NO MORE MORTGAGE PAYMENTS SOON - Get Ready to Default!
Posted on November 4th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Oh my. Friends, get ready to default on your mortgage…on purpose. The first chatter about the government sponsored loan modification initiative has surfaced from Paul Jackson at Housing Wire and what a disaster it is.
I have been telling you guys for months that a homeowner bailout is coming. But this is unlike anything I expected - it actually encourages mortgage holders of all paper grades to default. This is better than a Pay Option ARM because the monthly payments are zero! Why not default when you get to skip three years of mortgage payments and pay the government back five years from now at FED FUNDS RATE!
The New Bailout- NO MORE MORTGAGE PAYMENTS!
The plan is to FULLY SUBSIDIZE millions of borrower’s mortgage payments for three years. The program is predicated upon the housing market improving within the next 5-years. This is a really bad assumption to make but also could shed some light on the Fed’s inflation expectations. This plan may help borrowers de-leverage temporarily but will not help the broader housing market. It just kicks the default can down the road several years.
“In five years’ time, participants would, in all likelihood, be able to sell their homes or refinance their mortgages at amounts that would allow them to repay the loan.”
This program does nothing about the leading cause of loan default across higher paper grades, which is negative equity. Those severely underwater borrowers that would chose to participate in something like this are the very ones that you want to foreclosure upon in order to clear the market in the first place. The primary reason one would enter a program like this is if you planned on walking anyway. After three years when their mortgage payments kick in again or five when the big balloon is due, do you really think the these underwater home owners will feel better about their situation or more passionate about saving the home in which they have lived for free for years knowing they are another $100k in debt? I think not.
The program will have the unintended consequences of encouraging Prime borrowers to default. What about the person with a lot of equity who can’t get a cash-out refinance due to lack of financing? Instead of selling at what he perceives to be a low, he can default and get a government loan. The plan will pay his mortgage payment, which he pockets at a rate of 1% or less for five years. This is the best cash-out refi plan I have ever seen. He can use the savings to buy a rental of second/vacation home. Or what about that family barely making their payment every month but who would have never defaulted. This gives them an easy way to ease the pain quickly by putting all of their payments on the back end like a Pay Option ARM.
However, when you think about it more closely it is ingenious. This could turn out to be the most direct, long-lasting stimulus plan ever concocted. When you give all those who are over-leveraged and are defaulting on their mortgage no monthly payment for three-years, what will they do with the money? Right - they will go spend every penny pumping the sectors of the economy that were so hot during the housing bubble years. They may also use some to pay down other debt, which of course helps the banks. The government is the strongest creditor out there so the banks are sure to get their payment every month. Hey, maybe the government can pay all three years up front so the banks can book it all at once and spike their earnings report.
The solons are banking on homeowners not saving a penny, which also means they will not be able to pay off the five-year balloon when it comes due. But that little issue is for a different group of regulators to figure out. The Fed’s know that the foreclosure crisis is so large and complicated that this hail-Mary pass may be the only possible ways to ’save’ consumers and revitalize the economy at the same time. Additionally, they are banking on massive inflation to carry home prices higher so in five years the borrowers can sell or refi making this all a gift. Now wouldn’t that be a perfect world!
One thing is for sure. This plan will not directly revitalize the housing market or ultimately save the home owner. This just keeps people spending and in more debt. When it comes to mortgage modifications and setting borrowers straight, unless a pre-emptive mortgage modification initiative involves the re-underwriting of all borrowers with ‘at-risk’ loan types and borrowers using strict full-doc guidelines with 28/36% debt to income ratios and market-rate 30-year fixed mortgages, it does not solve the problem. If you re-underwrite and reduce principal accordingly, the borrower is instantly de-leveraged. Please CLICK HERE for my recent mortgage modification post.
Housing-Boom was a Ponzi-Fraud
They won’t address the consumer de-leveraging the right way because it will be too costly. After being at IndyMac for months and seeing first hand that 90% of the loans are not as originally portrayed on the loan application, Sheila Bair understands that the only way out is a payment subsidization a plan.
They now realize that the entire housing ‘boom’ was artificial brought upon by exotic mortgage loan programs and leverage that were only available for a brief number of years and that will never exist again. Most of the loan programs contained fraud because the way that the programs were structured, they endorsed it.
Ultimate affordability through creative financing made it so everyone in the nation earned a minimum of $150k a year and housing prices reacted accordingly. Unsuspecting buyers who really earned $150k bought homes under fraudulent conditions and are now 50% underwater in their homes, paying the price. They will be asking for a bailout as well. However, they should get one.
Pre-emptive Mortgage Modifications & Wachovia
Many banks are all of a sudden coming out with pre-emptive loan modification plans. Wachovia was one of the first. But from early reports I am getting the program is failing miserably. Apparently Wachovia’s close ratio is less than 10%. This is because they did not estimate how many ‘liar loans’ were really out there or how far housing values have fallen.
Wachovia’s plan involves allotting a predetermined amount to each borrower they call a ’spend’. This is used to buy down the principal balance and/or interest rate to the level it takes for the borrower to qualify for another loan through FHA, Fannie or Freddie. The borrower then must sign a zero-interest silent second for the amount of the ’spend’ that has to be repaid in full in 30-years. However, only after one month into the program they are realizing that ‘nothing is at it seems’, which is what I have been telling you for a long time.
