WhipItAround.com

Here is the link to Rick Santelli’s popular rant against the Obama bailout plan: http://www.youtube.com/watch?v=THZeE15gWZQ  I completely agree with Mr. Santelli and I also offer an alternative plan to Pres. Obama.

President Obama, instead of rewarding the degenerates who purchased homes they could not afford (if debt-to-income is more than 40% you cannot afford it), let the free market work and allow housing prices correct to their natural level so that people like myself that didn’t speculate on real estate and didn’t chase absurd prices can buy a reasonably priced home.  Sure, home prices are declining, but they are only now reaching average levels of affordability.  The problem with assisting homeowners that cannot afford their mortgage is that the redefault rate is 40% and it retards the bottoming out process.  If zombie companies were allowed to fail, the truth would be seen and a bottom would form much quicker as all the skeletons came out of the closet and the public saw the faces of death.  Look at California, which has experienced one of the largest declines in home prices, and home sales are BOOMING!  Duuuhh, there’s the solution, let prices drop and the buyers will come.  Let’s face it, if you have a mortgage equal to more than 40% of your income, you shouldn’t own that house in the first place.

So my suggestion to Obama is to let the foreclosures happen but provide incentives and relief to the lenders if they agree to rent the home back to the resident at a rate equal to the lower of (1) the current market rate for rent or (2) 31% of debt to income.  If the resident cannot afford the amount, then provide the resident with assistance (including financial)  in finding a new house to rent.  In addition, the government should create a national website that lists all houses owned by the banks that are for rent or for sale and simplify the process of purchasing a foreclosure.  This website would create a visible transparent market for buyers and sellers of foreclosed properties.  If the banks sell a foreclosed home, they will be required to give the resident two months notice and 100% assistance in finding a new place to live.  I think this is an excellent solution because it also makes residents more flexible to job opportunities outside of their immediate region and it creates an open and visible market for foreclosures.

Also, let’s not forget that many of the people having trouble with mortgage payments are the ones that took several hundred thousand dollars of equity out of their houses to purchase luxury items and live above their means.  For example, I know a family that purchased a meager home in a rapidly appreciating neighborhood in 2004 for $300k and they refinanced their entire mortgage and received $200k in cash which was spent on a Range Rover and lots of other cachet items.  Now that family has a $500k mortgage that they cannot afford and will probably receive assistance from the government.  Bailing this family out sounds like rewarding spending, speculation and over indulgence and living beyond one’s means.  Can you say moral hazard?