thku4grace

Senator Dodd's Housing Solution - Cramer's Mad Money (5/21/08)

Christopher Dodd and Cramer are both wrong about this housing bill. This bill may, in fact, entice many to stop making payments in the hope of getting a lower principal loan. While there are many that can no longer make payments and have stopped or will stop with this housing bill or not, there are others that will continue to make payments because they can and because they don't have much confidence that their lender will refinance with a lower principal loan. With this bill, these payment makers will start feeling foolish to make a larger payment when they can easily follow others down the path of nonpayment so as to trigger a new deal with their lender. The devil in these details is that the lender can reject a deal and take the home back, but if this snowballs, they may find it impossible to take back such a large number of homes. One must remember that a certain percentage of people who will be failing lied about their income and thus will not be eligible for help anyway. If we add together all those who can't make their payments but still qualify together with those that can but want a better deal, the numbers could create more damage to the real estate market than if we had no housing bill at all. But let us assume that this housing bill does the job in reducing the downside of this housing market. The Senator would say that it helps all Americans, but does it? The housing bubble was created due to demand that wouldn't have existed had lenders done their jobs and qualify only those that could afford. Therefore, the housing market would never have seen the heights that it saw had it not been artificially inflated as it was. Existing homeowners saw a spike in their values that wouldn't have occurred if lenders had done their jobs. The only thing they are out is the extra property taxes they may have paid on inflated values. Last of all, this bill does a disservice to those who resisted the temptation to buy a home in the bubble environment of the housing market over the last few years and astutely raised capital over these years for a larger down payment after the bubble bursts. Shouldn't these responsible people be reimbursed for the potential loss of opportunity? Why is this segment of the population being mistreated? Who are the true beneficiaries in all of this? The politicians! This is an election year and it will surely buy votes with a bill that will not help the current situation but will likely be forgotten in the next election cycle.