This is because so many loans were initially originated as limited doc (stated income/asset etc/liar loans) or using false paper work, borrowers just don’t qualify for new FHA, Fannie or Freddie loans with the amount of money allotted. Borrowers need much more help than they have provisioned. In the few circumstances in which the amount is enough, values are down too much for it to work. These will be continual problems when they try to fit a square borrower into a round hole. Click HERE for my Wachovia write-up. This is another reason why the ‘free mortgage payment bailout’ may be the only option.
All of this being said, after seeing what the government has in mind, I am convinced that the housing market collapse, price depreciation and foreclosure disaster will be with us for much longer than most think…at least five years!- Best Mr Mortgage
Feds May Be Considering Subsidy on Troubled Mortgages
By: Paul Jackson November 4, 2008
When it comes to the idea that Treasury’s TARP funds may be used to manage a bailout of troubled mortgages, all options are still on the table, and the only thing that most of us really know is that the plans under consideration have been stuck in the negotiating room for some time.
The Wall Street Journal suggested in coverage Monday that “disagreements over how to structure a federal foreclosure-prevention program are complicating and potentially delaying what is likely to be the Bush administration’s last attempt to forestall sliding home prices.”
One plan that may be garnering some consideration is the idea of a federal subsidy for troubled borrowers, perhaps tied to an effort to modify loans. A source near Democratic senator Robert Casey’s office in Pennsylvania forwarded us a copy of a memo on Sunday evening, said to have sparked some of the ongoing negotiations now taking place, although HousingWire could not obtain further details. The memo outlines a proposed bailout that would use three-year subsidies for some troubled borrowers.
The subsidy plan represents the thoughts of Assured Guaranty Ltd (AGO: 11.03 +5.15%) CEO and president Dominic Frederico, who had been asked by legislators to provide his thoughts a few weeks earlier. A spokesperson at Assured confirmed the authenticity of the memo on Monday evening, but stressed that Frederico’s input wasn’t the only advice sought by legislators looking for a solution to the nation’s foreclosure mess.
“We assume others were being asked for their input related to this issue,” said Ashweeta Durani, vice president for global communications at the firm. Frederico “was asked for his personal opinion [on] how the government might improve its response to the problems caused by high mortgage delinquencies,” she said.
Sen. Casey’s office had not yet commented on the memo officially when this story was published. The Pennsylvania Democrat sits on the Senate Banking Committee chaired by Christopher Dodd (D-CT).
The proposal outlines the mechanics of a mortgage bailout that would cost as much as $441 billion, relying primarily on a three-year borrower subsidy that would be repaid in five years, with interest. “Upon receipt of a notice of default on an owner-occupied primary residence, a homeowner could apply to participate in a program under which the government would fully subsidize three years’ mortgage payments in exchange for a note, to be paid in a lump sum five years from receipt of the first payment subsidy, equal to the payment subsidies plus interest accrued at the federal funds rate,” reads the proposal, in part.
“In five years’ time, participants would, in all likelihood, be able to sell their homes or refinance their mortgages at amounts that would allow them to repay the loan.”
Only one of many options
A few of HW’s sources on Capitol Hill suggested the general idea of a borrower subsidy is only part of what is now being discussed among Administration officials and legislators; key Democrats are said by our sources to be pushing hard for such a measure as a way to push bailout dollars directly to borrowers, after what they see as a handout to Wall Street firms needing capital.
The plan is also just one of the options being tossed around by legislators, we were told by a lobbyist on Capitol Hill with knowledge of ongoing negotiations. The newest idea now being considered is one that would see the role of the U.S. Department of Housing and Urban Development further expanded by relaxing criteria for FHA’s newly-minted Hope for Homeowners refinance program.
A report at American Banker on Monday evening suggested that officials are considering a new proposal to reduce the haircut needed to participate in the Hope for Homeowners program; investors must currently take a minimum 13 percent loss relative to current LTV to put a loan into the H4H program (actual losses are likely to be much greater, given the current LTV requirement). The report suggested regulators may move that loss level down to as low as 3 percent in order to encourage greater participation.
As HW reported last week, investors are so far reluctant to participate in the program, and many mid-tier lenders are finding themselves locked out of H4H altogether based on requirements from warehouse funding sources.
Write to Paul Jackson at paul.jackson@housingwire.com.
November 4th, 2008 6:31 pm
That is the worst idea ever. Rewarding the irresponsible borrowers with 3 years of living mortgage/rent free. They just don’t get it. The only way housing will recover is to let prices fall until they come in line with incomes. Price fixing has never worked and I have a feeling this plan will only prolong the pain for another 10 years.
November 4th, 2008 6:34 pm
This is GREAT news for every home owner! Wait.. I’m a renter. Where’s my free ride? I dont have any loans to default on.
November 4th, 2008 6:47 pm
I don’t think this plan comes close to getting passed. That is the worst proposal I have seen in a along, long time. People will spend the money and get into additional debt and then the balloon note comes due. This is moronic…
Talk about moral hazard!! People will just assume if they can’t pay the balloon when it comes due Uncle Sam will just bail them out again… forever and ever!!!
