As I sit here watching the potential leadership of our nation debate the issues of today, I find myself in bewildered disgust. While I am certain a fan of neither candidate in toto, I am now completely against the Senator from Arizona. His thought on mortgage buys outs and fear mongering coupled with his annoying whistle when he speaks sends chills up my spine. While I am certain he brings volumes of experience, but he brings a twinge of insanity as well.
As I think back to my wife and I, when we sold our home near Philadelphia, we sold at a premium based on market demand. We sold to a young couple who were just starting out, and who took out a 100% mortgage on the property. Now, Amy and I knew at the time, that their collective income was no more than $50,000 per year, and that their mortgage payments would be somewhere in the neighborhood of $2,500 per month. Now, I am no mathematician, but I am certain that at this rate, with normal taxes and normal expenses, this couple would not be eating for the next thirty years. And they had their friend and mortgage broker to thank for it.
Senator McCain proposed this evening that couples like this would be bailed out by the federal government so that they could keep their home and get it at a discounted rate. Great plan, but let's look at what could happen.
The property was sold for $312,000 three years ago, with a 100% mortgage. Let's assume that this property now has a fair market value based on comparable properties and the tax assessor, of $250,000. The Senator proposed tonight that the federal government buys out the mortgage, at 312, and re-issues it for $250,000, the remaining balance (or something near that. Remember that the capital on many mortgages is relatively unaffected until year 5 or later on a 30 year mortgage.) So, the buyer of my old house now has a $62,000 gift from the federal government. Further, let's assume something else. Let's pretend that this bailout saves the economy. Huzzah! Now this property is worth 312 again. Or more. Does this couple repay this gift? Of course not. Let's pretend again that in ten years the property is worth $400,000. The couple now walks away with $150,000 from the party, thanks to our government. This is a blatant purchase of the vote.
Now, let's look at those this effects. This impacts people who bought homes, who simply could not afford it, and rather than wait or find a cheaper property, or have a commute longer than 30 minutes. Tough. Read my article on economic darwinism.
However, let's look at others who are in less dire straits. Let's assume you have a couple in Philadelphia who bought a $900,000 home 7 years ago. Let's assume they mortgaged it for 100%. Four years later, the property is worth $1MM and they refinance the mortgage for $990k to add a pool to the back. Nice place. I wish I lived there. Now the market tanks two years later, and their property is worth $700k. Do they get the benefit? What if the owner lost their job? What if they make $1MM per year? Does it matter? Probably not under the McCain plan. . .
Now, I am going back to the debates - To watch both of these guys not answer the questions. . .
The Senator from Arizona has taken a stance which will cost this nation hundreds of millions of dollars within days of his potential inauguration
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