Obama's Housing Plan: Elegant and Costly 63 comments
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I have to say I like the look of Obama's housing-bailout plan. It's quite elegant, and makes full use of the fact that Fannie and Freddie are now owned by the US government -- which means they can be forced to offer 105% loan-to-value mortgages even when the borrower isn't creditworthy at all.
Obviously, all of this comes at a cost to the US government: the figures being bandied around today range from $75 billion in the NYT to $275 billion at Bloomberg. But really nobody has a clue how much it will cost: that's entirely dependent on whether or not the plan succeeds in arresting the fall of house prices.
I especially like the idea of offering loan servicers $500 if they modify a loan before it becomes delinquent, especially if it's accompanied by an easy and streamlined mechanism for getting such modification requests into the Fannie and Freddie systems.
This plan isn't designed to directly help borrowers who are massively underwater: if your first mortgage is more than 105% of the value of your house, you're ineligible. That will help reduce some of the costs to the government, and move them over to the lenders, who now look as though they will be bailed in to bankruptcy proceedings -- a long-overdue development.
Incidentally, this plan is certain to increase the astonishingly high delinquency rates on non-agency mortgages, since it's basically designed to take most of the remotely viable non-agency mortgages and refinance them into agency mortgages, leaving only the complete and utter nuclear waste behind.
So far, there's not even a glimmer of a plan for how to get private-sector lenders back into the mortgage market in any significant quantity -- and that's going to hurt markets like Manhattan, where most mortgages are non-conforming. But Manhattan property owners are rich enough to look after themselves. This plan aims straight at the heartland, where it really matters. It's a good start, but it might well yet prove to be insufficient. We'll see.
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The better thing would have been to double or triple the effect of the mortgage interest deduction on the tax return. Then all home owners would have benefited. The ones with good sense and some debt could pay that off, plus the banks then get that money. Those with no extra debt would have extra money to spend and help the economy. Those with debt and bad sense become the fallout of financial darwinism.
Instead of citing catchy but meaningless mantra like "help main street, not Wall Street," we need to let the foreclosures and the people who can't afford mortgages to work their way out of the system. No one can prop up a failing housing market indefinitely. The market is far too large for that. All these ill-advised programs do will be to delay the inevitable... that people who can't afford mortgages need to give up those homes, and housing prices need to come back in line with incomes. Ill-advised populist schemes like this only put our country deeper into debt.
When did my country become an uber socialist state with subsidized housing for the people who can't make good financial decisions and government "loans" (not likely to be paid back) to keep afloat companies that make crappy cars that even its citizens don't want to buy. Welcome to 2009.
How to get the most out of this program:
1) Refinance your existing home and remove all the equity.
2) Invite a criminal element into your neighborhood to drive down values. Your spouse and children will need to stay with relatives.
3) Then quit your job and get a minimum wage job, or better yet, keep your job and set up an exectutive deferred compensation plan whereby you defer all of your income. This deferred comp option is not available to everyone but business owners could do this.
4) Wait in line for your turn to suck on the teet of mother government.
I agree in principle the risk that this program simply defers the inevitable for a significant number of home owners.
Looking on the bright side though, this program could defer foreclosure long enough to allow the Fed to get the printing presses running full speed.
If this is done then hyperinflation should be able to reduce the mortgage to nothing and permanently prevent foreclosure :D
On Feb 18 09:38 PM constructe wrote:
> I guess nothing is perfect and if they are throwing unearned money
> around why not to some homeowners who are not drastically undercapitalized
> and/or don't earn anything. This still won't stop speculators from
> benefitting or people just forstalling the inevitable default. Basically
> at 105% it lets borrowers use the extra loan to look like they can
> afford to pay their mortgage for a few months when in actuality they
> are using their mortgage to pay their mortgage. That way banks can
> say their default rates dropped whenthe underlying value hasn't improbved
> at all. And possibly has worsened. It just masks the problem.
I propose a flat 4% fixed for 40 years to all mortgages up to 2 million dollars.
The government is trying to figure "who is worthy". What stupidity. These morons can't come up with a simple unified plan that will jolt the economy.
Obama acts smart but he is INCOMPETENT.
On Feb 18 11:39 PM Celcius wrote:
> Let's refinance their loans to 50 year or 75 year mortgages at a
> high interest rate, 6 to 8 percent, but with manageable monthly payments.
> They keep there houses, and the government makes a profit!
