It started last summer with a group of giant financial institutions, moved onto the auto industry and now is reaching into the population to reward those who do not know how or worse, choose, not to manage their money.

It used to be the cause for whispering, disdainful looks and the admonition “You got yourself there by irresponsibility and lack of discipline, now get yourself out,” when friend, relative or merchant ran themselves into debt beyond their means.

The reason for that attitude when we were a nation on the road to success and world leadership is everyone of every age and education level was familiar with one basic rule of nature, “Only the fit survive.”

There is a reason that animals who produce their offspring in litters ignore and reject those that they know have a defect, it is not cruelty it is a strategy to assure the survival of the litter members that have the basic tools in place to survive.

If the objective, survival oriented mother of the litter devotes all of her assets to the defective offspring it will have a deep and lifelong enduring effect on the other members of the litter and reduce, if not eliminate their ability to survive.

Well we had better look with less arrogance on this strategy when it comes to sacrificing the financially strong and responsible to shore up, temporarily the weak and irresponsible.

The problem with every new initiative coming out of Washington is that it rewards failure and to pay for the rewards of failure it grabs more of the assets of the successful.

It doesn’t take an economic genius (a group that seems to be nowhere in sight in DC) to comprehend that when you take more from that group that manages to take care of itself, those who were marginal in that group fall into the abyss of failure.  If government had not burdened the responsible with the added load of ‘sharing’ their meager assets with the irresponsible, they would have survived, but once their assets were confiscated and handed off to the loser group, they couldn’t keep up, and so they slid down the slope into failure.

The talking heads in Washington would like us all to forget where this debacle started, but we must not forget.

It started with the likes of Barney Frank and Christopher Dodd encouraging…no strike that…blackmailing banks into lending to folk who should not have been loaned to!

The banks were skeptical of their not getting screwed if they gave a $300,000 mortgage to a person making $30,000.

Under normal circumstances, a $300,000 mortgage to a marginal borrower would require an income of over $54,000 per year to qualify assuming 5% interest, $2,000 in Real Estate Taxes and Homeowners Insurance of $1,000.  The borrower would have to demonstrate the ability to carry mortgage payments of $18,000 per year or $1,500 per month.  Assuming that their mortgage related payments should not exceed one-third their income, their income should be $18,000 times 3 or $54,000.

The bankers, mortgage bankers and mortgage brokers knew that the person making $30,000 per year wouldn’t qualify under the rules for making mortgages that could be sold to Fannie Mae and Freddie Mac so they would be stuck with a bad loan on their books…probably bad from the first month.

Enter the Congress nudged giants that buy these mortgages from bankers, mortgage bankers and mortgage brokers with an new set of rules.

Make the first one or two years interest only 1% and qualify the borrower at that rate.  After one or two years the rate can adjust, to current market conditions, but you Mr. Lender don’t have to worry, we’ll own the loan by that time and we are backed by the government.

Bingo!  $300,000 at 1% is $3,000 a year plus Taxes of $2,000 and Insurance of $1,000 and the total mortgage carry becomes $6,000 per year.  Three times that required cash flow is $18,000.

“Mr. Borrower,” says Mr. Lender, “Hell you could qualify for a $500,000 loan…go find a bigger house.”

It would be quaint but a bit Pollyannaish to presume that Mr. Borrower was an ignorant  victim of Mr. Lender, but Mr. Borrower knew for the last 11 years that he  did not make enough to buy a $300,000 house much less a $500,000 house.

Also it doesn’t take a degree in either economics or accounting to understand that in two years your payment will jump to more money than your total salary.

WASHINGTON’S ANSWER TO THE MESS THEY CREATED

Well by slight-of-hand, they are going to reduce the mortgage payment on that hypothetical mortgage to a number that the 30,000-dollar wage earner can afford.  Not the real estate taxes, not the insurance, just the mortgage.

Then they are going to turn to the stable and fiscally responsible citizens of this country and demand of them a higher share of their income to give to the banks to make up the difference.

Once again, Congress is forcing the banks into providing inappropriate loans to inappropriate borrowers to afford them an inappropriate and yes an undeserved lifestyle change.

Well some sub-set of those stable and fiscally responsible citizens will not be able to afford the new income taxes and the mortgage.

No one can avoid the income taxes so they let the mortgage slip, and soon they walk into Mr. Lender and say, “Mr. Lender, I can no longer afford my mortgage because income taxes are taking to big a bite from my cash flow, can you get me one of those Washington Welfare Mortgages?”