Did anyone see that woman on TV today saying when Obama get elected (he will in a landslide IMO) that she won’t have to pay to put gas in her car or pay her mortgage or anything. Obama will take care of her… please. WHO ON EARTH do these people think pay for this sort of thing? HELLO…
MG are we in for a tough 4 years if this is still the attitude out there. Free rides for everyone… yipeeee!!!
November 4th, 2008 7:00 pm
In Canada, the big news this week is our Prime Minister spending another 4 million dollars to expand his cabinet ministers and their staff.
And then I hear this…
Americans need to wake up and realize that the only person they can count on to take care of them is themselves. The people who got out the door first are the ones who saved the most.
I really have not seen anything that benefits the consumer more then a default at this stage. Enjoy your none recourse loans while they last.
November 4th, 2008 7:00 pm
We are finished as a country. An Obama win coupled with these types of programs will turn us into a different version of France. The question is how long before a civil war gets started, whether racial, geographic, or economic.
The only play left in the playbook is to run the printing press in overdrive and inflate the problem away or at least get the banks’ books looking better.
November 4th, 2008 7:10 pm
Worst Idea Ever! Guess it just doesn’t pay to be prudent and put yourself in a mortgage that you can afford and rent until you can. If homeowners are going to live mortgage free for three years, I better see a big check coming to my apartment. We still make up 30% and growing of the electorate.
November 4th, 2008 7:18 pm
This makes me almost physically nauseous.
Makes me want to go buy some more coins.
November 4th, 2008 8:00 pm
THis is an indirect subsidy for the banks isnt it. i assume “full no payment for three years” means that Govt will the banks for these three years. Only that home owner has the option of paying it back at the end of five years.
What would be the payment, teaser rate payment/option ARM pay ment / Full amortizing payment ?
anything but the last will mean increasing loan balance and if it is the last one it would be complete repayment for the bank at least for three years.
This will not do anything for the new buyers who are coming to the market(new or existing homes) unless the program also include these new buyers.
November 4th, 2008 8:30 pm
I want my debt relief, too. Maybe I’ll go out and get 50 credit cards, take cash advances on all of them and then go BK. I need some help, too. Cant let all the idiot mortgage holders have all the fun.
November 4th, 2008 9:33 pm
I agree. That will be the first thing to go.
November 4th, 2008 10:44 pm
As mentioned above, funny that the big plan seems to be trying to just keep people from bailing out of houses to try to prop up prices. First-time buyers and move ups make a market, but no one seems to really care about that beyond a stupid $7500 interest-free loan for houses that are still out of line with local incomes.
These loanowners can’t afford their real monthly payments to begin with. Tack on 3 years of more payments piling up with interest and magically they’re supposed to be able to pay it back?! And according to this story, they should be able to sell the house to cover the pumped up price of their mortgage AND another $100ish-K (@ ~$2600/mo + interest)
I give up. Anymore, it seems that financial prudence is only for the completely foolish.
November 4th, 2008 11:43 pm
The politicians will absolutely go for a program like this. It is the only way to inject money back into the economy and keep the consumer alive. Saves California as well from falling off into the ocean. Might buy us a few years before we have to come to terms with ourselves.
In order to work though, inflation is going to have to pick up so that the housing assets match the true value of the mortgage payment when time is up.
Not endorsing this, just saying that this is what they will go for.
November 5th, 2008 1:08 am
“Americans need to wake up and realize that the only person they can count on to take care of them is themselves.”
They don’t want to do that anymore. Responsibility and hard work are passe for the majority. Over the past 5 years, so many got used to driving Hummers and living in $700k homes while earning $24k a year.
Look at the result of the presidential election. Tells you where we are.
November 5th, 2008 1:59 am
That has to be the worst idea ever. They have to let the free market let the chips fall where they may. We should have never bailed out anyone. Let the strong survive and at some point and time the bottom will hit. Looking back at this we can all see that common sense says it could have never have lasted. Most of us saw this 24 months ago.
Why dont they come out with a goverment program to hold a reduced rate for first time buyers with a low down payment. I know the FHA gift program defaults were extremely high but come up with a 3% interest rate with 2% down payment program. a 3.5% funding fee and a monthly mi factor or .78%. We need the first time buyer back in the markets. It starts the housing engine back up.
As for stated income loans. There should be a program out there for them. I know some of you will disagree with me on this. Why dont we take the gross income give them credit for 70% of the gross income. Then they have to prove they have 6 months earnings in the bank after closing. Many self employed buyer want to buy they just cant. Or pull needed equity out of their homes. Just some thoughts.
there are many risks involved in my ideas but i think someone with common sense needs to sit down with goverment and talk to them. They are clueless.
November 5th, 2008 2:05 am
Jason you are part of the problem and your solutions stink.
Just kidding…I agree with most everything you said.
November 5th, 2008 2:27 am
This is dumber than the “Jump To Conclusions Mat” idea from Office Space.
