Problems with the $750,000,000,000 bailout
The main problem is the cost of homes are too high and too much of a percentage of a family's income. The prices of homes must come down. Has anyone questioned that these bad home loans out there are partially due to the cost of the home? I work with a homebuilder in Northern Virginia. The land costs are what are driving the cost of homes up so much. This homebuilder was paying $450,000 for each lot that they were building townhouses in Ashburn, Virginia. This lot price drives the finished cost of a 3 bedroom townhouse to $600,000 or more. That's a monthly $3,600 mortgage payment at 6% over 30 years. This doesn't include taxes and insurance, so now we are up to $4,000 a month for a 3 bedroom townhouse in Northern Virginia!
The percentage of one's debt to income is one of the most important factors when underwriting a loan. Lenders have determined that a house payment should equal approximately 30% of Gross Monthly Income. A house payment plus minimum monthly revolving and installment debt should be less than 40% of Gross Monthly Income. By lenders requirements, the townhouse above requires $12,223 of Gross Monthly Income, or $146,676 per year. According to the U. S. Census Bureau, the median home price is $247,908, and the average home price is $313,600. The lending requirements for these homes are $59,453 and $75,200 respectively. Unfortunately, the average income in 2007 from the same source is $50,233.
Most every bailout plan that I've heard requires home prices to increase for these plans to be successful. Aren't we continuing the problem if the effect of a bailout is increased home prices? What happens to these plans if home prices continue to fall?
Senator McCain's 300 billion dollar plan to pay for the depreciated amount of struggling home owner's mortgages will drive down the value of all homes including the home-values of the homeowners who have been paying their mortgages. Do the owners of these government correct mortgages get to keep any appreciated equity when they sell their homes? How do we prevent this program from abuse and corruption?
Most every American is in a financial hardship, but we aren't borrowing and spending more hoping the problem goes away. We are or should be cutting back. On the other hand, we aren't running for an election, and the money we are spending is our own. The economic bubble has bust and is now correcting itself. The price per barrel of sweet crude is below $80. Isn't that a good thing? The cost of homes and commodities are correcting themselves. The supply/demand principles are acting as they should. Hopefully, this economic correction cleans out the corruption on both Wall Street and Washington.
The true America that I know will fix itself. Let the chips fall where they may, and as Americans, we will pick ourselves up and be stronger because of it. At most, use the 750 billion dollars to repair our infrastructure, develop alternate fuels and energy independence, and invest in our children, thereby creating jobs and income. Instead of borrowing from China and Japan, cut government waste and improve the efficiency of all programs that are being supported by our tax dollars to generate these funds.
Who am I?
I am an average voter and taxpayer with a beautiful wife and four wonderful children. On June 1st, 2006, I bought the manufacturing company that I worked for. We were a manufacturer of structural home building components. As you can imagine, that was probably the worst time to buy a company that relies on new home construction. When considering the purchase, I had estimated that if our sales dropped 30%, we would still survive a housing recession. I never thought this recession would be so bad and last so long.
On June 1st, 2006, we employed 146 people. We were strong and diverse. We had employees from America, Mexico, Latvia, Croatia, Poland, Russia, Georgia, China, and Columbia, most with last names I could not properly pronounce. One by one I had to cut back and lay them off until in 2008, we were down to 40 employees.
Finally, with no housing recovery in sight, I was forced to declare bankruptcy. I'm in the process of meeting with creditors and lawyers, trying to keep a roof over my family. This wasn't quite what I dreamt would happen when I bought the company in 2006.
All said, I don't blame anyone for the position I am currently in, nor do I expect anyone to feel sorry for me. I feel bad for each any every person that I was not able to keep employed. I certainly didn't expect the government to bail me out.
Isn't this what America is all about? I took a chance like thousands of other Americans have and unfortunately lost everything. On the other hand, I had everything to gain if the company succeeded. Win or lose, the effort required to start and run a business is risky and immense and should not be taken lightly by anyone.
Don't raise the taxes on the entrepreneur who risks everything and succeeds. What would be the incentive to risk everything you own just to give 68% back in taxes if you make more than $250,000? Had my company succeeded, the 146 employees including myself would pay taxes on combine income of 6 million dollars a year.
Resource:
http://www.census.gov/const/uspriceann.pdf
http://www.jchs.harvard.edu/publications/markets/son2008/son2008.pdf
