Those Facing Foreclosure DID NOT "play by the rules"

Those Facing Foreclosure DID NOT “play by the rules”
By R.J. Fee

I have grown increasingly tired of hearing how taxpayer dollars need to be distributed to those who are in danger of foreclosure despite having “played by the rules”. This is an entirely contradictory statement. Allow me to explain by clearly stating what the historically accepted rules are, and why if one had indeed “played by the rules” they would not be in danger of foreclosure. .

Let me ask the following questions of those who are in danger of foreclosure.
1) Did you purchase the property with at least a 20% down payment?
2) Was the total of the mortgage payment’s Principal, Interest, Taxes and Insurance less than 28% of your gross income?
3) Was the total of all of your debt (including the mortgage) less than 36% of your gross Income?
4) After your home purchase, did you maintain the equivalent of 3 – 6 months of expenses in some form of liquid account for emergency purposes?

If the answer to any of the above questions is no, then you have not played by the most basic rules of the financially responsible. If you were never aware of these generally accepted rules, then you have not “played by the rules”, because playing by the rules means that you understood the rules before investing.

Another important point is that we must accept the fact that purchasing property (even as a primary residence) is by its very nature an investment. By purchasing a property, you have invested in the real estate market. Markets experience both gains and losses. Otherwise it would not be a market. Using leverage (i.e. a mortgage) to purchase property is no different than buying anything else with borrowed money. Shares of stock, vehicles and an endless list of other things are routinely purchased on borrowed funds. The property purchased is security against the loan and the interest rate on the loan should reflect your risk as a borrower. The buyer enters the transaction stating that they fully understand the commitment they are making.

Why do we make exceptions to contract LAW when related to the purchase of a home? Emotions make us all want to help those in trouble. I don’t have a problem with this. I have provided what I can for me and my family, and lives within my means in the process. I have a problem with a government that seizes money from my family to subsidize those who have been irresponsible so that they can continue to live beyond their means. Often those I am subsidizing have a higher standard of living that I will now be subsidizing. But then again they “played by the rules”. I must ask the question: What rules did they play by?

Requiring financially responsible individuals to subsidize the irresponsible, with no chance of return, is inherently wrong.