How out of touch are officials in Washington, D.C.?

Published 12:00 am Friday, August 24, 2007

Congress is at its lowest popularity point since its popularity was first measured in the 1970’s. Does that surprise you? It shouldn’t.

Are the people we send to congress no longer like us? Are they so different that they simply do not grasp the issues that we care about?

I don’t know about you, but it sure seems to me that none of their priorities are mine. For example, we all know there is a problem in home sales and in mortgages, due mostly to what is called the sub-prime market. Well, that affects me a lot, because my home is my largest single asset, and when the housing market goes bump in the night I worry.

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So, as I see it, every time the feds raise the prime rate they are actually giving all of us a tax increase. They are also making our homes more difficult to buy and sell. And, truth is, they don’t even care about us, they are raising the rate to fight inflation, both real and imagined.

Now a part of the mortgage industry gets in trouble, the sub-prime lenders. It turns out that they sold a lot of people mortgages that had adjustable rates; rates that jumped so high people can no longer make their house payments. These ARMS should never have been done, but I can imagine a young couple in front of an experienced lender (insert unethical sales person here) being told not to worry, that long before the payment rises they will get a new loan. Nothing to worry about here. Except that when the real estate market fell their house was worth less and they could no longer get a new loan.

Their debt of $200,000 on a house now appraised at $130,000 cannot be refinanced because no bank will lend them more than $120,000. Since the homeowners can’t come up with $80,000 in cash they cannot refinance. Now comes in their ARM. Its monthly payment was originally only $700 on a $200,000 loan. It now rises to $1,600. Their income has not gone up.

These folks now find they cannot refinance and they cannot make their home payment. They are going into foreclosure.

At this point our president says he will not intervene in this problem for homeowners but he will stabilize the industry by putting money into the institutions, the lenders who sold these terrible loans.

Congress sits silently.

What could congress do? Well, it could tie any financial rescue to the lending institutions reconstructing the loans according to the new appraisals. That would help people keep their homes.

Congress could pour money into the FHA (Federal Housing program) and make loans available instantly to this class of lender, taking the pressure off of these buyers.

Congress could legislate controls on the mortgage industry that would prohibit them from taking advantage of buyers this way ever again.

Congress could change IRS regulations so that if a home is refinanced at a lower value the change in value is not seen as taxable income when in fact it is an equity loss.

But instead the president said he has no intention of helping homeowners and congress sat silently waiting for its August recess.

In the meantime the stock market had several billions put into it by the feds purchasing mortgage security based funds, securing what looked like a lot of bad debt. That immediately helped the market rebound, and why not? The shareholders were just given immunity from the losses you and I are exposed to today. Hurray, Hurrah.

Out of touch much?

Jim Crawford is a contributing columnist for The Ironton Tribune.