I read an excellent post in OC Housing News yesterday about a couple from Palmdale, CA who strategically walked away from their $340,000 mortgage on their $190,000 home back in 2009. Today, they are homeowners again thanks to a Veterans Administration loan that is $163,000 less than their former house.
It used to be back in 2008-2009, when the couple featured in the article walked away, that all the righteous people who also found themselves $100,000+ underwater in their home were asking, "Why should I pay for people who made stupid financial decisions when I always did the right thing paying my bills on-time and living within my means? Why should we reward these people for being reckless and stupid with their money? Where’s my bailout?"
I used to smile at the irony when people who still had their jobs played the victim card while vilifying the people who were caught in the crossfire of the Great Recession. You know, the fifteen million people who lost their jobs, life savings, their homes and cars, often uprooting their children from schools, moving in with family, applying for food stamps and public assistance for the first time ever, and the countless other things that former middle class Americans were faced with, like paying the power bill before the mortgage.
Well, for the righteous people, their bailout started in 2009 and has been going on ever since courtesy of the Federal Reserve’s Quantitative Easing and Zero Interest Rate Policy.
The people who did “the right thing” and paid their bills on-time, have often been able to refinance their underwater mortgages at artificially low rates of 4.25%. (No lender in their right mind would do a 150% Loan-To-Value loan at 4.25%. If the former private label mortgage market made this loan, it would carry a 12-14% rate).
And if the "Dudley Do-Righters" were lucky enough to still have a 401K and company stock options, they might have seen their holdings return close to 2007 highs due to Federal Reserve efforts to create a “wealth effect.” In simple terms, the wealth effect theorizes that people will go out and spend more money in the economy if they see the value of their stocks and real estate rising. Or, “A rising tide will lift all ships.”
Additionally, thanks to The Fed printing press and above the law Too Big To Fail Megabank’s foreclosure mischief, home values have come roaring back all across America as distressed homes are being held off the market by the TBTF banks, either due to lack of legal standing to foreclose or TBTF bank strategy to push foreclosure losses way out into the future.
Those who “did the right thing” have been given a multi-trillion dollar gift courtesy of the Federal Reserve. I’m guessing many of them went out and financed a car at a very low interest rate as well.
Right on cue, the strategic defaulters, like the couple featured in the OC Housing News post, are jumping back into the housing market three years after their short sale or foreclosure thanks to artificially low interest rate mortgages from FHA, Fannie Mae, Freddie Mac, and the VA.
Whether by strategic default or The Fed’s money printing, most every homeowner has received some kind of stealth bailout, and will likely continue receiving this bailout for many years to come as QE shows no signs of ending any time soon.