By Renae Merle
Washington Post Staff Writer
Friday, December 7, 2007
In 2005, when even the bartender on U Street talked about all his condo investments, Matthew Brown and his fiancee walked away from the local housing boom. Instead, the District couple decided to take the unfashionable approach: save for a hefty down payment and keep credit card debt down.
The "long in the tooth" car got older. The vacations became less frequent. "My fiancee and I have been renting, biding our time, doing all the things people tell you to do: save, don't carry balances on your credit cards."
So yesterday's news that major lenders had agreed to freeze rates on some subprime adjustable-rate mortgages stirred deep resentment.
"It seems almost like you are rewarded for being less responsible," said the management consultant, 33. "There are a lot of downsides for people who didn't buy into a lot of the frenzy."
The agreement has sparked bitterness and anger among those who either sat out the housing boom or endured friends' snickers when they stuck with a traditional mortgage and a smaller house. To some who watched prices rise out of their reach or who moved to cheaper cities, the agreement looks like a penalty for those who didn't gamble.
"What about those of us who played by the rules? Can we get six months of free gasoline? Isn't there something for the rest of us?" asked Tim MacKinnon. After watching a friend use his home as an "ATM" for years, MacKinnon left Washington for New Jersey, where the $25,000 he had socked away went further.
The resentment is apparent on blogs that chronicle the mortgage crisis. It has some Republican lawmakers worried about a backlash.
At the blog HousingPanic ( http://housingpanic.com), the agreement is equated to the attempt in 2005 to save Terri Schiavo, a woman who was in a vegetative state. "Washington politicians thought intervening in the Terri Schiavo affair would be good politics, too. Housing Gambler Bailout is the new Terri Schiavo," the site proclaims.
Then there is the name-calling and hostility: It is a plan to help the "greedy" who "squeal like stuck pigs" when the market turns bad, said one post on HousingPanic. Another declared: "If I only had been stupid or greedy instead then Uncle Sam would have my back."
"Let the punishment fit the crime. That is where the passion comes from," said Debi Averett, who launched the blog Housing Doom ( http://housingdoom.com) after getting priced out of the Phoenix market.
The deal reached by government officials, mortgage lenders and Wall Street firms aims mostly at subprime borrowers who can currently afford their payments but won't be able to once they adjust during the next three years. It attempts to forestall a wave of foreclosures that some worry could help push the country into a recession.
And that's a worthy goal, backers say. "We should look out not just for ourselves but for our neighbors. Be thy brother's keeper, that is what we should be about," said Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America, a nonprofit group that wants the deal expanded. Resentment is misplaced, he said. "It is also in our self-interest" to help troubled homeowners, he said.
The debate hits an American obsession -- the importance of homeownership -- and could be tricky for presidential candidates in states most threatened by foreclosures, including Florida, Michigan and Ohio.
"The epicenter of this problem [is] places with key electoral votes," said Christopher Mayer, director of the Milstein Center for Real Estate at Columbia Business School. "I think both sides have to figure out what to do. I don't think they are going to find it such an easy" thing.
Politicians need to appeal not only to people at risk of losing their homes but also to those such as Ben Sullivan, who sees the agreement as a undeserved bailout. After the 2001 technology stock bust, many people lost significant value in their retirement plans, Sullivan said. "No one was offering to pay for their 401(k) losses. Why should they do it for their housing losses?" said the 28-year-old commercial banker.
Sullivan lived in the District for years and watched as his friends flipped condominiums and investment properties. "I think we shouldn't be bailing out the homeowners that got greedy buying homes they couldn't afford," said Sullivan, who moved to Atlanta nine months ago.
The aggravation has been building for a while and stretches beyond the agreement announced yesterday. For instance, under one congressional proposal, there would also be a break for "short sales" -- that is, when owners sell a home for less than is owed on the mortgage and the lender forgives the difference. Now, the amount that's forgiven is regarded as income, and the seller owes tax on it. The proposed legislation would forgive that tax.
Without the threat of the tax, sellers might not be as reluctant to consider a short sale, said Northern Virginia real estate broker Frank Borges LLosa. He predicted the number of such sales could double.
Maybe Congress should allow a 50 to 75 percent break instead, he said. "I am not saying not to help out these people," LLosa said. "It's very sad. I have spoken to people who have lost their homes. I just don't know if a bailout is the right thing for the marketplace as a whole."