People opposed to the mortgage bailout have erupted in anger over the thought of having to subsidize their neighbors’ house payments when they’ve responsibly managed their own housing decisions. Diana Olick tells her CNBC readers and viewers that that’s not all we’ll subsidize. Thanks to a little-remarked portion of the bill, we’ll pay for their home-equity seconds as well.
Paragraph vi of the bill states:
While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien.
It’s not that I don’t get the reasoning. Sure, do all you can to help people pay their mortgage, like get rid of other debt. By why stop there? What about car loans? Student loans?? The second liens, in general, were used by borrowers to either buy more home than they could really afford or to use their homes as ATM machines. Yes, some people use home equity lines of credit to pay college tuition.
But I can’t tell you how many homeowners I’ve interviewed (and just take a look at David Faber’s documentary House of Cards to see more) who took out home equity lines to put in a pool or buy a fancy car or put an addition on the house that includes a fancy new kitchen with a Viking six-burner. And I’m supposed to pay for all that?
It’s one thing to suck up the bitter pill in order to save the greater housing market and keep families in their homes, but using taxpayer dollars to give homeowners a free ride on second liens is preposterous.
I know that I’ve been putting off some home improvements for some time to avoid taking out a second on my house. I’ve spent cash in savings instead to do things that I couldn’t avoid, like replacing the plumbing in my house when it went bad and getting a new sliding back door when the double-pane seal failed on the old one (and those who live in cold-weather climes know what that would mean). I replaced my roof with a combination of insurance and savings when a windstorm damaged it beyond repair. I’d like to replace the 15-year-plus carpeting in my house, or perhaps replace my eight-year-old car at some point, but I haven’t wanted to assume that debt.
Now I get to assume the debts of everyone who did decide to do all of these things to their own homes by pulling out equity that they didn’t really have. Maybe I can get a list of everyone who qualifies under Paragraph vi, so I can go to their house and enjoy their new carpets, their new barbecue grills, or their enclosed four-season decks. After all, I’m paying for them — I should get the opportunity to enjoy them.