Tuesday, April 06, 2010
If the new federal program to help homeowners pay their mortgage bugs you, read a Wall Street Journal article titled, "Bank of Mom and Dad Shuts Amid White-Collar Struggle." It will make you even madder.
The piece reports on six-figure earners who had taken out mortgages bigger than half a million dollars, then lost their jobs. In the meantime, their house values sank.
Now they can't send the kids to Europe this summer. Their grown offspring have to get real jobs. And college-bound children must work after class, apply for student aid and go to less-expensive schools.
"We may have to give up on the idea that our kids will do better than us," Katherine Newman, a Princeton sociologist, is quoted in the piece. "But the idea that they should do as well, that's something we haven't given up on yet."
The question is: Were we doing so darn well before? Amazing how "well" people think they are living when the money is borrowed. Whether the kids will become truly richer than their folks remains to be seen. Chances are good they will be more responsible.
A woman in Orlando told of her downward skid after losing a six-figure job with Bank of America. She and her husband had taken out a $650,000 mortgage on a 3,600-square-foot house. Her husband was a writer not making princely sums, and they had three disabled daughters. When the family had to sell the house, they could only get $375,000 for it. They're now renting a far smaller home, and one without a pool.
"The pool was the only place we could all be together and enjoy ourselves," the woman said. Guess the 3,600 square feet -- nearly five times the area of the original Levittown houses -- was all dead space.
Timeout on tears. Why would a family with only one good income and three disabled kids borrow $650,000 to purchase a mansion? Bear in mind that even in the bubble days, half as much could have bought a big house in that part of the country. Why hadn't they saved money as a cushion in the not-unimaginable event that the prime breadwinner lost her job?
The article goes on to describe middle-class parents sad that they can't help their young ones start a business. We hear of a 26-year-old woman in Los Angeles who had to suspend her photography and sculpture career because her parents could no longer support her. "My artistic career is put on the side because I have to make a living," she said. Imagine that, a 26-year-old paying her own way.
The Obama administration's mortgage relief plan targets unemployed homeowners and those who owe more than their houses are worth. The goal, to help them stay in their homes, sounds worthy.
But why help unemployed homeowners and not unemployed renters? The reason is that this program is largely for the banks: It keeps debtors who could walk away from their houses strapped in the saddle. Many of them would be better off renting similar quarters for less money.
Another reason to dislike this idea is that it keeps house values higher than the market wants to take them. Renters who prudently saved money for a down payment ought to enjoy lower prices.
Even before the meltdown, I wondered how anyone who wasn't super-rich could hold a jumbo mortgage and sleep at night. Massive debt and its attendant stress apparently didn't disqualify them from membership in what our society sees as the "good life" club. Hope the grown children moving back in with Mom and Dad take note of the situation and how they all got there.
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