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How does the math work out for employers? Lets use the same employee making $38,000 as an example. The employer is forced to pay 72.5% of the average premium of $6100, which is $4422.50 or 8% of 38,000 which is $3040. Obviously, dropping the insurance is cheaper for the employer. If the difference in cost were given to the employee directly then the employee still comes out ahead with more cash in his or her pocket. When you go up in the income scale, the incentive is even higher to drop insurance. For example, an employee making $102,000 a year with a family plan would cost an employer around $15000 a year in insurance premiums or simply $8000 in tax penalties. If the difference were given to that employee that employee would still come out ahead by several thousand dollars a year after the tax penalty. That money could be used to pay for preventive care out of pocket.
Finally, lets examine why we have health insurance now. It is to viagra pfizer canadaagainst future diseases and healthcare consumption. Your insurance doesn’t exactly buy you anything you can use right now. For example, I was pregnant this year, and if I didn’t have health insurance to begin with I would have had to pay quite a bit for the treatment I received. Since pregnancy is a preexisting condition and I would not have been able to buy health insurance anywhere while pregnant. Now if the new law passes, I could buy health insurance while pregnant since it would be illegal to refuse insurance to patients with preexisting conditions. This completely changes the definition of insurance and makes it almost like a coupon program you can join at anytime. Basically, your membership fee is your taxes, and then you can pay a middle layer of insurance companies when you need health care. So, there is really no need to carry expensive health insurance that covers everything when you are healthy because you can enroll anytime.
If all the young and healthy knew how to do basic math, they would be dropping their health insurance and opt for more cash pay as soon as this bill is enacted. Fortunately (or unfortunately) for Congress most American public schools aren’t so great so many people would become new insurance company customers because they cannot figure out that 2.5% is less of a penalty than the 15 or 16% they would be required to shell out. I don’t know if this healthcare bill would actually raise the percentage of people who are insured because a lot of people out there do have common sense, and businesses will figure out that the 8% penalty is much less than what they would be required to pay otherwise.
So could you save money with Obamacare? You probably can if you have a preexisting condition and need to consume a lot of health care. On the other hand, this will cost a lot more for those who are young, healthy, or make too much money. In the end, it is just and does not do anything at all to improve the quality of healthcare in this country.
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When CNN featured , my friend said to me, “Are we supposed to feel sorry for these people? I want to punch them in the face, with the exception of the guy that became disabled”. I thought the most egregious example of a deadbeat out of the four families is. This is a guy that obviously knew that he was walking away as a financial decision. He actually said that he “landed on his feet in just about every way”.
Here is another guy that my friend would like to punch from the article titled
“The government cannot do anything to make Rafael Aponte’s home affordable.
Aponte has been unemployed for three years since being laid off after 17 years at National Display Co. That is how long he has owned his Northern Liberties rowhouse, now in foreclosure.
Protesting near the National Constitution Center, where a congressional panel yesterday tried to gauge the progress of homeowner-rescue programs, Aponte said his lender had agreed to modify his mortgage, then had withdrawn the offer.
“They said that without a job, how could I pay even that?” Aponte said. “They’re right, but it isn’t fair.” “
I thought that this article was hilarious since the guy admitted that the bank was right that he couldn’t pay, but still complained that it’s unfair. The article actually went on to say that the mortgage bailout money should have been given directly to the borrowers. Seriously? I say thank God now that there are banks that are smart enough to deny loans that they know wouldn’t be repaid. Another precious quote from the above article is the following:
“Getting a homeowner’s DTI [debt-to-income] ratio to 31 percent won’t help the unemployed, since 31 percent of their income is zero,” said Paul Willen, a senior economist and policy adviser at the Federal Reserve Bank of Boston.
This made me laugh pretty hard, too. When did you learn that 0 multipled by anything is 0?
If my friend were to be face to face with these folks, I am sure he wouldn’t actually punch them in the face, even though someone needs to knock some sense into them. What we are frustrated about is that many of these foreclosees are painted as victims in the media and coddled like innocent babes by the politicians. Yes, the economy is in the pits right now, and many people are unemployed, but that is not an excuse to throw away personal responsibility. If the government continues to bully banks into making loans to people who they know have no intention or ability to repay those loans, then this situation will not get better. Unfortunately, that is still what I am seeing. The banks are still portrayed as the ultimate villains that aren’t helping enough homeowners in trouble. The truth of the matter is that a lot of these folks, and the modification efforts will just give them a few more months of free housing.
