The World According to kcillini77

October 25, 2008

Where’s My Bailout?

Filed under: Home,Money — kcillini77 @ 8:21 am
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So my 401k has dropped about 50% of its value over the last couple of months.  Big deal.  The only reason it was as high as it was is that I started out buying stocks in 2001 after the last crash.  As far as I’m concerned, this is just another opportunity to increase our investments and buy stocks while they are cheap.

But there is one thing that keeps bugging me amid all of this talk of rescues and bailing out irresponsible homebuyers.  How about rewarding the responsible homebuyers in some way?  Specifically, cancel my PMI.  Let me explain.

During the housing boom, many people were buying and flipping houses with regularity in an effort to move up the social ladder.  This was a common scenario:  Joe the plumber takes $5,000 and buys a $100,000 house with a 95% loan and mortgage insurance.  As house prices were escalating, he could hold the house for a couple of years, sell it for $125,000, and have $30,000 to buy his next house.  Now he had a 20% down payment for a $150,000 house.  He held that house for a couple of years, sold for $175,000 and moved on up the ladder to a  $275,000 house with his $55,000 down payment.  Problem is, as Joe moved up the social ladder, his income was not increasing enough to keep up with traditional 30 year fixed payments on these houses.  But lenders were more than willing to give him loans with baloon payments or even interest only loans so that he could afford the monthly payments and gamble on the house value going up.  So now, Joe’s time of reckoning has come, his house value hasn’t gone up, and he can’t afford his monthly payments.  The government is talking about bailing him out because of the lender’s willingness to make risky loans to him.  Whatever.  Meanwhile, because he had 20% up front for his latest purchase that he had accumulated during the boom, he wasn’t considered “risky” enough to need mortgage insurance.  However, he was one of the most risky homebuyers out there.

In contrast, when my wife and I bought our home, we did not have a 20% down payment either.  We borrowed 95% of the value of the house and agreed to pay mortgage insurance.  However, our motives were different.  We were not looking to climb the social ladder.  We intended to stay in our home for as long as our family could fit in it.  If we ever did move it would be for logistics as our family grew or a lateral move to a similarly priced house that was closer to work or fit our circumstances better.  We hoped home values would continue to rise, but not so we could get into a bigger house.  The minute houses in our neighborhood started to sell for 15-20% higher than our purchase price, we hoped to get a new appraisal for the express purpose of cancelling our mortgage insurance.  Then we would continue paying that $100 per month in order to directly pay down the equity and get out of debt faster.

Needless to say, the actions of all the Joes out there have made it such that our house value has not risen and we are looking at continuing to throw away $1200 per year on insurance designed to protect the lender from “risky” borrowers such as us.

I’m not asking for much.  Just for the government and the lenders to look a lot more closely at who the risks are.

September 30, 2008


Filed under: America,Christianity,Money,Stock Market — kcillini77 @ 5:12 pm
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Heaven is now a little more attainable.

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