000? Let’s try almost $1,000,000.00 of which my insurance paid $100.000.00….the rest I had to desolved my pension, sell anything of value, ect. ect….

    I would have sold my home but for three years, I was so drugged up on pain pills…I don’t remember most of that time…so here I am..now starting to reduce my med’s, but can no longer work due to the pain and disabilities I have to live (truly it’s exitist with).

    So, I applied for President Obama’s “Making Home Affordable”…frist I was told I did not have a fannie May or Freddie Mac so I did not qualify…but I kept begging and finally March of this year I was Qualified for a Permanant Loan Modification and told I would receive my loan doc’s with thirty (30) days….what I received from Bank of America instead was a letter thanking me for making my trail period payments (from my Social Security funds…$671) and notifing me that the Qualified Letter I received was a mistake…now I do not qualify and I have a very short period to bring my payments up to date or they are going to foreclose on me…

    If they do that, I will become one of the thousands upon thousands of DISABLED HOMELESS HERE IN AMERICA….I’m terrified!!! Thanks Bank of America for taking our tax payers money (of which I was one) collecting interest on it and not approving American Citizens that really need help to stay in my home as I can not qualify for an apartment nor HUD housing because the list is ssoooooooooooooooooooooooooooooooooooooooooo Longgggggggggggggggggggg

    Any ideas?

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