Loan Modification Program: My resignation from financial responsibility

Our nation has been facing for more than a year now, one of the worst housing price decreases in history. Yet for some reason, many people seem to be confusing how this happened.

Let me give you an example. Obama has structured a Loan Modification program for individuals suffering “financial hardship” but desire to keep their home. U.S. News last March aptly described 7 key facets of the program. Apparently, homes worth up to $729,750 are eligible for the program. Last time I checked, a 3/4 of a MILLION dollars home is only a home that someone with a large, stable income should purchase.

But for some reason, that isn’t part of the American Dream. The American Dream has become to acquire big homes and toys incurring insurmountable debt. The Loan Modification program adjusts the interest rate on homes facing default down to 2%. If that is not enough, then the term of the loan is extended to 40 years. If that is still not enough, then the bank stops charging interest.

The goal of the program is to lower the monthly payment to 31% (actually 38% and the government, i.e. taxpayers, pay down the other 7%) of the individual’s gross monthly income.

How did we actually end up with this problem?

I recognize that regardless of how we arrived here, we are here either way. But let’s be honest for a moment. The interest rate is not the problem, neither are falling home prices. Irresponsible and hasty adults purchased homes that they could have never feasibly afforded and greedy banks made the loans.

Warren Buffett echoed my sentiments when he stated, “Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay.”

I once heard a banker describe the situation from the banker’s perspective. He explained that banks made the loans based on two erroneous assumptions. Assumption #1 – Owning a home is the American Dream and no one would ever default on the American Dream. Assumption #2 – Even if the value of the home is less than the size of the loan, home prices always go up and the home won’t be under water for long.

Well my friend, Americans are just mini-businesses. When expenses exceed income, then home owners chose to close up shop and foreclose.

This is the point where I say, “Is this a sick joke?!”

Let me make sure I understand this correctly. I carefully analyzed my financial situation and purchased a home that I can afford without financial stress. Now, 1000s of irresponsible home owners are going to financially benefit from being careless, greedy, or both.

For example, one of our neighbors qualifies for the Loan Modification program. In fact, it will lower their monthly payment so much, that they are going to buy and move into a second larger home and profitably rent out the first. Now do not forget that we are paying for that 7% decrease. I’m pretty sure that’s just not right. (Caveat: I don’t think they’ll ever qualify for the second mortgage)

The Real American Dream – We started a business

Last year, my wife and I were facing some unexpected bills. Instead of turning to the government and taxpayers, we started a business. We were able to pay for all of our needs and are expecting a good second year. That’s the American Dream – the ability to change your situation if you work hard.

So this is my resignation from responsibility. Why should I work hard, pay my taxes, make good decisions, and watch while others benefit from irresponsibility?

Isn’t this eerily like middle school?

I feel like I’m in middle school again. I was always amazed that the delinquents, the kids skipping classes and starting fights always had privileges and praises that the good kids never received. I recall a program that allowed poor performing kids to slightly raise their GPA and then receive public awards and rewards for mediocrity. Or remember the rebel or football player with a D average that always dated the cheerleaders. He used each one of them and then moved onto the next.

Why is our welfare system structured after the social intricacies of pubescent 15 year olds?

So I’m done. I’m done producing. I’m done being responsible. Why not simply do whatever I want and then wait for a social program to be structured to remove the consequences of my actions? Welcome to the new American Dream.