I hope to return to Austin—the subject and the place—soon. But while we were running around the city, the Obama administration was readying a plan that makes me ask, "Should we buy a house we can’t afford?"
Ordinarily, of course, I wouldn’t even think to ask such a question. We Newmans are a financially prudent people. And while the details of the Obama plan are still being worked out, the basic problem it is trying to address is clear: Most of our houses are worth less than we thought they would be. This creates problems for the people who live in the houses and for the banks that own the houses. So the basic gist of the plan is to help banks and home-livers (I resist the term homeowner because it is simply inaccurate—in the majority of cases, the banks own these homes, not the people who live in them) gently renegotiate a more realistic arrangement.
Like I said, the details are still unknown. (Watch this space March 4!) And there is a lot of room for debate in a phrase like "more realistic arrangement." But some information has been released, and it makes me think that the grandly titled Homeowner Affordability and Stability Plan could encourage people like us to buy a little more house than we can afford.
One of the ways the government can help home-livers, according to the plan, is to reduce the amount of the monthly income they spend on housing. (See Family C in this fact sheet.) Say you spend 42 percent of your current income on your mortgage. If the bank will agree to modify your loan to get you to 38 percent, then the government will step in and help the bank get you down to 31 percent. If, at the end of five years, you have remained current on your payments, the government will give you $5,000 to put toward your mortgage, and you and the bank renegotiate.
This may sound needlessly complicated. (Wouldn’t it be easier for the government just to offer everyone who qualifies lower interest rates ?) But if I were the kind of guy who based his decision-making on government incentives—and I’m not saying that I am—I would buy a house that required mortgage payments of, say, 42 percent or 43 percent of my income, and then ask the government and my bank to get my payments down to 31 percent. I suppose we could spend, say, 50 percent of our income on housing, but then we may be considered too far gone to help. Better to live just slightly beyond our means.
None of this is to say, by the way, that I think HASP is a bad idea. (Note to Obama administration: Ditch the acronyms— TARP , ARRA , TALF —and get someone at the Pentagon naming this stuff. Operation Save Our Homes, something like that.) I have no problem with the government and the banks helping people like Marlo Saab , who makes $80,000 a year and is having trouble making the payments on the $550,000 house he bought (no money down, of course) three years ago. In the debate between Ledeen Halloran and Harry Snegg, I side more with Ledeen than with Harry.
All I’m saying is—Nora, maybe we should look at this house ?