Global deflation or stag-deflation is happening. Creating a false bottom would only make this problem longer-lasting. But it could lead to the re-opening of the 150 Circuit City stores. As you know American’s will be getting those head-rest plasma TV’s for their Hummers as opposed to saving for college, retirement, or staving off Bernanke’s hyper-inflation.
November 5th, 2008 3:58 am
This is a dream by some left wing radical group.
Whom in this God given Green Earth will ever purchase another mortgage backed security when they know that property values are being held up articially?
There was an article a day or two ago in the L.A. Times about how manufactures in China are going bankrupt, recession around the globe.
I just hope the CHANGE that Obama won on was not meant as that you will be left with in your pocket.
November 5th, 2008 9:06 am
The banks made bad investments with a lot of these home loans so why not let the banks bear the burden? Admittedly, I am not a financial guru, but if I make an investment and it tanks, the govt does not pay me to compensate for my losses. So why do it for the banks? People invest in real estate and banks invest in investors.
But what I really don’t understand is that if a bank forecloses on a non-recourse $500k loan for a house worth $250k (common in the IE), what do they gain? Wouldn’t it make more sense for the bank to refi the owner into a recourse loan at $250k? At least this way they have the ability to go after that money if the loan still defaults. It also makes the market much more stable as the inventory stops rising at a record setting pace. And it would put more money in homeowners pockets which they would likely pump right back into the economy. The banks will only get $250k for the house anyways (which is more like $220k after all the carrying costs, realtor fees, unpaid prop taxes, etc). Just cut out the middle man (the foreclosure process) and get to the inevitable end, selling the home at it’s current value.
Somebody please explain why the banks seem to act out of spite instead of common sense.
November 5th, 2008 9:10 am
I have a problem - I own my home outright.
I need to get a mortgage quick so that I can get in on this.
Three years rent free!!!!!
Stupidest idea I ever heard, but if your a leech you’ve got to love the US govt.
They are without a doubt the biggest collection of stupid b$&@”&$ on the face of the planet.
November 5th, 2008 10:06 am
MM, for those of us lucky enough to cash out 2 yrs ago, when is the time to buy- vis a via falling/stable/rising home prices?
Buy a foreclosure now, flip in 5 yrs?
thanks for your great service to all your readers….
November 5th, 2008 10:42 am
“The banks made bad investments with a lot of these home loans so why not let the banks bear the burden? Admittedly, I am not a financial guru, but if I make an investment and it tanks, the govt does not pay me to compensate for my losses. So why do it for the banks? People invest in real estate and banks invest in investors.”
Right on Partyboy. The people that bought all these trash mortgages should be the people taking the hit. I say let the ball drop. What were the “rating” agencies doing through all of this with their AAA BS. Could they not have interrupted their day to toddle on down to a bank or two and actually pull a few of these loans and take a peak at what they were rating. Give me a break…there should be a huge shift of government focus here. Culpability folks. Clean it up now before it all gets lost or suffer suffer suffer.
November 5th, 2008 11:09 am
Wow - I can’t believe what some people are actually thinking and hoping for. There is so much to this topic I don’t know where to begin (http://www.AvoidRIForeclosures.wordpress.com), but let me first say this will not happen. According to last nights poll 60% of Americans do not like or approve of the bail-out. Secondly, whoever wrote that this does not promote personal responsibility is correct. You can’t continue to give handouts to people who don’t or can’t properly manage what they already have. I have been doing Loss Mitigation and Loan Modifications for several years and there are a couple of true facts mentioned here. The foreclosure industry will continue for about five years and one of the ways to correct this problem is to have the banks that approved and purchased these securities reduce or freeze the interest rate on Adjustable Rate Mortgages. This will eliminate the people who should not have purchased or refinanced in the first place and help the people who can afford it and just need some help. The market will stabilize, but it will take the four to five years that I mentioned and the true winner will be the first time home buyer and the apartment renter that will be properly qualifying for a home mortgage with a full documented loan. The governments FHA, Fannie and Freddie programs are poised to help that person buy a home and in doing so reduce the housing inventory. The only way to get out of this slump and get home values back to normal levels is to reduce the housing industry inventories through home purchases.
November 5th, 2008 12:38 pm
Let the market function freely. Govt intervention just drags out the pain for a longer period of time. Prices have to come down. That’s all. The consumer is tapped-out and that’s not gonna change.
