On Rick Santelli and People Who Reached Too Far On Homes

UPDATE:  02/24/2009 – In his semi-annual Humphrey-Hawkins testimony this morning, Fed Chairman “Helicopter” Ben Bernanke weighed in on this issue.  He gave the analogy of your neighbors house on fire because they were smoking in bed.  He said in this case, while you do not condone the bad behavior that led to the fire, you would be foolish not to put the fire out.  Oh, Bravo! Ben.  Let me give my own analogy.  What the illustrious academic chairman of the Fed is saying is that when looters have broken the window and are looting the store, you would be a fool not to join in.  For not only are the looters going to get to keep their ill-gotten gains, but the government is going to step in to pay the store owner to let the looters keep the loot and help them celan up the store and is going to charge the bystanders who did not loot higher taxes to pay for it.   That sounds fair

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By now many people are familiar with the minor uproar caused when Rick Santelli of CNBC directed a bit of criticism (click for the video) directly at President Obama over his Homeowner Affordability and Stability Plan.   I have seen three members of the Administration come out to address this.  First was Jared Bernstein, who basically just said it would not help house speculators or flippers, but failed to address the nub of the issue.  Second was Robert Gibbs, the White House Press Secretary.  He used the imprimatur of the bully pulpit to imply that Mr. Santelli was uninformed about the plan.  Third I saw some pimply faced kid claiming to be the HUD Secretary who got even more snippy, saying things like “perhaps Mr. Santelli is not aware there is a crisis going on” and such.

What is the nub of the problem with the Presidents plan?  The real problem is that the government seems to be proferring, through the Homeowner Stability Initiative, help to people who used the most outrageous kinds of mortgages to reach for homes they could not really afford and thus helped drive prices out of reach for those who saw the wisdom in not signing up for things like negative amortization because they had some inkling that might not be a good idea.

Mr. Gibbs seems to say in his response (click here for video) (or click here) that the plan “won’t help somebody who has long ago known they are in a house they cannot afford”.  He also derisively chides Mr. Santelli for not reading the presidents plan, and suggests he “download it, hit print and begin to read it”.

Well I have read what the White house has made available.  In Section 2 of the Executive Summary (Section 2A of the Fact Sheet)

… millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly if they received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative operates through a shared partnership to temporarily help those who commit to make reasonable monthly mortgage payments to stay in their homes …

The plan will do this by either having the lender reduce the interest rate or the principal (for 5 years) until the monthly mortgage payment reaches 31% of the borrowers monthly income.  In addition, the homeowner can get $1,000 per year for 5 years as incentive to stay current.  There are also some cash incentives for lenders.

So let me add a couple of examples that did not appear in the Housing Example Sheet provided by the White House.  I bought a house in Chicago in 2004 that WAS within my means.  It has a nice southern view, but to the north my neighbor is a chicken plant that makes a lousy neighbor.  But my payment is comfortably below 31% so presumably I do not qualify for assistance under the President’s plan.

I COULD have bought a place down by Lake Michigan if I had taken full advantage of something like a negative amortization mortgage where I only had to make partial interest payments (or if I had a “friend” like Tony Rezko to help me “find” a great property at a reasonable price as President Obama did, but alas I did not).  If I had done that, I would now be in a really beautiful home, but I would be staring down the barrel of the foreclosure gun…or would I?  Hey I would qualify for the President’s Plan!!!

So what happens to someone else just like me who bought their family the big house down by the lake?  Well hey, their monthly payment is probably 45% of their monthly income now that that low interest only payment has started to include all of the interest and some principal!  But here comes President Obama’s Homeowner Stability Initiative to help them stay in their home and reduce their payment back to 31% of their income!!!    Yeah!!!  They get to keep their awesome house near the lake while I as a result of my “prudence (stupidity?)” have to live 5 miles away from the lake near a chicken plant!  Bwah-ha-ha-ha-ha, what a chump.

Perhaps Mr. Gibbs and his master have forgotten the principal that underlies the American system of justice.  That principal is a principal of fairness; it is that similarly situated people be treated similarly under the law.  What the President is proposing is to treat similarly situated people differently under the law.  Not only that, but he proposes to treat the irresponsible people more generously than the responsible people.

Robert Gibbs is thus just lying when he says that the President’s plan will not help people who long ago realized they were in a house they could not afford.  He is at best misleading when he says that the Homeowner’s Stability Initiative will only help people who played by the rules.   The plan will use my tax dollars to help people who, while they technically might be said to have played by the rules, should have known better.   It is right there in the documents he chided the (sneer) derivatives trader to read.  Rick Santelli (who is a reporter on derivatives traders, not a derivatives trader – actually he reports on the bond market, something with which el Presidente will become familiar as rates explode due to the idiotic American Recovery and Reinvestment Act or stimulus plan but thats another story) is right to be outraged.  The Homeowners Stability Initiative will be outrageously unfair.  President Obama, are you listening ?

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