Real Estate
Pretending to be in Distress?
If you qualify for help from a mortgage-relief program but you don't really need it, should you take it?
By Knight Kiplinger, Editor in Chief
From Kiplinger's Personal Finance magazine, January 2009
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My family as well as several other families in our neighborhood now owe more on our mortgages than our homes are worth. At a recent party I heard some of our friends talking about the new federal mortgage-relief programs and how they were planning to get their monthly payments reduced. No one has lost a job, and I don't see anyone making cutbacks in lifestyle. But these neighbors plan to go into arrears on their payments -- which jumped when their mortgage rates adjusted upward -- and make a case for hardship.
It seems to me that all of us simply bought more house than we should have, at the top of a hot market, or perhaps we borrowed too much against our home equity for living expenses. That's our bad luck or bad judgment, not anyone else's fault. My husband and I are going to reduce our spending and wait this out. Our friends say we are chumps not to get on board the gravy train. What do you think?
I agree with you that it would be unethical to use public funds from the mortgage-relief programs in this situation, and I commend you for your self-awareness and integrity.
These programs are designed for the many true victims of this housing crisis -- for example, unsophisticated home buyers who were duped by shady lenders and brokers into taking bigger loans than they could afford, and folks who bought suitably priced houses and were managing just fine until they were laid off or suffered a medical emergency. There are countless numbers of these homeowners, and they need help to avoid foreclosure.
The government is spending a finite amount of money on this project. What your neighbors are attempting to do by gaming the system is divert public funds from those borrowers who truly cannot meet their mortgage obligations and are truly in need. I find such behavior very offensive. It will be difficult for the administrators of these programs to distinguish real hardship from chiseling, but I hope they can.
Have a money-and-ethics question you'd like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.
Reader Comments (7)
Posted by: James at 12/09/2008 10:41:39 AM
Although I agree highly with the sentiment, I think the bailout itself rewards improper behavior. People being "fooled" into buying more home than they can afford? Really? Why should only the people who were fooled and who are not making their payments be the only ones to feed at the trough? What about people who are fighting to stay afloat, but are still making it? It is a slippery slope, and it does not lead anywhere good.
Posted by: broketaxpayer at 12/09/2008 10:59:42 AM
unethical,....are kidding me? The boys in washington just cleaned us out, twice, and I don't think anyone is ethical these days. criminals run our country. There will be two americas if the sheep ever wake up.
Posted by: Anonymous at 12/09/2008 01:07:32 PM
I would add that this person should find more ethical friends. For me, integrity is a necessary quality for anyone I count as a friend.
Posted by: ARF at 12/09/2008 04:16:14 PM
“These programs are designed for the many true victims of this housing crisis -- for example, unsophisticated home buyers who were duped by shady lenders and brokers into taking bigger loans than they could afford” Ignorance is not an excuse. When we purchased our home, we could take a look at our finances and know what was realistic or not....We try to teach our kids in school every day to study hard and turn in your homework. Does “I didn’t know we had homework due today” work as an excuse? No, because it’s not an excuse. How can you say that these people are the “true” victims? These are people that shouldn’t have purchased a home in the first place in most cases...From our parents' and grandparents' generations, purchasing a home was something you saved up for and if you worked hard enough you might be able to purchase a home. I understand it’s hard to lose a home you're living in, but if you can’t afford it, you can’t afford it. Would these people be the “true” victims if they would have made $200K off of the deal? Would you hear them complaining then? Absolutely not. The “true” victims are the people that are continuing to make their payments and are upside down $50K, $100K or $200K, not the people that were supposedly “tricked” into purchasing a $500K home when they make $40K per year. The American dream is a privilege, not a right
Posted by: smallfish at 12/09/2008 09:34:46 PM
yes, my friend who flipped a house and then bought another house that was way more then he could afford is going to start being late on his payments. he will tell the bank that he just barely raised the money. he is going to try and get on the gravy train. reading this makes me think this was not an original idea of his. i would like to see strict controls on this process of helping people with their mortgages, such as excluding those that flipped houses and then ended up without a chair to sit in when the music stopped....the government(we the people) should not subsidize lifestyles of those that think they are entitled without saving a dime.
Posted by: me at 12/10/2008 06:06:04 PM
People like this sicken me. They take take take and don't give back. There are many families out there who could barely afford a bag of rice....The money is for people who have lost their jobs and not for the snakes.
Posted by: aaa at 03/12/2009 11:25:55 AM
yeah, I see (the) same thing happen here. My supervisor...tried to pull the same trick. He still has the job and bonus. These are for people who really need help. I hope the government has the way to track these people...and charge them for it. They tried to say that they have hardship because their overtime got cut....I see them have the overtime and full time payment with more salary than others. I'm not just talking about the supervisor...