November 5th, 2008 2:49 pm
Most of you do not fully understand how alot of people got themselves into this mortgage mess! Let me tell you my story, way back when the “hot” arm mortages were all the rage I was trying to get my business up and running. It seemed like a great way to lower my payments for the next 3 years and in hopes of building my business to a point that I would be able to maintain a decent income from it. As the housing market began to drop, home values dipped way down in our area, and the adjustable rate was about to start to increase, we attempted to refinance our mortgage. By the way after the 3 increase our payments had doubled!We had every intention of refinancing into a fixed rate and continue to be resonsiable for our payments. We consulted 4 leanders, credit was good, income to debt ratio was where it needed to be, so why NO loan you ask? We, after 3 apprasials, could not get the value we needed to justify the loan amount!! Our home at one time was worth $199,000.00, we recently tried to sell the home for $165,000.00 with not even a close to asking offer! It is not always the borrowers fault and a bad decision on there part, it is really the MARKET and the major wrong impression buyers have of “what a great deal I can get”. People are so desparate to sell they are letting their houses go for unheard of prices and that is hurting everyone else in return trying to sell (chain reaction). When you have multipal homes sell for well below what they should be worth just to get out from under your mortgage and to spare yourself from foreclosure
which then results in a “short sale”, how does this help the next homeowner in your neighborhood looking to re-fi or sell???? It hurts everyone! The mortgage company was NOT willing to help us in any way at that time, made no attempts to lower our rate to a reasonable level (currently at 12%) and now they will be stuck with a house they will never get there money back on. That makes a lot of sense, we tried like heck to save the house with no luck so who is at fault??? I was by no means looking for a “free ride” just a FAIR one! I am the mother of 3 children, trying to keep them feed, healthy, and a roof over their heads with the increasing high costs of everything something had to give. Not everyones story is the same but mine is sure not a lack of responsbility or accountability, its a lack of value and market stability!! I have several clients in this same position and its sad to see families trying so hard to support themselves with no hope in site. Just remember that not everyone is a low-life and people are in this situation for many different reasons most of which are well beyond their control! Oh by the way did I mention that I was a Realtor? I know first hand what is happening in the housing market right now but most of you people do NOT see the BIG picture or know what the real story is!!!!!!! Stop listening to the media, they dont know what they are talking about!
November 5th, 2008 2:53 pm
Wouldn’t it make more sense for the bank to refi the owner into a recourse loan at $250k?
Not really, the borrower has already proven to be a poor credit risk. Secondly, can the person even afford a $250K home loan?
November 5th, 2008 2:56 pm
[...] Full Analysis Here [...]
November 5th, 2008 3:06 pm
How come no one mention about the neighbor who bought their home with 20% down fully documenting income.
Is it their fault if subprime help someone going stated income 100% LTV to purchase a home next to theirs?
How do we separate irresponsible borrowers from legitimate borrwers? We can’t. The banks lend, they lend in category, A papers, B, C and even D papers. But when real estate gets murder, the white sheet falls over the whole neighborhood as a whole.
November 5th, 2008 3:12 pm
Jordan,
The reason I ask this is because if the owner gets foreclosed on the $500k loan (assuming non-recourse), the lender cannot collect a dime from them. Then the bank has to sell the house (not allowed to hold non-earning assets long-term) at whatever the market will bear. The lender would end up getting somewhere in the neighborhood of $250k (best case) minus the man-hours and costs associated with foreclosing. If the lender writes down the principal to $250k, they may have a homeowner who can and will perform on the loan. And if the write down is done in such a fashion to make it a recourse loan, the lender can come after the owner for the money if they fail to perform. It’s not the best case for the lender, but it’s the least bad case.
November 5th, 2008 3:17 pm
So does this mean that there will be ZERO foreclosures during the next 3 years? What happens if I have to move in the next 3 years and I’m in a negative equity situation?
Sounds like a bad deal for realtors.
November 5th, 2008 3:52 pm
Just like the Egyptians, our society builds pyramids. Differences are: 1) theirs were made of stone, ours are debt, 2) theirs were made by slaves, ours create slaves. They both, however, bury people.
This proposal is just more of the same. Let’s just keep passing this along for someone else to deal with…
November 5th, 2008 6:10 pm
And another thing Jordan, just because someone makes a bad decision by buying a home they cannot afford does not necessarily make them a bad credit risk…just a bad decision maker. There are certainly conditions lenders can impose in exchange for such a large write down which will help ensure the owner will perform on the new loan. The banks just don’t have the resources to put that much effort into it and they really just don’t care.
November 5th, 2008 10:23 pm
Cramer recommends to bulldoze the houses! This idea is just as crazy and deserves the same merit IMO. Creating wealth through destruction…yeah, thats the ticket! Note that in either senario, mortgage payments would not be required. LMFAO!
November 5th, 2008 10:55 pm
Why does every one keep discussing this as if a real solution exists within the existing monetary/banking system? We are in this mess for the same reason the U.S. was a mess in the Great Depression. Instability in the money supply is built-in in a system where credit is money and banks can create an essentially unlimited amount of credit.
There is no way to jigger this part of the system or jigger that and make the money supply become stable. It is the system itself, the way it works that is at fault. Our monetary system needs revision. Talk about how to do that, or keep wasting your breath everyone! You might as well discuss how to balance a pencil on your finger tip.
November 6th, 2008 2:16 am
[...] Posted by Cranford Pundit under Cranford, NJ, National Election, Taxes, mortgage crisis The feds are supposedly thinking of a bailout plan for us stupid homeowners who bought near the peak…like our family [...]
November 6th, 2008 2:38 am
Anyone else think it’s odd that this hits just after the polls close?
November 6th, 2008 3:02 am
Mr. Mortgage,
In addition to food stamps, I propose a “Home Depot Stamp” program to help home owners to make improvements. There should be govt. subsidized Hummer and Plasma TV purchases too.
JAllen
November 6th, 2008 3:28 am
When exactly did the United States Of America turn its back on FreeMarket economics?
…I grew up in a country that won the Cold War with Russia BECAUSE we openly Supported FREEMARKETS.
