Why the 2008 Housing Relief Bill is No Relief 30 comments
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Over the weekend, Congress gave final approval to the housing relief bill that is aimed at helping thousands of struggling homeowners avoid foreclosure and to temper falling home prices. It also includes provisions to assist institutions that operate in the mortgage market, namely the Government Sponsored Enterprises (GSE) Fannie Mae (FNM) and Freddie Mac (FRE).
The cost of this bill, despite other proposed funding options, will be funded primarily by the American taxpayer over the long term, and in particular those of us who are "financially fit". That is, people who have not got in over their heads and are effectively managing the debt they have. It also covers people who have taken the efforts, sometimes sacrificing other wants and luxuries, in order to be timely on their income tax payments, debt obligations and to ensure they enter loans they can afford.
So if you are in the "financially fit" category, like I am, you should be annoyed at having to bail out the rest of broke America. I understand that some people are genuinely distressed, but the vast majority got themselves into this mess through financial ignorance or mismanagement.
Here are the main financing elements of the housing relief bill where I see a lot of potential for failure and fallout:
- $300 billion towards refinancing of mortgages for 400,000 distressed borrowers. The reason a lot of these families got into these "sub prime" loans that they couldn't afford was because they didn't quality for the regular 30 year loans in the first place. It also places a lot of pressure on already struggling lenders who have to take a lower loan value and share profits with the government. The cost from these losses will be passed onto to the "good" financially fit borrowers who will see their taxes and cost of their financing go up. Also, even if 400,000 homeowners can avoid foreclosure — a figure that a few critics dispute — some estimates put the number of potential foreclosures from 2007 through 2012 at up to 6 million. So this bill is like creating a fishing safety net, when you trying to catch sharks in the ocean.
- $25 billion for the GSEs. This makes their government backing explicit, rather than implicit, and gives them support in the eyes of Wall street that they have a funding source to get through the housing crisis. They currently do not need this $25 billion line of credit, but if they do (in the event of a worsening of the housing market) and because they are too big to fail, we will then have a real taxpayer funded bailout of a major financial institution and the cost will be much more than $25 billion over the long term. Some critics say the legislation goes too far in propping up Fannie Mae and Freddie Mac and shielding lenders."The new law will actually encourage lenders to be even more reckless," argues Peter Schiff of Euro Pacific Capital. "The government is telling lenders not to worry about the loans they make, because if borrowers do not repay, the government will."
- Raise the federal debt limit from $9.8 trillion to $10.6 trillion, an $800 billion increase. Bascically giving the treasury a green light to freely spend (waste) tax payer funds to save sinking ships. This will raise our national debt and continue to weaken the US dollar. We all know how good (not) the government is at spending tax payer money in times of crisis (Katrina hurricanes, Iraq War, lack of a energy plan etc)
- Provides $180 million for financial counseling and legal assistance to help families stay in their homes (to be distributed in grants by NeighborWorks, a national non-profit). I thought this counseling had been going on for the past year, yet the crisis continues to worsen with more people caught up in it. The problem is falling house prices and past predatory lending practices where loans where given to people who could not afford them. Counseling will make people aware of their options, not forestall foreclosure. Unless the loan servicing companies participate in assisting distressed home owners, this is just wasted money by the government.
- Refundable tax credit for first time home buyers (10% of the purchase price, up to a $7,500 credit). This is good for those prudent folk who waited to buy a house or bought a house in the last few years that they could afford. However, if it is just used by people as a deposit or collateral to buy a house that can't really afford, then you know where we will be back to! Up to 3 million buyers could be eligible for the tax credit, according to the National Association of Realtors. "It's something that will help, but I'm not sure it will make a substantial difference," says Joel Greenberg, CEO of Novadebt, a non-profit consumer credit counselor. "A lot of people are sitting on the side, unable to move, because there are so many obstacles, such as not having sufficient credit. You have the obstacle of the concern that something you buy now will lose value. A $7,500 tax credit isn't going to do it."
- $500/$1000 standard deduction in property taxes, for joint/single filers. This will probably end up resulting in higher property and local taxes down the line to recoup the costs.
- $4 billion grant to states to buy foreclosed properties. States will be allowed to buy and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders, property vultures and not homeowners. I agree as these rehabilitated people will be sold to astute property investors for a substantial discount and not to people that really need the housing. The "states" are basically playing "flip that house".
