Monday, February 16, 2009

Should I Have Intentionally Gone Broke?

I just received the good news! Our application to refinance our home mortgage has been approved, and the closing papers are in the mail! This is happening despite the fact that I am grossly underemployed and loans have been scarce to come by. Robin and I managed to get the loan (30-year conventional, 4.75% plus one point) because we have excellent credit, and because we have a good bit of equity in our home - at least 40 percent of its value.

We have been responsible over the years with our money. We pay our bills on time. We've been careful to pay off our credit card bill every month, and we've never had more than one car loan at any one time. We've taken plenty of expensive vacations, but they've never been paid for by credit card - we've always saved up for them in advance. To put it simply, we haven't spent over our heads, and we've been rewarded by earning the ability to acquire loans at excellent rates. All of which makes me wary of what's going to happen on Wednesday.

That's when President Obama will be announcing his plan to help Americans who are at risk of foreclosure to keep their homes. It's not yet clear exactly what the President will be announcing, but according to the Associated Press, this is how it is expected to go:

A Democratic Senate aide said the plan is likely to include hefty payments designed to encourage the lending industry to lower mortgage rates or reduce the total principal amount owed by borrowers. The idea has become attractive to Obama officials, the aide said Friday, because it is expected to be far less expensive than having the government buy up loans out of mortgage-linked securities.

Howard Glaser, a mortgage industry consultant who served in the Clinton administration, said if 2 million borrowers' payments were lowered by $500 a month, it would cost the government and lenders $6 billion each per year — assuming lenders match half the cost.

Unlike previous loan modification plans, borrowers would not have to be in default to qualify, according to people briefed on the plan.

I don't want to put the cart before the horse, but if this story is correct, it sounds like the government will refinance the homes of people who were at risk of foreclosure, and lower their home payments by hundreds of dollars a month. People who bit off more than they could chew, and purchased homes they could not afford will be getting the same break that I just got - The break that I earned with my good credit and that I paid for with several thousand dollars in closing costs!

I hope the report is wrong and that I am wrong. But if the report is right and so am I, then SOMEONE is going to have to explain to me why I just spent my entire adult life trying to do the right thing with my credit. Is the government going to compensate me, too? I don't want the government's money, but if it IS going to help these at-risk homeowners, then that help needs to come at an equitable price. Any government aid should become an investment in the home. If the home is sold down the road, Uncle Sam should get its piece of the equity back, with interest.

And if the government wants to knock a hundred grand off the cost of my new loan, that would be OK, too! (Not really, but you get my point!)

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