
On Friday Obama will announce plans to slash mortgage payments for the unemployed.
http://www.washingtonpost.com/wp-dyn/content/article/2010/03/25/AR2010032502426.html How will this help in the long run? |
If they can keep their homes, that helps MY property value. It helps your property value. |
As you may recall, in 2008 the world's economy almost completely crashed due to the real estate bubble popping. We still have not recovered. The bubble popped because mortgage defaults were undermining the value of mortgage-backed securities. Investment banks were caught holding a bunch of paper of which the value could not be determined (but was probably worthless). The recovery plan pursued by both the Bush and Obama administrations has been to re-inflate the bubble so that the securities will actually become worth something and can be sold (if not at a profit, then at least less of a loss). Another round of foreclosures will de-inflate the bubble and possibly lead to a repeat of history.
The most likely to default on mortgages are the unemployed. They simply don't have the funds for house payments. So, by slashing their payments, you avoid foreclosures (or at least postpone). You keep hope alive that the bubble will be re-inflated (I don't have much hope for it, but whatever). It's a reasonably good idea in as much as you can't get blood from a stone. The unemployed can't pay, so the bank weren't getting this money anyway. Foreclosure is expensive and a wave of foreclosures has wide ramifications. It's not going to help the value of your house if your neighbor's are getting foreclosed on. The problem with this plan is that it doesn't address those who can make their payments, but are underwater. Those folks may well just walk away and there will still be another wave of foreclosures. Bank of America has apparently realized that and is taking steps to reduce such mortgages. |
My wife is in banking and she says it actually makes a lot of sense. At a macro level, unemployment is the biggest driver of foreclosures. These people are often otherwise good bets, but they are somewhat a victim of the economic cycle.
You probably know plenty of good people who are very responsible, but who could not make their mortgage payments after a sustained period of unemployment. And while those friends could probably find a "make-do" job here in DC where unemployment is the lowest in the country, they probably wouldn't if they lived in a lot of other cities. So if the banks can hold off on the mortgage payments until the job picture improves, these folks will return to work and they will pay off their mortgages. But they will have mortgage payments tacked on to the end of their mortgage, so it will take longer. |
So you think it's the right thing to do, to try to reinflate the bubble, and reinflate the bubble and pour all our tax dollars into that?
Continue to prop the housing prices to unrealistic levels? Is there really a reason that that cottage in Arlington or DC has to remain at a worth of 1.5 Million dollars that was $60,000 dollars 40 yrs ago? This is insanity, and I have no sympathy for this. Why can these people not rent? Why are they entitled to remain in their houses? Why should they have their principal reduced? Someone waked away with the exorbitant amount of money from that sale. Now I have to finance their lifestyle, while I have been renting and saving... to no avail. |
Not only am I personally opposed to re-inflating the bubble, I don't think it will work. I opposed the financial bailout at the time it was announced by the Bush administration. While the Obama admin modifications were improvements, I still was opposed generally. I continue to believe that Geither has a massive conflict of interest and is actually one of those partially responsible for the crisis in the first place. Obama's finance team is the weak link of his administration and could well be his downfall. However, I believe you are mistaken in taking out your anger on unemployed home-owners. While this specific program will benefit them, the primary beneficiary remains the financial industry. Your anger would be more accurately directed much further up the food chain. |
For most people, their home is their number one asset and investment. This is why the govt wants to protect and preserve that investment. Is that not the case with you - it's not your main asset? I am all for a plan that keeps people in their homes and keeps the value of MY home where I need it to be if I have to sell it. Even though MY mortgage is not getting reduced any time soon. - Single mom paying $3k a month for my mortgage. |
No, I'm the pp and I am not personally for the plan. But I was explaining why it makes sense from the bank's point of view. They are interested in getting as much as they can out of the loan, and this may be the best way to do it. The question for them is would they rather wait six months and get 100% of the mortgage paid back, or do they want to go to foreclosure and get sixty cents on the dollar? But I would rather the banks do it on their own than to have a policy dictated to them. |
"Anonymous wrote:
So you think it's the right thing to do, to try to reinflate the bubble, and reinflate the bubble and pour all our tax dollars into that? Continue to prop the housing prices to unrealistic levels? Is there really a reason that that cottage in Arlington or DC has to remain at a worth of 1.5 Million dollars that was $60,000 dollars 40 yrs ago? This is insanity, and I have no sympathy for this. Why can these people not rent? Why are they entitled to remain in their houses? Why should they have their principal reduced? Someone waked away with the exorbitant amount of money from that sale. Now I have to finance their lifestyle, while I have been renting and saving... to no avail." You are actually financing the bank, the investors and consumer products companies not just the guy staying in his house. Yes, many of the unemployed are a good bet if they are unemployed due to a temporary economic cycle or downsizing event. If the house goes into foreclosure, the bank and investors lose the money. The person losing the house may find a new job in 5 months but it be 7 years before they can own a home and have a mortgage again. It also drops the property values which has a huge psychological impact on consumer spending habits. |
To my mind it has more to do with saving the neighborhood and saving the homeowners who continue to pay their mortgage. |
I don;t think this helps you retain the value of your home. I believe the plan calls for reducing the mortgage to the current value of the home. therefore, if the borrower paid 400k for the home and the home is now worth 300k, how does that help you retain the value of your home that you paid 400k. on a different note, i personally know someone who stopped making payments on her mortgage because the bank refused to give her a modification. she is upside down on her loan and wanted the bank to reduce the principal to the value of the loan. they said no she was up to date on her payments. so approx seven months ago she made her last payment. she is confident that the bank will come to her with an offer. she is not unemployed. as a matter of fact, she earns more money at this time than she earned at the purchase of her home. she simply does not like the fact that she is upside down. if this works, i will be royally pissed. i purchased a home that i could afford. believe me this home was not my first, second or third choice. it was what was affordable in my price range without being house poor. now the governmnent is basically stating that people like myself were chumps. we should have purchased more house and then government and banks would have helped me with the deficit in my payments. |
I think it's better than a neighborhood of foreclosures. |