Thursday, March 19, 2009

Quiet, Please!

In the past two months, folks in Washington, D.C. have moved from the defining (and decrying) stage of problem recognition into the proposal stage. Multiple solutions to our economic woes are flying around everywhere, alongside all the variations of criticisms leveled against every proposal being offered up. Economic doom dominates all of the daily commentary. Many prior hot buttons and social issues that were supposedly critical to our national survival have virtually disappeared from discussion – illegal immigration, Iraq, Afghanistan, abortion, evolution/creationism, etc. Even supposedly new national priorities for energy and clean air are struggling for attention, while health and education seem to be holding their own. Given all of the daily slicing up, promoting, defending and finger-pointing going on, I am surprised that anyone has much time left over to actually THINK conscientiously about any of these problems.

Many politicians are lining up to claim that “too much is on the plate, we need to focus on one thing.” These folks are dead wrong. Frankly, if 535 Congressmen/women can’t split up, divide and conquer, and step to the national plate when they are needed, then we are facing a much bigger problem of competency and attention. Very few crises come neatly packaged for convenient handling.

I believe that Obama is right that a) economy and energy and health and education and environment are long overdue items precisely because we have refused to deal with them previously and now they are all ganging up on us; and b) each problem is part of the solution to the other. They are in fact interdependent among each other, and solving one is part of solving the others. “Solving” one problem at a time will take us baby steps when we desperately need to take the giant step that is now available to us. And have you noticed that the ones screaming that we should be focusing only on the economy right now are either a) the politicians who overlooked the economy for the past several years, or b) the economists or corporate career folks – they make it sound good and easy, but they are just like everyone else, pushing their own parochial agenda and perspective.

Of course, my favorite object of scorn – the cable news media – are in a feeding frenzy over all of this. Hour after hour, it is one doomsday scenario after another, poll after poll about how fearful Americans are, conspiracies uncovered one after another, 24-hour tracking of the latest embezzler of note. It is like watching those crazy weather folks in hyper-mode when the hurricanes are coming. It is also numbing to our brains, and the value-added of all this (dis-)information diminishes by the day.

Are there good people hurting these days, many of them reasonably innocent bystanders and/or casualties to the irresponsible actions of others? Yes. But we would be better-served not just to run feature stories about their hurts, but to focus on other people and organizations who are trying to help these neighbors find transition relief.

I suggest that we all turn down our TVs, skip over a few internet “timely news updates,” and ignore for awhile some of the hyper bloggers out there (except for this blog, of course!). The truth is, 90% of the American workforce is still working, even if working harder for less money in a less preferable job. Most family bills are being paid. Freebie living on borrowed money is slowing down, if not ending. Gasoline is still holding at @$2. Restaurants are still serving food, even if they are full only 5 nights instead of 7. Tomorrow the sun will rise again, as it has always managed to do. In a few weeks, one of those big magnificent full moons will dominate the night sky. Tomorrow (March 20), spring arrives yet again, ending our long winter and beginning yet again another year’s seasons. Planting, growing, harvesting and resting is a year's process, it is not done in a day. Life will refresh and renew itself in its annual ritual as it has for eons.

So let us quiet down a bit. Get back in balance. Act wisely for ourselves, and compassionately towards others. Use our adversity to move us to a better place we should go, not hunker down in a place in which we should not stay. Let our innate good and strong character come through yet again. And if we do, this too will pass. Turn off the noise, and listen to the music that is still playing our song.

Monday, March 9, 2009

Homeowner Life Preserver

I recently commented on this blog site that Obama’s stimulus package had to be seen as one leg of four. We also needed a home mortgage response, a new budget (long-term and short-term), and a banking restructuring plan. We now have a proposed plan for dealing with the home mortgage issue that was the original thorn that pricked this economic bubble.