When did we decide to follow the Soviet Unions play book of destroying our entire economy and our nation??
November 6th, 2008 10:39 am
Ummm, please think with me here… we have put TAXPAYER (our) money into banks, which then lend to us again (hopefully soon), we put TAXPAYER (our) money into other industries, we put TAXPAYER (our) money into programs… at what point do we accept that we are creating a communal financial society and isnt that really financial communism? The idea of a commune does not bother me, as the participants all agree to do it together. The problem here is that powerful others have decided to bind us together with no majority of our opinion in agreement… that is fascist and is what puts the evil ‘ism’ onto communal living. Good luck to all… we will need it and each other. Renounce fascism!
November 6th, 2008 11:24 am
Actually, such a Bailout Plan would ultimately benefit those who did put large down payments down and Full Doc loans. Such a bailout would help bolster sagging property values and stop the loss of equity.
So even homeowners who do not take advantage of it would benefit.
November 6th, 2008 11:31 am
Hello111 I have just read all of this. It sounds like you all have a job. What about the people in certain areas that cannot find a job and are about to loose everything they have worked for not upside down in there mortgage. This would be a great idea for those people ie ME
November 6th, 2008 12:35 pm
A house is, and always has been, a liability. It is not an asset.
All those with ARMs or any type of mortgage that are blaming the market need to look inward and not outward. You made an investment (a gamble and bet that housing prices would continue to rise) and lost.
I am a homeowner myself and yes I am getting screwed (especially in the long run). I despise the FED and find our semi gold standard from 1913-1971 to be unconstituional and fully unconstitutional after 1971. Fix the problem and not the symptoms.
Stop complaining and start uniting and educating folks and take responsible actions.
November 6th, 2008 12:48 pm
This is only going to prolong the crisis and make it that much worse when it does happen. Of course the politicians are all thinking that it will get them re-elected a few more times, which is all that they really care about. It won’t be long before the american dollar is so devalued that a simple cheeseburger is the equalivant of someones life savings. Enjoy the ride people.
November 6th, 2008 3:25 pm
And another thing Jordan, just because someone makes a bad decision by buying a home they cannot afford does not necessarily make them a bad credit risk…just a bad decision maker.
People who make poor decisions with their money, also happen to be poor credit risks. On the other point, if the house is worth $250K, but the person can’t afford a $250K there’s no point wasting time re-working a loan. Especially on what is now a depreciating asset.
November 6th, 2008 4:14 pm
This is a slap in the face for renters. I realized in 2005 that I could not afford to buy a house or condo. So I moved to a lower cost city and got a better-paying and more secure job. I had hoped to buy a house in a year or two, after I pay off the debt on my business. My question is, in 5 years, will home prices still be ridiculously high due to this intervention? The whole concept behind this plan seems to be to prevent the needed asset revaluation. If congress forces me to rent for another five years, I will be *ticked*!
November 6th, 2008 4:29 pm
Buy as much silver as you can NOW it is cheep.And will be going up soon.Buy as much as you can NOW. And if you can afford it buy as much Gold as you can NOW. And whip your behind with all the paper money that is out in this world
November 6th, 2008 5:29 pm
I hear you Helen, I’m in the same boat. Was going to purchase back in ‘05, had a deal lined up with Countrywide (of all places!) but it didn’t “feel right”….they were trying to place me in a unit 5x my gross income at the time, with hardly any $ down even though I had savings…I passed and rented for another few years.
Flash forward: today I have more income and even more saved for a down payment, excellent credit, very little debt. I’ve been excited about the prices coming down but worried about the rates rising. And then this program comes along. Home prices need to come DOWN to where they naturally belong. There are more like me out here, 1st time buyers waiting for the right moment. Not many of us, but don’t squeeze us out.
November 6th, 2008 5:31 pm
Helen, I do not believe you will need to worry about that. These artificial attempts at propping up home prices will do nothing of the sort. One thing the Government cannot control no matter how hard that they may try is the market does what it does regardless of outside interference. Sure it may keep them propped up for a bit, but we are talking 3+ million in foreclosures already with 2 -4 million more over the next couple of years. They will have to come onto the market at some point and with the millions of homes already for sale and not moving this will only further dilute prices and pull down values across the country. That along with interest rates rising, unemployment rising, and massive resets through 2012 I would have no concern what so ever that home prices have much, much further to fall. Remember too it is better to get a 300K home at 8% than a 400K home at 6% as the principle never goes down, but the interest rates may and you can refinance pulling your payment down later. Much of these attempts were political in nature in my opinion and Paulson is a complete idiot as well. Well he is gone and the new person in charge will not be steering things in the same reckless direction. They may be reckless in their bail outs and some silly TARP or Hope for Homeowner scams, but they don’t work as we have plainly seen from each and every attempt to date. You will be fine as a renter and continue to save as “CASH IS KING” now and it is going to stay that way for a long while!!!
November 6th, 2008 7:55 pm
The plan is to keep them in the house while inflating the economy so that when the balloon comes due, the houses will actually have some equity. Then the banks will gladly foreclose and make money instead.
Get ready for BIG inflation…pay the minimum on the mortgage, buy some gold and silver.