Specifically;
1) Enforce / force Recourse - at least going forward and preferably retroactively
2) Require higher down payments for sophisticated/stupid loan products (eg- pick-a-pay)
As usual, the pathetic saps who govern us have it backwards. Again. (Or are "We The People" the pathetic saps for tolerating this nonsense ?) The benefits and rewards are always going to the very same people who cause the problems to begin with. The government --I use that word very loosely-- should be sending checks to all those who had nothing to do with this situation.
If you were sitting in your living room, minding your own business and paying your mortgage or rent on time, you should get a big fat check. If you were flipping condos or signing your name to fraudulent mortgage contracts that grossly mis-stated your income (Isn't that a federal offense ?) or you were cajoling people into signing ARM's or slicing up the fraudulent mortgages and repackaging them for sale all over the world-- you get nothing, and should consider yourself lucky that you are not in prison.
Now, about this abomination....
I know this is just hypothetical, and could never actually happen. After all, our gov is now on the case. So, just as a pretend sort of thing.....
What happens to the modified loan if housing prices fall another 15 to 20 % ? Can the owner, having now signed yet another mortgage document, decide to walk away ? Or is this deal binding and not even dischargeable through bankruptcy, like student loans ?
If the homeowner can walk away, or take advantage of proposed changes in BK to rework the deal yet again-- that is a kettle of worms we will be dealing with down the road.
If it is like a student loan, and the homeowner can't get out of it no matter what, well...that is a whole new kettle of worms that will be opened. The problem, obviously, is that if you become underwater again by, say 20%, and you can't get out of the reworked deal, you won't be able to sell the home until prices go back up. That could be the rest of your life. You are now a government tenant. For life. You really own nothing worth owning. That, of course, will bring about new modifications, since the poor homeowner was just a "victim" who did not understand what he was signing. Again.
And if the proposed changes in the BK law allow for a "Homeowner BK" to get a mortgage reworked, but leave everything else alone-- Why would anyone sign a remod when they might waltz over to the courthouse and get the mortgage changed to "appraised value" ? Wipe out all home debt that is unsecured, which would be anything over appraisal, since there is nothing there to secure it to ? Bye, bye 2nd mortgage, too, if there is one.
Now, about that word, "elegant" to descibe this bailout plan........
Will it all work? I have a very bad feeling that the two plan will not reach their desired goals. As always, the devil is in the precise details and those are not coming for the Obama housing plan until March. Till then, let's hope for the best.
Not sure if this has been looked into - why can't the homeowner assistance be treated as a loan against one's Social Security account? This will ensure that there is no free lunch. The Govt tides these people over in the short term, but then would make them "pay off" their loan against their SS account or reduces the SS payment when it is time to draw SS checks. Much like borrowing against your 401k ??
"One percent of the households that file in this city pay something like 50% of the taxes," explained the Mayor. "In the city, that's something like 40,000 people. If a handful left, any raise would make it revenue neutral. The question is what's fair. If 1% are paying 50% of the taxes, you want to make it even more?"
I'm sorry, but no f'ing way should an idiot like this received a DIME of my money!! I'm stuck in the middle of the boondocks b/c I felt it was irresponsible to buy the $190K condo I wanted on my $60K income so I settled for the $130K model 35 minutes up the road. Here this guy makes less than me and buys a house nearly 3x's!!! Gimmie a break!!
And I don't want to hear the "Its Calfornia" excuse b/c I am sure you can get a 3/4 Bdr apartment for less than the mortgage on this place was.
On Feb 18 04:41 PM Chris B wrote:
> It seems like most commenters on this site got a degree from the
> Andrew Mellon school of classical economics at Herbert Hoover University,
> where pointing fingers and simplistic slogans are more respected
> than the lessons and experience of history.
>
> The ideology of "do nothing and let the free market correct " is
> what led to the great depression. There are also consequences to
> weak, mostly symbolic responses such as Japan's in the 90's. At least
> their wimpy response was enough to prevent a depression there. Those
> attempts by governments to save a buck and not overwhelmingly confront
> the crisis cost them a lot more in the long run.
>
> If anyone is interested in the right way to deal with a housing bubble
> - bank crisis, look here.
>
> en.wikipedia.org/wiki/...
>
> The fact that almost nobody has even heard of the Swedish bank crisis
> is testament to the success of its solution. Yes, it was initially
> expensive. Their standard of living is still among the highest in
> the world too.
>
> For those of you who are unconcerned with boring subjects such as
> facts and history, carry on with the politicized banter and bitching.
On Feb 19 09:17 AM The Mad Hedge Fund Trader wrote:
> Obama’s mortgage bailout package is out, and the market didn’t care,
> hitting new six year lows.
www.recessioninfocente...