Headline: 'Are You an Idiot to Keep Paying Your Mortgage?'
In today's "You've Got to be Kidding Me" moment, the San Francisco Chronicle advocated that folks who owe more on their mortgages than their homes are worth should stop making payments so they can qualify for a government bailout.
I'm not kidding.
Disgustingly titled "Are You an Idiot to Keep Paying Your Mortgage," the article actually instructed readers upside-down in their real estate the ins and outs of how they can transfer responsibility for their own investment mistakes to others (emphasis added throughout, picture courtesy The Economist):
Should you keep paying your mortgage?
If you have significant equity in your home, absolutely.
If you don't, it's getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.
Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.
Here's how it works:
To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home's value. It's fine if you owe more than it's worth.
Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.
If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment - including property taxes, insurance and association dues - to 38 percent of your gross income.
Here's the best part:
The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won't be expected to sell them to pay your mortgage.
Did you get that? So, a person may have taken out a loan against this house to buy other things, or may just have other assets, but they're NOT going to be required to liquidate anything to pay off what they owe on their primary residence.
Are you kidding me? How can the borrower's total assets NOT be part of the bailout equation?
Why should the tax dollars of folks NOT underwater in real estate be used to bailout folks who might have substantial, liquidatable assets to solve their own financial troubles without federal assistance?
What is happening to our country?
Sadly, this program seems destined for abuse:
Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.
"This is a once-in-a-lifetime opportunity," Schiff says. "People are going to feel like complete morons if they don't participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn't afford."
You're darned right Peter, but it gets worse:
Schiff predicts that loan agents "will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan."
The Chronicle even instructed people that this won't do too much damage to their future borrowing ability:
A 90-day delinquency will hurt your score, but not as badly as a foreclosure. How many points it takes off depends on other things in your credit file, such as the number and severity of late payments on other accounts.
In the latest version of FICO, which is just being rolled out, "one isolated delinquency will do less damage to your score than it has in the past," [Craig Watts, a spokesman for Fair Isaac, which markets the FICO credit score] says.
Consumers who suffer a severe delinquency can rebuild their scores over time by paying all credit accounts on time and keeping their balances low.
"If it was me and I was certain that I could keep my home even after missing a couple payments by working out a deal with the lender, I'd be for keeping the home," Watts says. "Your score will bounce back."
Schiff predicts that many homeowners will reach that conclusion and that the new program will cost Fannie and Freddie far more than expected.
And, as the government now owns Fannie and Freddie, that means this will cost you and me far more than expected.
What's happening to our country?