Fiscally, the Obama mortgage plan looks like a right step (even if long overdue) to keep as many people in their homes as possible. The method: refinance current mortgages to a payment level that can be handled by the homeowner, assuming that the new mortgage meets certain limits and profiles. Non-resident mortgagees (i.e. speculators) would be excluded from this program, which seems reasonable. Unfortunate, all of these restructured loans would still flow through banks, who are not required to restructure but will be “incentivized” (whatever that means!) to do so.

This program follows the lead of Shelia Bair, head of the FDIC. She has been commendably fearless and the only sane voice for the past year in leading loan restructuring as the right way to resolving mortgage failures in her takeover and resolutions of failed banks. It is a good step, and will hopefully convince banks to convert their bad loans into good, and thereby be lending once again. For me, though, I would go even further on the premise that having homeowners staying in their homes and paying a mortgage every month is the key to both ending the slide in home values as well as resolving the instability of banks.

Firstly, I would require the banks getting taxpayer dollars to make every possible loan rewrite; it is the price of them playing with our money. Or, if banks will not rewrite, then I would use Fannie Mae or some other agency to go into the business of making loans directly to these consumers. Lending competition from the US Government should force the banks to choose to become competitive once again sufficiently to drive the federal government back out of the marketplace (which ideally it should not be in). The overriding necessity is that problem home loans need to be restructured, by whoever will do it. Ideally, let the banks beat the government at their own game in order to resolve the problem they caused in the first place.

Secondly, I would throw out any means test for these problematic homeowners. Yes, I know that sounds crazy. But a lesson I learned years ago is that it is the consumer that holds the key to a bank’s success, just like any other business. If a bank does not lend money, it goes out of business – which is exactly what is happening now. NOT lending is unprofitable. Once I figured out that premise, I no longer thanked a bank for “approving” me for a loan; I expected them to thank me for choosing to borrow from them. And if one bank will not loan me the money, I am confident that someone else will.

The practical application of all of this is that:
· hardly anyone keeps an initial mortgage for 30 years anymore; they either continually refinance it, creating in effect a life-long revolving line-of-credit, or they sell and move and start a new mortgage;
· banks are constantly encouraging mortgagees to refinance so they get new loan fees and high interest income;
· banks invented the balloon mortgage – i.e. low payments now in exchange for higher payments 3-5 years later when loans are in effect “automatically refinanced.”

So we need to quit playing games: find a payment amount these hurting people can handle, write a 5-year loan to fit that amount, and automatically rewrite it again 5 years out. Continue this indefinitely. In 5 years the bank is just going to be looking to lend the money again to someone anyway. What do we or the bank care whether the same person or a different new buyer holds this loan a few years from now – it’s all the same mortgage money. The outstanding balance (perhaps with some smaller loss) can be finally made up at the point of future sale or death. Even if losses ultimately result, we will have spread them out over years instead of all at the same time right now.

This approach stops the loss of home values. It stops foreclosures. It keeps people in a mortgage, not defaulting. It keeps them in their homes in a “normal” and continuing life, not a disrupted one. And banks now make money (or at least substantially reduce their losses).

Is this “fair” to current homeowners who have managed their mortgages steadily and in good faith? Perhaps not. I have been paying on some form of a mortgage for 25 years, and am scheduled to do so with my latest loan for another 29½. My current mortgage is on reasonable enough terms, assuming I do not suffer an economic setback. It is the loss in home value that hurts me far more directly than whether my neighbor’s troubles provide him with a more generous deal than I got. But if I can help that person stabilize his/her mortgage situation, that indirectly helps me in the long run.

We are where we are. And there but for the grace of God go I. I can shoot myself in the foot by attempting to punish my defaulting neighbor, or I can suck it up, be generous to that neighbor, hoping that my generosity today will come back to help me later if/when I may need it. Or I can do this just because selfishly his/her new deal will thereby help me, whereas foreclosure will most certainly come back to hurt me. Ultimately we will all sink or swim together in this rather overwhelming situation. So we might as well all share a life preserver and swim to shore together instead of arguing about who steered the ship into the rocks.