“Sure Mr. Borrower, sit right down here, we can do it all on line and you will have your new mortgage in 48 hours.”

And the cycle starts again, the taxes will creep up and soon the next tier of stable and fiscally responsible citizens will be taxed to pay for Mr. Borrower’s loan and they will not be able to afford to pay their mortgage and they will turn to Washington for a brand spanking new Washington Welfare Mortgage.

That my valued readers, is the definition of a SLIPPERY SLOPE!

After a consulting career providing technology based solutions to complex challenges, in October 2006, Mr. Bodell began the process of reinventing myself as a writer intending to concentrate on technical/business writing, an area in which he has extensive experience.
This worked, but the compulsion to venture into other areas of authorship took over and he found himself much more diversified than first intended.

His achievements to date include, among others:

- An article on the benefits of investing in Belize in a rising tax environment

- A commentary on the Auto Industry Bailout

- An extensive business plan for a joint venture of a group of Veterinarians and the leading School of Veterinarian Medicine in the US (Partially available at http://www.ghughbodell.com)

Two mystery novels:

- Treachery in Turtle Bay, his first achievement in the International Mystery Fiction genre is looking for a publisher.

- Treachery In Turtle Bay II – Oil ~ Dollars ~ Diplomacy & The Sinister Three, deals with the Oil industry, Iraq and the theft of $1 Billion/month in Iraqi Oil cash flow, which, by the way, exceeds $6 billion/Month.
This work is targeted for completion by the end of 2008 and it too will be on the hunt for a publisher.
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Buying your first home? Not sure what the difference is between a variable rate and a fixed rate mortgage? Do you understand the true cost of borrowing? Keep reading for 7 invaluable mortgage tips that are critical for any first time home buyer.

1. The bigger the down payment, the better.

The lower your down payment, the more you’re going to pay on a monthly basis. With a 5 percent down payment, for example, you’ll be expected to pay for mortgage insurance and will most likely be subject to higher interest rates. Most lenders like to see a down payment of at least 10-20 percent.

If there is any way you can squeeze that 20 percent down payment during the purchase process, you can literally save yourself tens of thousands of dollars over the life of the loan.

2. Good credit will save you money.

Lenders base your interest rate and your subsequent cost of borrowing heavily on your credit rating. If your credit is poor, you may be advised to wait a few years while you build your credit back up. The amount you save with a lower interest rate after rebuilding your credit could be tens of thousands of dollars over the life of the loan.

3. Remember the closing costs.

Every mortgage has hidden costs associated with it, from legal fees to home inspections to bank’s closing costs. Before you commit to any mortgage, remember to ask about all the closing costs. You don’t want a $5000 surprise on closing day.

4. Get pre-approved.

While pre-approval can sometimes be more difficult, you can also save yourself a lot of unnecessary headaches. Essentially, you apply to the bank for a potential mortgage up to a certain amount. From there, you have a clear idea of your budget as you search for houses, and you can consequently make an offer that won’t be dependent on potential financing.

Additionally, when a home seller knows that you are already pre-approved to borrow for the amount of their home, this lets him or her know that you are a more serious buyer and could gain you a few concessions during the negotiating.

5. Investigate FHA loans.

The Federal Housing Administration (FHA) offers free loan insurance to qualified buyers with a minimum 3 percent down payment. This insurance means you can get a better rate from lenders without having to pay for outside mortgage insurance. Typically, the FHA sets maximum limits that depend on your county and region, but are based on the median house price for that area.

6. Budget for home insurance and property taxes.

No lender will mortgage a home that has tax liens on it or isn’t properly insured. When laying out your home ownership budget, always remember to calculate the monthly cost for county property taxes and home insurance. Whether the lender collects amounts from you monthly to cover these fees or you pay them directly each year, these are inescapable expenses that must be accounted for in your budget.

7. Choose a reputable lender.

Don’t just accept the first mortgage offer you receive. Instead, look for a lender that’s stable, reputable and able to offer you quality customer service. A lending institution is one you will likely be dealing with for 30 years, so finding one with a stable history and good reputation should be a high priority.

For information on practical home mortgage recommendations, please visit www.home-mortgage-preparation.com, a popular site providing great insights concerning home loan considerations such as private money lenders, FHA loan limits, VA housing loan and many more!
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