#1 Does it pay to play by the rules?
12-21-2008, 02:48 PM
- Join Date
- Aug 2005
Everywhere you look these days, someone is being rewarded for bad behavior.
Wall Street bankers, hedge fund managers, mortgage lenders, even homeowners who knowingly bought homes they couldn't afford -- all have abandoned the moral high ground and are now heading down to bailout town, where the fat cats dine.
With bailouts seemingly blowing in the wind, it's hard not to feel like a chump for being fiscally responsible.
Does it still pay to play by the rules?
Peter Schiff, president and chief global strategist of Connecticut-based brokerage firm Euro Pacific Capital, believes government policies are undermining people who behave well, while rewarding those who are irresponsible.
The government is sending out the wrong message by letting everyone involved in this financial folly -- lenders and borrowers alike -- escape the consequences of their actions, says Schiff.
"People say, 'Oh, this isn't fair that people have to suffer,'" he says. "Well, yes it is; they made their bed, now they have to lie in it."
No price to pay
Schiff is author of the 2007 book "Crash Proof: How to Profit From the Coming Economic Collapse." He was among a handful of pundits and economists who correctly forecast the current financial meltdown.
To illustrate his argument for how the government rewards bad behavior, Schiff cites the example of the Streamlined Modification Program, or SMP. The SMP is a recently implemented joint effort on the part of the private sector and the federal government to bring mortgage payments for some delinquent homeowners to below 38 percent of monthly household income.
“What the government is saying with the bailout is, 'be irresponsible, be reckless, and you'll get rewarded.'” Under the SMP, struggling homeowners who are 90 days or more late on their mortgage payments -- and whose loans are owned by Freddie Mac, Fannie Mae or participating lenders and servicers -- are eligible to have their loan restructured to reduce their monthly mortgage payments. Restructuring could include lowering a homeowner's mortgage rate and increasing the length of the loan term to up to 40 years.
"If by not paying your mortgage for three months you could qualify for a mortgage modification that would lower your mortgage payment for the next 30 or 40 years, wouldn't you at least be tempted?" Schiff asks.
Life's rules say that if you earn and save, one day you'll be able to buy a house. But Schiff notes that under the SMP's goal of reducing mortgage payments below 38 percent of gross income, the less you earn, the lower your mortgage payment will go.
"What does that say?" he asks. "It says that if I'm earning $100,000 a year right now and can cut my income to $50,000 a year, my mortgage payment is going to be half as much. Over a 30- or 40-year mortgage, that could be a $500,000 to a $1 million handout."
It is important to note that as part of SMP, homeowners whose mortgage rates are cut especially sharply early in the program could see their rates increased somewhat after a set period of time.
Proponents of the SMP also argue it has provisions to discourage opportunists. Homeowners must provide proof of having suffered a hardship, such as a job loss. Those who participate in the program also must sign a form stating that they didn't deliberately default on their mortgage simply to qualify for the benefit.
12-21-2008, 04:45 PM
Typical government response---like someone is going to say that I deliberately defaulted. I'll admit that this gets me sick. I bought a house that I could afford, paid it off, yet the grasshoppers of the world are rewarded while the hard working ants look like a chump.
12-21-2008, 05:33 PM
- Join Date
- May 2008
It really pisses me off with all of the bailouts. Next it will be states like NY and CA coming to DC with their hand out. The fat cats like R. Rubin of CITI will come out smelling like a rose. I read where he will not be accepting his multi-million dollar bonus this year. That's mighty white of him after screwing the employees and stockholders out of millions/billions.
The homeowner that does not pay his or her mortgage on time or just walks away is not home free without financial consequences though. Their credit score will drop like a rock and that will affect many of their financial dealings. For example, a bank would not lend them a dime. So, they will have to go to a finance company for a loan at a rate of 30% + . Their credit card interest rates would probably escalate. They may have trouble renting. Bad credit score affects car insurance rates.
|« Previous Thread | Next Thread »|