“If you think nobody cares whether you’re alive or dead, try missing a couple of mortgage payments.”
CNBC recently reported an investigation of a couple that President Obama cited as “responsible homeowners” when pushing for mortgage refinancing and debt forgiveness programs. The couple, Val and Paul Keller, never missed a mortgage payment, but they were underwater.
What the secretary of Housing and Urban Development and President Obama failed to mention in calling them “responsible homeowners” is that they did a cash out refinance during the middle of their mortgage.
I’m not sure how someone who seeks additional debt rather than paying the debt that they have down can be classified as “responsible.” Yes, the Kellers used the money to pay down debt on the family construction business, so it’s not like they had two trips to Disneyworld and three big screen TVs in the man cave as the only remnants of that cash out refinance, but the President and HUD seem to miss the obvious fact that there are better ways to pay off debt. Let me name but a few:
- Cut expenses. Don’t go out to eat. Don’t take vacations. Don’t buy fancy new clothes or new cars. Live below your means.
- Get an additional job or work more in the current one. While there may be a total unemployment rate in the teens, there’s always opportunity for someone who is willing to hustle and work hard.
- Sell stuff. Craigslist, eBay, and yard sales are good ways to generate some extra cash to throw at debt. It also declutters your house and probably makes you happier, as material goods don’t usually contribute to your overall happiness.
- Downsize the house. Still have that four bedroom house now that the kids have left? Sell it and downsize and use the difference in prices to pay off debt.
I am risk averse. I acknowledge that pending inflation and the current exceptionally low interest rate environment will probably make the effective cost of borrowed money zero over the long run. However, there is value in not having debt in reduced stress and lower overall lifetime risk that, while hard to quantify, is clear and evident.
The responsible homeowner pays down his mortgage. It’s a pretty simple concept, and it’s one that apparently President Obama and the Department of Housing and Urban Development don’t understand.