The bill is also looking to raise $18.5 billion in revenues by requiring credit card companies to report more information to the IRS about credit card transactions, a move designed to force merchants to more accurately report their income. This will result in added costs to credit companies and merchants, which they will of course pass onto consumers in some form like higher fees or credit transaction costs. Another source of funding the bill is from the GSEs - but they are going to have enough monetary challenges of their own to really provide much funding in the short to medium term, which leaves the American taxpayer as the main source of funding. Why isn't there an additional tax or penalty on the financial institutions that got many homeowners into this mess through their financial trickery in the first place?
Apart from a short term slowing of the current housing market crisis and credit crunch, the bill will only delay the inevitable downward spiral. Unfortunately the American and global economy is heading into a recession, not out of one. So the housing bill, like the stimulus checks, will only have a temporary affect. The government again is trying to spend us out of an economic crisis, which is unlikely to work and will only add to our national debt and the continued devaluation of the US dollar.
Quotes from USA Today
Disclosure: none
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This article has 30 comments:
Builders, realtors, banks, lobbied heavily for various bailouts and their wish lists were for THEMSELVES not for homeowners as they tried to make it appear to the public.
Many of the buyers during the bubble were not planning to live in the house, at least not for long; they were flippers. And some home buyers were victims of mortgage fraud including such outrageous examples as forgery, etc. Some big co's were doing this, it wasn't just the loan shark on the corner but co's people still refer to as "big well known reputable trusted companies." Somehow many Americans still believe a "big" company automatically deserves their trust. NOT! Many insiders including big co CEOs were either arrested or are under investigation but many more need to be. And many smaller less well-connected insiders are facing trials. It's still not enough, and this action by law enforcement now is too little too late. It's not as if there were no warnings years ago!!!
I saw almost nothing accurate or complete in coverage in mainstream media--print newspapers and TV news--about the bubble or the bailout. This means most of the country still thinks the bailout is for homeowners, particularly irresponsible ones. It's obscene how twisted the main media sources are. And all these seniors who are so afraid the internet is a hot bed of crime would do well to get online at the local library and read up on reverse mortgages, mortgage fraud, etc, so they don't become the next wave of victims! All I'm really seeing on the morning news is a PUSH for seniors to get into these things with little or no warning of how to identify the scam and rare mention to get a competent lawyer before signing one. If corporate american can silence the truth about all these scams we can expect wave after wave of scandals, bubbles, etc, and if the next wave is senior mortgage scams as I believe it may be, we can all count on figuring out how to bail out our elderly parents in a few years.
Since we (the American Taxpayers) did choose to marry a cocaine addict, please explain to me why we are now somehow responsible to fund part of your mortage? To use your own words....HOW DARE YOU!!!
This was mentioned on another site but not here. While many of these people have no equity the current plan will never allow them to collect more than 50% of the appreciation of the house until the loan is paid off. This is not going to work for the finically stupid.
< 1 year 100% of equity goes to government/lenders
< 2 years 90% of equity ” ”
< 3 years 80% of equity ” ”
<4 years 70% of equity ” ”
<5 years 60% of equity ” ”
>5 years 50% equity share
Have fun
To "Destroyed by divorce": HOW DARE YOU complain that your problems need to be fixed by someone else!!! No one FORCED you to buy anything, let alone force you to marry a jerk. Life is not fair!
Move on and stop complaining!
It would solve drug related issues in USA and prevent any woman into marrying a drug addict ever.
If you do not know what caning is all about...that cane is close to an inch in diameter. You are tied to a frame to prevent you from moving, they use leather to cover your spine, else they may break your back and you become paralyse, if they hit on the spine...just one strokke, it will break the skin...more than one inch...takes 6mths for the wound to heal...and you get another stroke to break the skin again right after.
Aren't we American taspayers just so lucky we have both?
Yes, most of Chinese have good credit.
Yes, many Chinese have no much knowledge of English or with poor reading comprehension.
But, Chinese -- they are just lucky,
only very few Chinese have forclosure experience.
-- That's why -- most of Chinese have good credit:):):)
But how DARE you make the rest of us try to feel bad that you should keep your HOUSE. A lot of people like to call them "HOMES", but what they really are are HOUSES. 'Home is where the heart is' but HOUSES are for sale. Walk away and save yourself the ranting grief in public comment pages. Spare us the rant of your rather sad and disparaging life and look at this from the point of view of the person on the street who may not have a "good money" job who will wind up paying for big mistakes by other people through a government that no longer represents them, but represents the big conglomerates.
You'll be lucky if this bail out helps you, but remember, you're just as bad as the coke head because you too are stepping on other Americans, just the way he did to you. Feh.