Steve
November 6th, 2008 8:02 pm
When any government even hints at propsing such a ridiculous plan is proof that we as a nation are in the throes of death.
The ONLY WAY that they will deal with this is to paper over the issue until the currency collapses-there is no politically feasible alternative.
That’s it folks
November 6th, 2008 8:16 pm
SWEEEEEEET You cant just blame people who need money. Maybe they cant get jobs ever think of that. Or maybe they made some bad decisions and the money just isn’t comming in to pay for things. That doesn’t mean they should be forced to live a draconian lifestyle! Don’t be cruel. Some people just give in to living in poverty and have NOTHING!
November 6th, 2008 9:32 pm
This proposal is just one more example among an almost infinite number of them that all prove the same thing:
Government is a disease masquerading as its own cure.
November 6th, 2008 10:40 pm
Stu,
Thank you for your response and insight. I’ll admit that patience is not one of my strong suits, but in this environment I agree that a hefty cushion of liquid cash will help me sleep better no matter the location.
November 7th, 2008 12:16 am
Ha. this is beyond farcical. Big government is attempting to wipe out any semblance of financial intelligence and personal responsibility. Doesn’t this make anyone consider the real plan? Why would a plan so encompassing and inclusive encourage economic irresponsibility amongst this large a group of people? There is only one answer; to weaken our collective discipline and thus force us to depend on the government more and more. This is socialfeudilism. The more we need to be baby fed our health, wealth and security, the more we are disempowered. stop focusing on the shell on the left, and look at what the right hand is doing. You are about to be thrown into the depths of serfdom. Keep your eyes on the bank of International settlement and the fed
November 7th, 2008 9:31 am
“Three measures of wheat for a penny, and 1 measure of barley for a penny, and spare ye not the oil and the wine”…Rev 6:6
This speaks of a time, when there is no ‘middle class’, only the very poor and very rich…IOW hyper-inflation.
The Piper will be paid.
November 7th, 2008 12:05 pm
I bet a few years back that the housing market was overpriced and I decided to rent until the housing prices came back to historical averages. I guess an educated bet is a losing bet.
November 7th, 2008 1:13 pm
I think that haveing a home is a right to every family and something your born with not something you have to work your life away to get”’I like the ides in the bible that every 50 years the property goes back to the original owners.. no matter how bad your parents messed up… 30 years ago my Gramdna ask me why I didn’t build a house like she did..every week buying some roofing some lumber and building one room first then adding on as I could afford to.. as a contractor I told her the sad truth too many rules too many laws.. Everyone needs their own home so they can have a life instead of this backwards way of doing thing where you work all your life do have a place to die
November 9th, 2008 1:53 am
How bout some food stamps with it?
Sign me up.
Wow… I am having flashbacks from the good old days…. just me and my HELOC VISA.
Now… all I got to do is find that shady shell corp guy, a bank to cash out at… and of course the local coin mart.
Oh shazzam… I heard they are short on gold coins too!
Stimulus plan?
I am stimulated!
INGENUITY got us into this mess… and INGENUITY has got to get us out… right Secretary Paulson?
Change has come to America!
November 9th, 2008 7:06 pm
OHHHH MYYYY GODDD– They cannot be serious. There will be riots in every city across America if this happens.
PRICES MUST BE ALLOWED TO FALL BACK TO THEIR PRE-PONZI SCHEME LEVELS—This is the only way the problem will be solved.
NO MORE BAIL OUTS OF ANY KIND!!
November 9th, 2008 9:38 pm
I see the idiots on the hill are once again trying to throw good money at bad by asking for yet another “Bail Out” Will they ever learn that you don’t solve a problem of insolvency by tossing money at it. That is how we got into the mess we are in today. You can keep kicking this can down the road for only so long. The cost is to our future generations however and people should be outraged (nice job by the way voters for re-electing these same idiots back into office yet again).
Auto manufacturers next, and then airlines perhaps, and then bond insurers off course, and then… WHEN will this all end? PLEASE somebody… anybody in Washington GET A CLUE!!! Their has got to be somebody in Washington smart enough to stand up and speak out on this. Shame on YOU Ron Paul for not taking your message to the street!!! You collected the money and didn’t spend it to deliver the message this country needed to hear!!!
I am cynical perhaps, but for damn good reason. We cannot continue down this “Bail Out” for everyone path or we will cripple our country and our future. WHY don’t they see this? I just don’t understand how so many supposed great minds can continue to get it so wrong time after time. Is it somthing in the water in Washington? I mean seriously… how do you explain such incompetence? How can one explain such miserable handeling of the situation at hand? It just makes no sense to me!!!
