#69: Some Caveats on Ownership Society and Social Responsibility


On the campaign trail, Obama discussed "Ownership Society"



Yesterday, I posted an Obama quote on Ownership Society; while I agree with much of what he says about society's responsibility toward the down and out, I have some reservations, which, I suspect, is felt by most of the middle class.

Let me begin by way of example:

Back in 1989, after five years of financial struggle, my husband and I bought our first house together (we both had been married before).

It was a tough time to be buying a home; home mortgage rates were high, 10-11 percent, as were home prices, but we knew that if we didn't buy soon, a window of opportunity for home ownership might close. I was in my late 30's and my husband in his late 40's, so the prospect of having a mortgage payment well into our 60's and 70's was a bit daunting.

We could not afford the house we *wanted*, so we had to settle for a modest city home at our maximum price of $67,500 (at that time, the average home was about $150,000), which was, because of credit card and other loan debts, our absolute limit.

So we opted for a no-down payment VA fixed-rate mortgage at nine percent, with closing costs folded in.

For the next seven years (as we paid down other debt and sent a son through college), it was tough going; many months, we wondered where we were going to scrape up the house payment, but somehow we made all our loan payments and always on time.

Slowly, we crawled out of debt and started saving; once we retired a loan, we would continue making payments--to our own bank account. Old car payments? Right into the new car account. When my son graduated from college and he was safely on his own, we funneled that money into the bank on the premise that we wouldn't miss what we never had. That became our "travel" account.

In 1999, we refinanced the mortgage at a six-percent fixed rate, and a 15-year note. We could do this because we had the 20% down payment saved up and a little equity in the house. As our salaries increased, we also increased our mortgage payments, eventually making double payments each month. In 2006, with a small inheritance, we decided to pay the house off; we could do so with a comfortable cushion. (Without the inheritance, we would have paid the loan off by November 2008--this month!)

Had we bought our $150,000 dream house, no doubt we would have sunk into a nightmare scenario and fast; the money simply wasn't there. Most certainly, we would have ended up in bankruptcy and foreclosure and in even more debt.

It never occurred to us to ask for government help or to file for bankruptcy; pay by pay, we simply paid down our debt until it was gone. After all, for better or worse, these were OUR financial obligations.

We didn't ask anyone, government or anyone else, for a handout.

On the positive side, my husband has a good job with great benefits, so we haven't had to worry about medical bills; also his salary has increased steadily. The financial and health Gods have been on our side.

I believe in fair taxation and re-allocation of tax funds for social programs--"spreading the wealth," if you will, but here's where I would draw the line:

Harry Homeowner, a college professor, and his wife Harriet, a teacher's aide, earn $100,000 per year; they buy a $500,000 McMansion with a five-year interest-only mortgage with a balloon payment of the principal at the end. After struggling during those five years, the day of reckoning has arrived, and they still owe the bank the original $500,000. Meanwhile, due to downsizing, Harriet has lost her job, and they don't qualify for refinancing, so now the bank has foreclosed and they must move.

Sorry, I'm unsympathetic; Mr. and Mrs. Homeowner simply bought more house than they could reasonably afford. They wanted a fancy house and allowed themselves to be snookered into thinking that a no-principal loan would be a good idea.

It was a risky proposition, and they lost. Why should I, a responsible borrower, be taxed to support the greedy aspirations of less responsible borrowers? Why should they be able to stay in their expensive McMansion on my dime while I continue living in my more modest home?

This is my main fear: those of us who did the responsible thing will be forced to subsidize those who were greedy. That doesn't seem very equitable.

Now let's look at Harry's brother and sister-in-law: Joe Homeowner, a construction worker, and his wife Jane, a food-service worker, make $75,000 per year. After doing a lot of financial calculations, they realize that they can't afford more than $150,000 for a house and that is pushing it to their limit. They decide on a $125,000 home--not exactly their dream home, but with $25,000 down (saved over the past five years), they will get a six percent fixed 30-year mortgage. The plan is to prepay whenever possible and pay the loan off within 20 years. However, five years into the mortgage, Joe suffers a major heart attack and is laid up for six months. While Joe receives disability pay, it is only 50% of his take-home pay. Also, because of his illness, Joe can no longer do heavy construction work, so he loses his job and insurance coverage; they fall behind on their mortgage payments, so their bank will be foreclosing, and they will have to move.

This is a case where "spreading the wealth" makes sense. Joe and Jane did all the right things, but unexpected circumstances threw them behind the eight ball. Joe and Jane should be given stop-gap mortgage help and medical and tuition relief for Joe as he retrains for another career.

In Obama's plan, I hope that there will be a mechanism in place so that the responsible Joe and Jane will get the relief they need, and yet Harry and Harriet will not be rewarded for their irresponsible financial behavior. Yes, they should also receive some limited help, but they may have to move from their fancy home and into more modest digs or assume a 40-year loan. Irresponsible behavior should carry serious and difficult consequences.

And what about a tax credit for those middle class families who have paid their bills on time and do not require a government bailout?

The idealistic Barack Obama is on the right track when he says that all Americans, no matter how poor, should enjoy the basics of life, such as food, shelter, clothing, education, work, and health care.

But here's the bald truth: no matter how many social nets we set up, we will always have the poor among us. Short of committing every indigent person to institutions and removing their children from their homes and placing them in orphanages, there isn't much a government can do to save people from destructive behaviors that keep them in poverty.

It's just the way the human race is wired.

I promised that this blog would not blindly espouse every opinion that Obama holds; I deeply admire him, but he's human and subject to gaffes and I don't agree with his policies 100%.