Refinancing deadbeats who have taken out more debt than they can afford is proving to be a folly. Over half of those homeowners that had their loans reworked and given more favorable terms are falling behind on payments again according to banking regulators. And while some complain that many of the loans were not substantially lowered as an excuse, that really misses the point of this little exercise. That is, you can keep putting water in an empty glass, but until you understand why the glass is empty, you very likely will wind up with just another empty glass.
Our elected officials have been working hard to strong-arm banks into adjusting the terms of loans for those that are in over their heads. Loans, I remind you, they were pressured to give in the first place by these same officials. And to be quite frank, it is in the best interest of the banks to keep people in their homes and paying money each month now. The only other option is to foreclose and take possession of a home in a down real estate market and hope to sell it to someone more capable of meeting their commitments which may be a tall task right now. But what we are learning here is that you have to be smart about what you are doing and apparently intelligence is still lacking in the majority of instances.
Yes, keeping people in their homes is preferable because by doing so there is cash flow coming in each month to the banks. But like any job, refinancing the terms of a home loan costs money. Hey, loan officers have to eat too!
It does not make any economic sense to spend time, manpower and money refinancing someone if they are just going to fall behind again. You might as well just flush the money you are spending trying to help them out down the toilet instead. Banks have to start realizing that some people are just simply deadbeats and treat them accordingly. Obviously the standards for being loaned large sums of money are still far too lax if over half of those that were in trouble before are in trouble again after being helped. The other sad reality that is going to need to be realized is that in the next year you can count on about half of the remaining half not currently back where they started to fall back into trouble as well.
In the end I would not be surprised at all to see eighty percent of those that had their mortgages reworked falling behind and struggling when all is said and done. Because sadly, that is the way things work.
The time for appeasing people with things they cannot reasonably afford must end. However, I fear that we are not learning our lessons. Too many people in business and in government are only interested in getting whatever they can in the here and now and then leaving the mess they create for the next person in line to clean up. Those pushing mortgages at the banks want to write as many mortgages as they can because they get paid based on their performance. If those loans fail three or five years down the road and they are no longer working for the bank then what do they care? They have received their money. Those in government are strong-arming lending institutions to keep people who cannot afford their homes in their homes because there is another election on the horizon and the last thing these politicians want are angry constituents parading around with empty hands out asking where all the benefits of electing them and that were promised are.
In the end, those that suffer most are those that acted responsibly. Those that bought the smaller house, that purchased the less expensive car, who did not rush out to replace a perfectly good living room set because they were promised no payments for three years and those that saved are brought down as the deadbeats and their enablers in Washington flounder about trying to comprehend basic economics. It is our 401ks and our home values that suffer as we wonder what the point of being responsible is when the deadbeats are being catered to.
We see time and again those who are causing the problems are coddled and often never forced to learn hard and painful lessons that should come with being irresponsible. As those that have failed and have been helped only to fail again without correcting the problems that caused them to fail, what is the answer? Another bailout, then another, then another until eventually their burden is reduced to zero? The responsible once again being forced to carry the load of those that were irresponsible through higher taxes to pay off the debts of the deadbeats? While the deadbeats live with the knowledge that government will always be there to save them and point the guns at our heads demanding we pay up to cover them?
I have some news for the deadbeats and the political beasts in Washington who believe that they will get away with such. That message is to watch your backs because you are pushing hard enough that lots of us are starting to get very annoyed. You know what happens when you poke an alligator with a stick one time too many? Well then, you had better back out of our face with that stick if you want to keep your arm.
Copyright ©2008 J.J. Jackson