Wells Fargo needs to be investigated and excluded from participation in Fannie and Freddie Bailout loans. The appraiser needs to be investigated.
Folks we need to expose this or housing will be propped up again and we tax payers will get more and more losses rammed down our throats. Write your Represenatives:
capwiz.com/ascd/dbq/of.../
Post this on any blog you participate in.
Listen carefully, can you hear that? It's the world's smallest violin playing the world's saddest song.
It's a shame we have "executive woman" in this country unable to manage such "complex" problems.
Annoyed?. Please. How about "furiously enraged to the point of homicidal fury"?. Not only will I have to help others pay for their f*cking homes WHILE I'M STUCK RENTING ..but also my significant savings are being wiped out by the minute thru CONSTANT devaluation. At this point the best bet for me is to donate all my money to Al Qaida and hope they kill every last American motherf*cker con artist they find. Allah Akbar!.
I am sorry for your situation but until you are willing to subsidize the rent on my modest, overpriced two-bedroom apartment, I don't see why the government should make an exception for you. They may say that they are on your side, but unless you are wealthy already this bailout will only increase the macroeconomic pressures on all of us. The bailout will not preserve the value of your Send the bank some jingle mail and move into a rental if
To tascam: Do you kiss your mother with that mouth? Are you married? Screw you and your sexist bullshit, there was no need for that. You are pathetic, bitter and cannot be taken seriously. You need to get laid, but I doubt any woman would have you.
To the rest of y'all hating on Destroyed By Divorce: while I disagree with the bailout along with the rest of you, you people need to have a little more compassion. A conserva-troll baiting a divorced mother on the verge of foreclosure is pretty ugly. Don't give me that crap about "choosing" etc., there are things that happen beyond our control in all our lives. Just because something bad hasn't happened to you yet doesn't mean it won't.
Except for tascam, obviously a bitter, unsexed divorcee -- that is, if he's really a day over 18.
Are you serious? 'Destroyed by Divorce' ( an EXECUTIVE, according to her) wants to take our hard earned money to pay for her mortgage (even going so far as saying HOW DARE YOU to anyone who challenge the idea) and you say it's everyone else who lacks compassion? That makes me laugh a little.
Hey I told her what I thought, fairly civilly. What's wrong with being civil? Doesn't mean I'm not mad about it. Maybe she'll even think about what I said... can't say the same for Tascam, can you?
Now if she had been a banker, it might have been a little harder to be civil ;-) Believe me, I understand the anger, but unloading all your bile on a divorced mother who was married to a cokehead is just... unseemly. Save the bile for the bankers and politicians, the people who are really behind this bill. And it is NOT a liberal vs. conservative issue either.
I am simply tired of knuckledragging trolls like Tascam clogging up the comments on intelligent sites like SeekingAlpha. He belongs somewhere like LittleGreenFootballs where people can just heh-heh that crap like Beavis and Butthead all day. He does not speak for me and neither do the other people who flamed Destroyed By Divorce.
Maybe I'm just old fashioned. Silly me.
If you consider the magnitude and global scale of this crisis it is clear that it is not caused solely by people taking on mortgages they can't afford, that is merely the trigger that brought down the house of cards.
The real problem is a round robin of debt at all levels fueled by lax government oversight and fiscal control.
My wife saves 80% of her income that is not taxed. I have two jobs and my wife has three jopbs. IO learned that if you are not working, you tend to spend money. SO I keep working AT ANY JOB, whether minimum wage or as a consultant. I am never too proud to work an honest job.
Neither of us has a high salary. In fact, our gross income is average for our blue collar neighborhood. but wait! Are we poor? Hell no! She still drives her old car and I also drive my old car. We nickle and dime everything. We have a small vegetable garden and we have both learned to cook and garden. I am still wearing clothes I bought 12 years ago. No frivolous expenses! We prepay all recurring bills rent, gas and electric. I recently ran a credit check and we HAVE NO FICO SCORE. All there was was a SSN DOB and street address. None of my paid off house mortgages (four) showed up on the credit reports. None of my wifes old mortgages showed up on her report. No worry about identity theft here! Wellk we have saved over $600,000 CASH all taxes paid for our dream house---and guess what?
We learned that we don't want that dream house anymore!!!
A house is a pretext by banks to suck the life blood out of you. If i want to offer my opinion I offer it---LOUDLY. That is called REAL FREEDOM. No more rear kissing just to keep the boss "happy" no more PC speech.
Plenty of Michael Savage on the radio and plenty of time to read about PATRICK.net ON A FREE COMPUTER ---ON My neighbors FREE wifi internet connection.