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First of all, the FHA doesn’t make loans. It simply insures lenders against losses on defaults. This means that if a loan defaults completely, then the FHA is on the hook to make the lender whole. The money it uses comes from mortgage insurance premiums that borrowers pay. The current rate is 1.75% of the loan amount upfront, and some additional monthly insurance on 30 year loans. The monthly mortgage insurance goes away when the borrower gains enough equity. When you add it all together the premium is less than 3% of the loan. The borrowers will need a minimum downpayment of only 3.5%, and they can borrow up to $729k in high cost areas. The problem with this whole scheme is that the lenders do not care if the FHA loses money because they will be compensated if things go wrong. Since private insurers, Fannie, and Freddie tightened up their lending guidelines, the new subprime loans are practically all going to the FHA. This has pushed the mortgage loan market share of in the second quarter of 2009.
Basically, the FHA has taken on a vast expansion, and with that expansion it has taken on a lot more risk. The 90+ late and foreclosure rate of FHA loans is now at 7.8% according to the Mortgage Bankers Association, and this is only expected to rise since those who take out FHA loans generally have very little downpayment, and their average credit scores are lower than the prime borrowers. Unemployment has not stopped rising and the economy isn’t totally recovered. The FHA currently insures about 5.2 million according to its website, and 7.8% means that about 405,000 of these loans are practically lost. Additionally, there are another 400 to 500k borrowers that have missed at least one payment. Since the value of the FHA reserve funds are going to fall below 2% of the value of the insured loans, it is hard to imagine how the agency would cover all the losses when they come due unless all the loans that defaulted have balances much much lower than the average loan. It is pretty simple math when you think about it.
I really do not see how the FHA could build up its reserve fund in two to three years when the foreclosure rate of the loans it is insuring is not exactly decreasing. The FHA is insuring many more loans than before, but those new loans are also defaulting and draining the reserve funds. You have to remember that the insurance premium is very small, so in many instances the FHA is using the premiums from 20 to 30 homes to repay the lender for one default. That is only sustainable if the default rate is very small, but a 30 day late rate of 17% is not exactly encouraging.
Anyway, the FHA does not expect to increase its insurance premium rates or downpayment limits, but it is requiring audits of the lenders that send loans to the FHA to prevent fraud. I would have thought that those audits were already happening, but I guess not. If the FHA really wants to decrease the amount of its defaults it would need to increase its downpayment limits so that people have more equity in their homes, but I don’t really see that happening. Eventually this agency is going to need a bailout. They may not call it a bailout, but I think it is pretty much inevitable unless the FHA changes course drastically.
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First of all, I don’t think this benefits the Obama administration because they really need to sustain a good relationship with Beijing. Even though the tire industry is a small part of the trade between the two countries, the Chinese government definitely sees this as a grave insult. The Chinese commerce minister Chen Deming said that this act is “an abuse of special safeguard provisions and sends the wrong signal to the world”. Frankly I don’t think it is worthwhile to anger China over a tiny percentage of trade between the two countries just to yield to some political supporters.
Next, this will probably hurt Americans more than the Chinese. The poultry industry is now on edge because they export tons of chicken feet and wings to China at a premium price. If China imposes a tariff on them they will lose quite a bit of profit. The USA Poultry & Egg Export Council expressed that they are ““. The New York Times published a particularly amusing article on this matter which said that the , but Chinese people are also very price conscious so any increase in price will bring consumption down. The poultry industry is right to be concerned, because those chicken feet are fairly worthless here in America. Suppose that this tariff protects $1 billion in domestic tires, but loses $2 billion in chicken exports, then American workers still lose as a whole.
Another way this hurts Americans is that the tariffs will increase tire prices. Most of the Chinese tires are cheap low end products. American manufacturers such as and import them to the United States. The tariffs on Chinese tires will inevitably increase prices for American consumers who buy the lower end tires. Additionally, if manufacturers had to increase the price of their low end products they would probably increase the price of their premium products to make their products seem more “premium”, and that means more expensive tires for everyone.Americans are also very price conscious right now, and the higher prices might mean lower sales, and ultimately that might hurt the American tire industry and decrease jobs in that sector anyway. In that case this protectionist measure would have accomplished the exact opposite of its purpose.
