This Stuff STILL Angers Me…

Begin rant.

Just saw this on MSN:

Deal could cut principal on 1 million loans

Apparantly, there’s ANOTHER deal being hammered out to help homeowers (misspelled on purpose). Here’s how this deal might work out:

• $17 billion would go toward principal reductions. If 1 million homeowners were to be helped, that would equal an average reduction of $20,000 each. About 11 million U.S. homeowners are underwater on their mortgages.

• $5 billion would go toward homeowners affected by the deceptive practices and to state and federal housing programs. The settlement envisions a payment of $1,800 each to 750,000 affected homeowners. About 8 million Americans have faced foreclosure in the past four years.

• $3 billion would help homeowners refinance their mortgage loans at a rate of 5.25%. That’s more than 1 percentage point above current market rates, but most underwater homeowners are not eligible for refinancing. Some, however, have received rates as low as 2% as part of mortgage modification deals.

The media is doing a tremendous job at painting these homeowners as victims.

Question: Where’s my mortgage principal writedown?

Basically, this “deal” screws all the people who were RESPONSIBLE and bought homes they could afford.

Yes, some banks foreclosed improperly. It’s not known if the homeowners being foreclosed upon deserved it or not. I guess if a bank tries to foreclose without the proper paperwork, the deliquent borrower can just stay there forever. Not sure how that works.

It’s a big mess.

End rant.

13 thoughts on “This Stuff STILL Angers Me…”

  1. “The media is doing a tremendous job at painting these homeowners as victims.”

    If they aren’t victims, then why are the big banks coughing up $19-$25 billion in a ‘settlement’?

    Surely, not out of the generosity of their hearts.

  2. Sometimes we have to suck it up and help clean up the mess.

    Frankly, Obama and Clinton are right. We cannot get through this whole financial “crisis” without shoring up housing.

    However, if you benefit from this type of program, you should forfeit your mortgage interest deduction as a penalty.

  3. No, any gain at sale should not go to the HO, 1st dibs to the bank and shareholders who took the haircut keeping them in the house.

    I’m probably down $100K+ on our home given the crappy market conditions in our Chicago suburb. Beautiful houses that once sold for $400K-$800K are now selling for 55-75% at best. Hard to compete w/foreclosures. It’s definitely a buyer’s market here. So how can one ever get a good comp for their home if everything’s in the $hitter?!

  4. “..Beautiful houses that once sold for $400K-$800K are now selling for 55-75% at best…”

    I’m sorry that you are upside down, Stacey. But having homes that are now 55-75% cheaper is a GOOD thing.

  5. BG, because the banks can’t win the PR war. The government has decided banks took advantage of people and therefore they are guilty, regardless of what the evidence may say.

    Something has to be done for the health of the entire economy, but I believe the government is going about it the wrong way.

    The problem with the housing market is that equity has evaporated. This means sellers can’t sell at lower prices because they are underwater. They also can’t really refinance in many cases. Life events are what cause foreclosures and short sales because the borrower has to move but does not have the ability to either pay the mortgage or sell the home.

    The focus has to be on restoring equity. The problem is that doing principal forgiveness creates a moral hazard for people who are paying their mortgages on time but may have just lost their equity.

    The solution is to basically offer to refinance ALL mortgages below $729k (max Fannie/Freddie loan in high cost areas) at like 1% rate or even 75bps with a 10 or 15 year amortization loan. Homeowners that can afford their current home but lost their equity would be able to keep their current mortgage payments the same as they currently are now but instead of paying interest to the bank, they are essentially paying off the principal.

    In 5 years, I guarantee hardly anyone would be underwater because most of the mortgage debt would be paid back. This means they could sell the home even at lower prices which benefits new buyers as well.

    Simply refinancing to another 30 year loan at a low interest rate is not going to restore the lost equity and all it does it kick the can down the road. 30 year loans are mostly interest early on, so while the homeowner is saving a few bucks a month, they are still screwed in many cases because they are still going to be underwater in 5 or 10 years most likely.

  6. “…The government has decided banks took advantage of people and therefore they are guilty, regardless of what the evidence may say…”

    No, the banks have decided to settle, without going to court and fighting. You think it would cost more than $19-$25 BILLION for these banks to fight a bad-rap? Obviously, the banks feel they are getting a good deal at that price range (otherwise they WOULD go for the alternative).

    Anyhow, I think the government should stay out of the mortgage business. There is no constitutional authority for it, and plus, government just isn’t going to do it right. However, government enforcing the laws/regs is absolutely justified. Fannie/Freddie should be abolished, make them 100% private and let them sink or swim on their own. The free-market is much better at finding the appropriate price for housing, without government meddling.

  7. > doing principal forgiveness creates a moral hazard

    Are we still talking about “moral hazard” after big banks got bailed out? Who gives a F about “moral hazard”? Why the double standard?

    I say let the government subsidize the mortgages to 1%. Gov’t pays the difference to private banks. Gov’t takes a pre-determined cut if the homeowner is able to sell the home – even a short sell. Systematically, government will determine those that are most late and subsidizing loans so the banks can foreclose on them. This way, government can control the speed at which homes foreclose causing a slower decline versus massive drops at given periods. For those that can’t make payments even at a 1% loan rate, get the boot immediately. Frankly, there are too many people that are “homeowners” that can’t even afford to pay on a rental.

  8. “Basically, this “deal” screws all the people who were RESPONSIBLE and bought homes they could afford.”
    So the banks have no accountability for writing a loan on a home the homeowner can not afford. Interesting. And now they are TBTF. Really Interesting.

  9. Well, Sun, if things were working properly, rent on a house would be higher than a mortgage on the same house. Rent has to cover repairs, vacancy rates, and risk of non-payment. Beyond that, it must provide the owner some profit.

    The barrier to home ownership was the down payment. When that requirement was reduced to practically zero, more people bought houses. That drove up the prices ABOVE rental rates. Now, those lower-income people who bought houses were locked in — unlike a rental. Those in the business of buying rental housing stopped doing so. Those are the makings of a bubble.

    The prices are TOO HIGH, and the sooner they come down, the better.

  10. I am absolutely against any federal bailout of banks or individual’s housing problems.

    This settlement, IMHO, is NOT a bailout. It is a legal dispute between the ‘victims’ (whomever they are) against certain large banks. In effect, the banks (not the taxpayers) are doing a principal forgiveness for the loans in question.

    It neither involves me, nor my money (as a taxpayer), so I could care less what those parties work out as an agreement between themselves.

    The people who are paying for the principal reduction (the end result of the settlement) are the bank’s shareholders (since this is a reduction in profit for the banks). Don’t like it? Then don’t invest your money with companies that have potentially high legal liabilities.

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