When you are sinking in quicksand the natural reaction is to kick your feet and struggle. The problem is that kicking only causes you to sink faster. I know this is going to come as a blow to those who are trying to say, "The government should help us because we can't pay for our house"-, but you are mistaken. I am sorry. The only thing that this home rescue plan is going to do is cause the rest of us to go down with you. Not to mention your attempted salvation will result in the prices remaining artificially high.
Let us say that I wanted to buy a nice midsized bungalow overlooking the water with a dock where I could store my sailboat. However 4 years ago when I was looking for a house, that house was going for $300,000. About $200,000 outside my price range. At the time an autoworker who was making about $80,000 a year with overtime bought the house. At the same rate I got for my house at the time, the payment would be about $1600 a month over 30 years. That would be less then 2 weeks pay per month going to his house payment. His wife had a job as a local bank teller making $20,000. Then the bottom fell out of the auto industry. He gets his hours reduced and laid off. They are now in deep, and house prices in the area have dropped 30%. No houses are moving in the area. He has put lug nuts on the new car tires for 15 years since leaving high school. No chance of him getting another job like that anytime soon. My dream home is already down to $210,000. Why should the government deny me my dream home? Over the next 2 to 3 years, that house is apt to be worth about $100,000. I can afford that. Not only will I be able to afford that, but I will be able to buy other stuff and still be economically sound.
The problem with the home owner rescue plan is that it will damage the economy faster or at the very least it will have no affect. If you give money to people who are barely surviving and need help, then the money is just going to go to pay off debt that already exists. No new jobs will be created, and the economic problems will continue to drag us down. It would make much more sense to send that money to states and cities to hire police officers, firefighters, teachers, immigration agents, road construction, corrections officers, IRS agents, and other civil servants. It seems that there is a need for more staffing at the Security and Exchange Commission. Offer loans to anybody who can start a manufacturing business that could compete with Chinese version. This will create jobs that will keep capital in this economy. People with jobs will be able to afford to buy the houses at the new deflated price. People who have a place to live that they can barely afford but no job are not going to contribute to the economy.
Let s take a different perspective on this. We will follow money. Let us say a family is struggling to make a $1000 a month house payment. They get a new deal that drops that payment to $800. What happens then? They don't have $200 a month extra to spend. They were struggling to spend that $200. Hopefully they don't go out and spend it on other stuff. That would mean they didn't learn the lesson. They are not going to buy a new car with it. They are not going to hire people to remodel. They will be in a pickle all over again when they have some routine maintenance happens to the house. Cities to make up for their cash flow problems are very apt to raise property taxes. As the economy stabilizes globally, what if gas prices rise again? There will be so many ways that little break could get gobbled up. If prices are left to fall and people are hired who were already making it for the new jobs, the economy will move again. Please note that I said "move"- and not grow. This quest for growth is self defeating.
Of course in the end none of this will do anything to help the 800# gorilla in the room. That being the fact that no matter who gets this government stimulus, they are going to take it straight to a department store and buy Chinese goods. Within a few turns of the capital it will all have escaped to a foreign economy. That, or it will end up in the pockets of those so wealthy that they are not going to be spending it in the near future.
So when is the administration going to stop enabling Americas to kick their feet and start figuring out how to pull them out of the quicksand?