Btw---I was just given two complete home theater systems---top of the line 750 watts of sound huge projection video screen 8 feet across. FOR FREE...and now we have FREE cable. I have a nice neighbor who rewarded me for fixing stuff around his house. The free home thater---was owned by a neighbor who has to move to a trailer park...they also lost their house. Across the street four mobile homes are parked---lived in by former home owners.
I blame Realtors, bankers and greed.
I AM NOW STARTING TO ENJOY THE fruits of LAST TEN YEARS OF FRUGALITY. We do what we want---no plastic---when we want and how we want. I find that people start giving us stuff--- because IF YOU DO NOT NEEED IT---IT HAS A WAY of finding you.
Recvently, another neighbor GAVE us a new (new to us) late model car----they had it paid off, but had more cares than family members---so they signed it over. They lost their house also.
Last week-- a stranger out of the blue---begged me for a $50,000 dollar loan. He would pay me $25,000 to borrow the money for two weeks. I asked him why he didnt get a HELOC on one of his three san Francisco Bauy houses. They were all HELOCed up. I asked him for collateral---for the potential $75,000 for two weeks. Heres a FUNNY ONE. He would sign over the pink slip (owners papers) om a new 2008 HUMMER. LOL LOL ROFL. He had 5 new HUMMERS---stupid and expensive hobby. I told him I wowuldnt takle a HUMMER FOR FREE! Why would I pay $75k for a HUMMER when I only drove 900 miles all last yea? many of us have it bad. Learn how to make a silk purse from, garbage. Thats what we did.
The ultimate responsibilty and blame however is each of us. We Amuse ourselves with TV, sports, and damn near everything but what is really important. We gotta be the only country in the world that praises greed and ignorance. How many deals have I lost because a bank tells someone they can afford to spend most of their paycheck for a house. Then the TV tells them a new car, etc, etc. Try and explain that to someone who the bank just tells they can afford more, the TV tells them they need it, and another agent tells them they deserve it. The comes along one voice that says no. But I do sleep well at night, how do they sleep.
I hate that the lady married a coke head but clearly, the bank should work out her %, or buy a smaller house. Then again, it is between her and the bank. The sympathy kind of went away when she mentioned the seperation between her and poor people, like she was better than that. Poor people and middle are the backs of this country yet I'd take poor people over middle and either over upper. Somehow the standards are just better.
I've done BPOs for bankruptcy attorneys and for banks. Most people in trouble are there from things they could not control, that are the poor ones. The middle class is where it gets interesting. It is about 50/50, half from things beyond their control, half from too much TV buying crap they don't need, with money they don't have. For those that have way too much time on their hands that they need to be amused, I have no pity. I see that everyday with people in my profession, big new cars, low fuel mileage in big houses that they could only afford with an ARM mortgage. Successful?
Have you ever known the government to actually help? No. While we are at it, aren't we the government? Personally, I don't mind helping my neighbor, but it should be my choice. Those of us that pay cash for what we have, but with the money we have or do without should be punished? My wife and I got in credit card debt a few years ago and busted our butts and worked our way out the hard way. I didn't work in real estate back then. It wasn't easy but it taught a big lesson to us both. Now everything we have is paid, we hand built our own house, grow most of what we eat, repair what we have, and we should be forced to pay? I donate part of what I make to those who really need it, those who act responsibly but circumstances prevent them from getting what they need. NOT WANT, NEED. A big fancy house is not a need, it's a want. So are new cars every few years. My car is 9 years old and I'll drive it until it stops, then fix it and drive some more.
People need to know that STUFF don't buy happiness and being stupid enough to not know that should not be rewarded.
Fire insurance companies spend up to $50/sq foot restoring a burned down house. How to builders get away with the lie that it costs them so much to build? Atrouind mny area, most of the workers are illegal aliens getting paid cash---if the builders pay them at all?
Whast the big secret iun construction? layers and layers of the same subcontractors are used to boost the price. Tell us about your experience building your own house. Many of us SAVERS and RENTERS want to know. We want to get out from this monthly rent. My landlord is a developer, an engineer, a builder and a Real estate company. He is tryiong to sell a VACANT dirt lot at only 8,000 sq feet in a agricultural area ( a farm is across the street, and cows one block away). The price? $299,000 for a teensy lot---and its next to a sewage treatment plant. It was formerly part of a flooded out area that he purchased for almost nothing, his family owns the town, they include the mayor, city planning, and city councilman. The citizerns don't yet see the connection. If they talk about it, they get fired.