True case study as foreclosure cessation begins

With the passage of the ARRA 2009 and all the financial chaos that will ensue, BHO now turns his attention toward wrecking the home mortgage market as well.

 

Why do I say this? BHO is proposing a government bail-out of "negative-equity homeowners" or people who overpaid for their homes and now owe more than their homes are worth. Now this sounds very compassionate, very magnanimous, very liberal by its intentions; however, by now you are aware that every time the government involves itself in the private sector there are LOUC (law of unintentional consequences) to pay.

 

What will the LOUC be in this seemingly "good intentioned" concept of helping those with homes on the brink of foreclosure? To accomplish this let's virtualize our perspective by going to an imaginary neighborhood in any suburban area say in Florida, Texas Gulf coast, or California. There are 3 homes in a cluster in a very quiet cul-de-sac; all the homes are similar is size, style, and value. The differences start when the houses were last put on the market and purchased by the Jones, the Smiths, and the Browns. All three homes have mortgages, but with different terms and current balances. Let's detail...

 

The Jones purchased their home for $205,000 with 10% down when the sub-division first opened for sale over 10 years ago. Ed Jones, an civil engineer, his wife Jill, and 3 children have lived in this home watching the neighborhood grow, change, and increase in value. Their mortgage is now going on 11 years for $180,000.00 balance at 7% fixed for 30 years. Ed's monthly payment is $1,800.00 including PITI.

 

The Smiths purchased their home 6 years ago with original terms of $250,000 with 5% down at 6.5% 30 fixed, but 3 years ago the Smiths refinanced their home for $250,000 on an ARM of 3.5% for 3 years, and then escalation of 1.5%/year maximum for 4 years with a cap of 9.5%. Tom Smith's current payment is now just moved to 5% for a monthly PITI of $2,000.00.

 

Finally, the Browns purchased their home 2 1/2 years ago on a teaser, interest-only rate of 3% on $300,000 and 0 down with a readjustment period to an ARM including PITI 3 years from origination beginning at 5% with an annual ramp-up of 1.5% to a maximum of 10%. George Brown's current monthly payment is $1,975.00 ITI, but will reset to $2,750.00 next month.

 

Here is the situation, the Brown's are now 2 months late on their mortgage since George sees he will not be able to make the new mortgage payment so he decided to let it go since all the houses have now lost almost 30% of their value and his house is now going NE (negative-equity). The Smith's home is at parity (home value worth mortgage), and the Jones' are happily making their mortgage payments after 10 years.

 

Obama steps in with his mortgage-support plan, and the following happens: the Smiths see that if they are 60 days late on their mortgage they will be eligible for assistance so they cancel the check they just sent to the mortgage processor so they are effectively 30 days late and get in under the wire. Now the Jones who have paid on their mortgage for 10 years are the lone current mortgagor and the only of the 3 to get nothing while his neighbors get assistance coming from Ed's taxes.

 

The final atrocity is that Ed Jones loses his job, and due to equity in his home, his mortgagee immediately begins foreclosure proceedings, but Ed is not eligible for government assistance since was current on his loan, is PE (positive-equity) profiled, and did not take out a "funny loan" on his house. Ed loses his house while the Smiths and Browns are bailed out with taxpayer monies, but the Browns are going to re-default in 12 months since they couldn't afford their homes anyway.

 

Sound like fantasy? This is a true case taken from a Columbus, Ohio bank records (names changed) that began about 6 months ago. The Jones who did what the system considered right and morale are the ones penalized while those that took advantage were rewarded with Ed's tax monies.

 

Only in America could this abomination occur. So what will be the LOUCs of BHO's foreclosure cessation/hiatus be?

 

1. A sharp increase in the number of foreclosures as "the Smith's get in under the wire."
2. Angry "Jones" as they fall outside the assistance envelope.
3. Delayed clearing of housing inventory as "the Browns" re-default 12 months later.
4. Recession lingers as the problem of markets clearing is prevented.

 

BHO is quickly moving towards becoming the new-FDR, not the new-JFK who cut taxes as history has shown. JFK cut marginal tax rates; he did not send out tax rebates to non-taxpaying voters.

 

 

The elusive BHO tax level of the rich

So in the final days of the 2008 election, the BHO campaign is having problems trying to keep all his messengers on message.

The income level at which BHO's tax plan will RAISE the income tax burden has been dropping almost every day:

Started in the primary as over $1,000,000 then
In the regular campaign, it was over $250,000 then
BHO stated it would be $200,000 last month, then
Joe Biden said it was $150,000 last week, then
Gov. Bill Richardson of NM said it would be $120,000

If BHO does a Bill Clinton 1992 turn around on taxes, it could very well drop to those making over $50,000 will find their taxes going up.

Also, don't forget if BHO and his SMDC raise the percentage of FICA (social security) tax, then every worker in America will find their taxes going up. Something that Pelosi and Frank has said is on the table for discussion.

So much for tax the rich concept of the BHO campaign.

BHO & Biden label their base as unpatriotic & selfish

With the politicians throwing around slogans on the US tax system and tax payers, the Internal Revenue Service's own numbers illustrate which income bracket pays what percentage of the US tax burden. The following table is based on IRS 2004 income and tax burden data.

BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY

Income Category	2004 AGI	% all income	% taxes paid
=============	============	==========	==========
Top 1%	Over $328,048	19%	37%
Top 5%	Over $137,500	33%	57%
Top 10%	Over $99,111	44%	68%
Top 25%	Over $60,040	66%	85%
Top 50%	Over $30,121	87%	97%
Bottom 50%	Under $30,121	13%	3%

Source: IRS

So if it is patriotic TO PAY taxes, according to Joe Biden, then the top 10% of income earners are by far the most patriotic.

If it is selfish TO NOT PAY taxes as BHO said on Halloween (see previous post), then the bottom 50% need to change their selfish ways.

In other words, be careful how to frame the issue and what labels you think you are using to call-out your opposition, it may just backfire as these labels clearly indicate it has done to the Democratic nominees.

By their own words, both Biden and BHO just called their typical political base both unpatriotic and selfish.

OOPS!

The hypocritical, rich liberals should just write checks

Now if all the rich liberals calling for a BHO-SMDC victory on Nov. 4th, 2008 such as Warren Buffet, Ted Kennedy, John Kerry, Oprah, Martha Stewart, Bill Gates, and most of the wealthy Hollywood crowd are so interested in "sharing the wealth" why don't they just write checks to the US Treasury and give their wealth to the government without being forced to do so via the tax system?

It's because these very rich people and groups have the money and wealth to get most of their money off-shore so it is not susceptible to US tax laws (see John Kerry and his international money schemes - use Google, and the Kennedy's that much of their wealth out of the country).

They are so hypocritical in their speeches that I just laugh at them whenever I see them on TV. They are so laughable and just plain silly.

OK, let's begin

Since the premise is that "America can be fixed" let's start with the most important issue that is facing our country: unity. We are a divided country with more and higher shrill rantings from both sides of the "isle" to coin a phrase. The country is about evenly divided on issues such as the Iraq war, taxes, abortion, God in public life, gay marriage, etc.

Now the founding fathers never imagined that the constitution would be such a divisive document, and for the most part they were correct. The divisiveness comes from the fact that most citizens do not feel that they have control over their government, and therefore, can not effect changes. The founding fathers tried to limit the federal government by 2 means: strict delineation of powers -- that being only 3 listed in the constitution, and second, by severely limiting the revenues that the federal government could collect and fund its operations.

Now, as the enlightened public we are today, the US citizenry has allowed both these controls to be slowly altered through the slow passage of time. First, we did not object to the institution of the federal bureaucracy whereby Congress passed on their legislative control to the bureaucracy's rule making control: Department of Education, OSHA, FEMA, FCC, FAA, etc (to name just a few). With the growth of the federal bureaucracy, the public lost control of their government's involvement into their lives and businesses, and this is clearly in violation of the 10th amendment. Secondly, with the passage of the now extremely important 16th amendment (establishment of an income tax), the people allowed the growing federal government to tax their citizenry's incomes without direct control of the amount or disposition of funds collected.

These 2 very important changes that the founding fathers' never envisioned has finally grown to the point where they are the crux of apex that now divides our country. Let me see if I can explain my point: since people don't feel they can effect control of their government since they can't control the revenue of the government since controlling a public entity is only effectively controlled by controlling its purse strings. This point the founding fathers knew very well.

Thus, we have become divided in that we try to force laws that will ultimately try to enforce our views or beliefs on the rest of the US citizenry when this is clearly not conducive to unity. Therefore, let me suggest the quickest way around this problem:

1. Give control of the purse strings (on a macro-level) back to the citizenry by imposition of 2 changes: a) forced balancing of the federal budget, b) giving the citizenry the right to allocate 75% of the taxes to particular federal operations: social programs, defense, education, etc. The remaining 25% of the taxes goes into a general fund.
2. Effect term limits on Congress and Judges to reduce the desire to become "career politicos": Congressional limits like Presidential limits should be 12 years in the House, and 12 years in the Senate with the House seats changed from 2 to 4 years terms to reduced time spent campaigning.
3. Complete and open transparency of public campaign financing: no limits on how much anyone person can give to any candidate or incumbent, but such funding must be openly and timely listed on the politician's web site so that anyone can determines clearly and easily where the politician derived his/her funding. In addition, all legislation favoring such donors must be clearly marked for public information.

These changes will begin the process of return the control of the government to the people, and will most likely reduce the feeling that "I am funding via my taxes" operations that are against my beliefs since each citizen will be able to fund only those operations in which they believe. The federal government will have to operate within those wishes of the governed.

This is a good place to begin this discussion of "fixing America". Please feel free to offer your comments, suggestions, opinions in a civil manner. As a systems engineer, I am interested in only solving problems, not the politics that have come to destroy the unity this country once was known for around the world.

America has problems, but not such that we can not solve them if we are willing to do the hard work and have the civil discussions.

Tomorrow, I will offer a civil solution to the very difficult issue of abortion or pro-choice/pro-life as it has become to be known.