November 9th, 2008 10:58 pm
FED-UP: I’m sorry for you and your three kids. Sister, your first and foremost responsibility is to your three kids . . . not the bragging rights to tell your friends that you are a home owner or a business owner. It made absolutely no financial sense to buy that house at the peak of the market with zero-down unless your plan is to walk away from the house all along. 12%? Why? You can rent a comparable house for far less than that. The typical rental return on capital across the country is running below 5%! Realtor is not a viable profession any more than saddle-making is in this economy . . . when people are not speculating on houses any more than riding horses for daily commute. For the sake of your three kids, you need to find a different line of work that the society actually needs right now. That’s just reality, nothing fair or unfair. It may take me 1000hrs to raise a single pet chicken in my backyard, but nobody would be willing to pay me even $15,000 for the chicken; how much cost and effort I have sunk into caring for that chicken is irrelevent when there are other people able to sell a chicken for $10 or less. What’s fair is what the sell and the buyer can agree to at any moment; I’m sure you probably felt unfair when the house price went from $100k to $199k in a few years before you became the owner. With three kids to care for, speculating is risky unless you fully intend to exercise the lender’s put option giving you the right to give the house back to the lender.
Having the government to pay your mortgage is even worse than having the government to pay your rent on welfare (12% of the house’ value each year vs. 5% or less). The scoundrel lenders who should never have deluded themselves and deluded you into bidding the house prices sky high would just get paid by the government at the expense of your future gainful employment and the productive work of your three children! Why would you want that?! I say, punish the irresponsible lender now by putting the house back to them! Renting would cost much much less.
November 10th, 2008 4:50 pm
If the chips fell where they land, I would have been able to clean up. I was planning this and already had most of my money in bond,cash and gold when the market hit 14,000.
Now they devalued my cash with the bailouts and to ensure I cannot open a business to compete.
Nice.
November 10th, 2008 7:33 pm
And how is this different from AIG?
November 12th, 2008 6:52 am
Stop your wining! We have the finest government that K Street Money can buy.
November 12th, 2008 1:04 pm
Ok. well, as the story is told, there is a hole in the wall, several in fact, with a few more breaking thru at the seams, and the water is gushing out everywhere, and the rooms that you are standing in seems to be getting smaller by the day.
So many people whine, complain, and agonize over what may or may not be done by the Feds. I wil tell you this, I have 3 business running at this time: RE business, Restaurant and a Retail Clothing Store. The restaurant is off by about 30% in sales, the retail store is off by 50% in sales ( and we expect hard competition from vendors who are discounting up to 75% on clothing items, since several stores in our area have announced their closings - Meryns, Circuit City, Linen N Thins, Weatherbeys Furntiture, and many more who are on the verge of closing) The RE finance business is off by about 60-70% in the commercial finance market. For our retail store, we have seen 2 tenants vacate the location. In our Restaurant location, we have seen 3 tenants vacant the location. In the office complex for my RE business, I have seen 5 RE office shut down and close over the last 12 months. I can state, first hand, that I have clients ( owners of commercal buildings, most especially, retail and office buidings) who have lost larger tenants ( retail stores, furinutre, home interior spaces or any home product releated business tenanat) in the last 24 months and expect several more to close their operations and leaving the commercial owners with an estimate 20-40% vacancy in their commercial building. In some cases, we have new commercial development that is sitting empty, with no signs of courageus tenants lookig to open up in a 10 unit commercial center when there is no anchor tenant, or 2nd tier 10 tenant looking to sign a 10 yr lease agreement.
Today, to stay in business, for a small business in these markets, is tough.
My argument is this: if there is no effective plan to stop to slide of housing prices, and no plan to stop the tsumani of foreclosures, then I can see hundreds, if not thousands, of SMALL BUSINESS shut downs in the next 12 months –and thousands of layoffs of employees across various sectors of the economy.
As a business owner in California, my retail store cannot continue with another 10% drop in sales. This is now the final cut off line for the business unless I get a reduction in my commercial by about 20% - 30% — and, that, in turn, sounds like a mortagage reduction plan.
My RE Business will be shut down until and the restaurant business may continue, with a very slim staff ( we have dropped several position and would need to drop 2 more as we replace family members into these positions. so, there you go, we have added to this growing problem and we will be forced to push to the edge of insolvency as we cut costs, cut people, serve smaller portions, etc)
So, the point in this description. I am not alone. I would argue there are thousands of other small business, family focused business, who are facing the same issues and will be forcd to cut into their oprations and push as far as they can until they close. And when they do, if they do, you — the public who whines, complains, makes those knee jerk reactions comments about “moral hazard” issues, etc regarding homeowners, “liar” loans etc — will see another rise in foreclosures from hard working family businesses. What then? Just let it all fall down — and just marvel at the chaos that will unfold, point the finger, call out names at hard working american family business who is affected by the the guy who pays his bills, and the guy who lost his home?? The color of money is still green in the cash register — but, this time, there is less green in the drawer.
At this point, A PLAN, any effectve plan that STOPS the foreclosure is the only viable solution to avert a financial disaster in this country. If not, then I know I it will be a matter of time before GM, AIG, FORD, Chysler, your local new and used car dealership, and the thousands of small business owners will close up their business and default on credit lines, auto loans, equipment loans, commercial and home loans. You name it, its comming soon. And people are concerned about NOT helping the homeowner in distress. I think Mr. Mortgage’s focus is correct. A pragmatic plan to stop the bleeding in the mortgage industry is the solution, anything else is, well, an exercise of time.
November 22nd, 2008 7:29 am
Thank you very much for your post. Absolutely excellent information and very useful for me. Great done and keep posted. Looking forward to reading more from you.