So who really benefits from this? I think the trade lawyers should be happy because Obama pretty much open the doors for more similar complaints from every other industry. In Bush 43′s administration four similar industry complaints were rejected because Bush wanted to keep trade free. Now Obama is sending a signal out there that he is willing to approve protectionist measures for small groups that he favors so more groups may be hiring up lawyers to file complaints because now they have a bigger chance of getting their petitions approved. Although , whoever files them will be getting a fee. So in the end, I think the lawyers win.
Ultimately, I highly doubt that this tariff on 0.4% of China’s exports to the United States is going to turn into an all out trade war, but it is certainly making Obama less popular to everyone except the specific unions that he is agreeing to. Decisions like this affect a lot more than just the people making the complaints, and it is probably wiser to reject them all like Bush did. That way at least it looks like there are no favorites.
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First, there is a family of four from Adelanto, CA that is buying a home for $72,000. Obviously for this family the tax credit is a great deal. They can only claim $7,200 because that is 10% of the price of the home, but hey, it is free money. They are still waiting for approval on their purchase, and I hope they get it because it seems like an awesome deal for a 4 bedroom house. However, the story indicates that they would have bought the house with the credit or not because they needed a new home and the price was right.
Next, there is a single woman from Michigan who bought a $115,000 home for herself. From the description she gave it seems that she has a good head on her shoulders and she has been saving for a downpayment. This person also said that she would have bought the home anyway, and the $8,000 is really a bonus to her. I think that is great for her, but this means that the stimulus did not really spur an additional sale here.
The next couple is actually from San Mateo County. They bought a $750,000 home in San Carlos with an FHA loan. This means that they put down 3.5% and their loan is somewhere around $723,000. At 5.5% this is a mortgage of around $4100. Throw in property taxes and that’s another $600 a month. They will be paying pretty much all interest to begin with and it definitely does not cost $5000 a month to rent a three bedroom in San Carlos. This story makes me worry a bit because this couple is planning a wedding and they said that the $8000 tax credit is saving them. If you do the math, $8000 is 1.06% of their purchase price. Honestly $8000 would not even cover their closing costs on this purchase so it would seem that perhaps they are buying too much. The story did indicate that they felt rushed into the decision because of the tax credit, and I don’t know if that is a good thing.
The next couple is from Baltimore and they purchased a $119,000 home that they fixed up with the tax credit and other grants for historic homes. Again, I think in this case the $8000 is significant enough that it makes a lot of sense.
Another local couple from San Francisco is up next. They got a $550,000, 2200 square foot home in San Francisco. This is actually a pretty good deal if it is in a good area of San Francisco. They used the $8,000 to partially pay for a $12,000 roof. They indicated that they waited to buy their home because they heard that a refundable credit was coming out, but once again, $8000 is just a drop in the bucket for their purchase. It’s great that they were pay for 2/3rd of their roof, though.
The next couple took advantage of the fact that Essentially they got a 0% down loan from the government. The home is $257,000 and they could not save up $9,000. It also seems that they got an adjustable loan? In this case their only equity is the $8,000 tax credit, so it was definitely crucial in their purchase decision.
The next guy also used the tax credit as a downpayment, but he bought a triplex and is renting out two units to pay for most of his mortgage. So basically he became a little landlord on the dime of the US government. That is a awesome deal for him and I hope he does well.
In conclusion, I would say that most of these folks would not have purchased a home this year if the tax credit weren’t there. The two groups that used the tax credit as a downpayment could not have afforded what they bought. In the two Bay Area cases where the purchase prices were $550,000 and $750,000 the $8000 really was just a drop in the bucket so I feel like they shouldn’t have based their purchase decision solely on the credit. Anyway, it is nice to see that some people are able to take advantage of this in a smart manner even though I find it ironic that the government is giving out 0% down loans on one hand and wagging a finger at the “greedy bankers” with the other hand. Honestly I cannot wait for this credit to expire so that the housing market returns to normal.
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