September 25, 2008
Nancy and Billy bought a new home in Central Florida two years ago for $349,000 paying $35,000 down (their life savings) and financing the balance with an adjustable rate mortgage. Today, the home appraises for a mere $229,000—a 30 percent market drop in two years. These Florida homeowners are upside down and there is no relief sight—sadly, they are typical. Now, Nancy has been laid off from her job and this couple is trying (unsuccessfully) to make ends meet. Like many of their neighbors they have quit paying their mortgage, have been served with foreclosure papers and are preparing to walk away from their home. The rows of “for sale” signs are sad evidence that there are no prospective buyers on the horizon, and even if there were, how does one sell a home in this situation?
Do Republicans fail to see the tragedy in this scenario? Do they believe this is a fine example of how the free market works for good in America? If so, they stand to be severely punished in November.
The Democrats seem to get it and are pushing for legislation to allow Nancy and Billy to seek relief from a bankruptcy judge to “cram down” the mortgage debt to the true value of the property and modify the payment schedule accordingly. In the Democratic scenario Nancy and Billy obtain relief from bankruptcy court reducing the debt on their home to $229,000 and resetting their amortization schedule to reasonable market interest for 30 years fixed rate. Proponents say this will stem the tide of foreclosures and keep Americans in their homes. Opponents say that banks will only pass the loss on as higher loan interest rates and tighter lending guidelines.
Paulson brushed this approach aside and told us to trust him to do the right thing for Nancy and Billy. After he has the power, then he will make concessions to financially stressed homeowners. Republicans in Congress are resisting such relief because they are apparently more sympathetic to the National Bankers Association than the thousands of hard working Nancys and Billys who, unlike the “too large to fail” financial institutions, are the true victims of the economic crisis.
The concept that the Republicans are against mortgage restructuring for the “little guy” verges on the “let them eat cake” mentality. Yes, ACORN and other Democratically-aligned groups are pushing mortgage relief, but for once the Republicans should hold their nose and do something for the people who will be paying for the bailout—Nancy and Billy.
It is a legitimate question to ask President Bush, the Republicans in Congress and, yes, John McCain: Why are homeowners who have no control over the vicissitudes of the real estate market punished, and the Wall St. tycoons who are now being investigated by the FBI are being bailed out? The Democrats and their enablers, like the Chicago Tribune, will continue to loudly ask, “Who Will Bail Out American Families?” The New York Times will proclaim, “Housing Experts Say Bailout Proposal May Do Little for Homeowners.”
As President Bush said in his statement on the economy, “America’s economy is facing unprecedented challenges, and we are responding with unprecedented action.” As a result, the Republicans, and McCain in particular, had better start showing some unprecedented compassion for homeowners so that Americans can believe that they care more about Main Street than Wall Street.
McCain’s bold statement yesterday, deciding to press pause on his campaign and return to Washington to deal with the financial crisis may indicate a positive direction. Nancy and Billy will be watching.