on mortgage foreclosure and since I'm not running for public office I'm going to offer a few nuggets of - if not wisdom - at least reality.

Frequent visitors to this blog may already be aware that I lived through a home foreclosure in 2001.  For anyone who has invested money, time, hard work and love into a house, foreclosure is somewhat akin to death.  To this day I can get lost for minutes at a time thinking about what I might have done to avert losing our home. I have dreams in which I'm back in my house and wake up expecting to be in my bedroom with my beloved furniture, most of which is long since sold for cents on the dollar.  I can close my eyes and describe every detail: the interior stained glass I had a craftsman make from a Frank Lloyd Wright pattern book, the couch I bought before we moved in that turned out to be way too large for the room, my son's bedroom that he painted navy blue and which actually turned out to look damn good. The pain, the feeling of loss, the guilt at losing my son's home will live with me forever...  

Okay, enough of the sentimental "last night I dreamed I went to Manderley again" crap -

According to  a headline in today's Los Angeles Times "Calls grow for U.S. to bailout homeowners, prevent foreclosures."  So, that's what woke me up last, America speaking as one voice, "Bail ouuut the homeowners"  - I thought it was the gazpacho I ate after nine p.m.

I don't know which bothers me more, the  Dodd/Frank bill (consisting of among other measures a a government guarantee of $300 billion in new loans to homeowners currently under water on their home value to loan ratio) or the Durbin proposal to allow mortgages to be restructured by bankruptcy judges; both effectively reward the grasshoppers at the expense of the ants.  From my reading of the two ideas, there is essentially little difference between them and the thought floated by some that the principal owed on these mortgages should be reduced.  Great idea, I guess at the same time these principals are reduced the bank holding my mother's mortgage will increase the equity she holds in her home?  After all she has never been late on a loan payment in life.  Oh, sorry, that's not the behavior we want to encourage, is it?  No, we want to help out those home owners who - through no fault of their own - are locked into spiralling adjustable rate mortgages or homes that are seeing a rapid decrease in value.  Hmmm, so how many of those home owners do you really think exist?  With the exception of people who were victims of fraud or those who are in over their heads due to illness or the unavoidable loss of a job, I can't really think of too many cases where a person is in over his/her head due to no fault of his/her own.

Just to be clear: failure on the part of the buyer to read and/or understand the loan documents he/she signed does not constitute fraud on the part of the lending institution.  The first home loan I received contained a prepayment penalty.  I had never heard of a prepayment penalty until I did my refi (my first refi).  I had signed or initialed every page of my loan agreement, no one had to tell me that I was responsible for that prepayment penalty.

Here's another news flash: if a buyer allows a broker to misrepresent his/her income or other financials in order to receive a larger loan or better terms, the buyer is complicit to the fraud not a victim of it.  No, I didn't do that, my broker changed my truthful answers after the fact and served jail time (not for my specific case, I was too broke and crazy at the time to pursue the matter). 

And here's a little free advice from someone who had to be crushed to the point of total submission in order to give up her home: if you can't afford to buy food or gas (and I mean that quite literally), if you are having to work two jobs and still can't make the reset or even the original payment on your house, then it is time to let go.  On the other hand, if you are still buying optional items, if you have more cars than it takes to get to work, if you are upset because you can't go to exactly the place you want to go on vacation, then you shouldn't get the government's help with making your house payment.

All of that being said, I do know that a total mortgage meltdown is not in the best interest of the economy; however, a drop - even a drop of 10-15% - is not a total mortgage meltdown.  Indeed, an adjustment in home values could actually help some people buy homes who have not been able to buy homes previously.  People who behaved prudently and see their homes as long term investments - not just another source of funds - will find that home values will rise over the course of time, just not as quickly as they have in the last five years.

But who am I kidding, we are only weeks away from - as Bill Gross of Pimco wrote - getting down "off of the 'high moral' hazard horse."  The investment bankers who earn enormous bonuses and then rail against income and capital gains taxes will get a big money handshake from the legislators their donations put into office.  The home owners who bought houses they couldn't afford will get their mortgages rejiggered and the tax payer will get the bill...

and my mother will continue, like clock work, to make her house payments on time.