Obama plans to subsidize mortgage payments of underwater homeowners

[Cheering472]

You haven't solved any problem here, offloaded consumer debt on the government doesn't change anything - we have to pay off government debt through taxes. All you're doing is screwing the responsible folks who aren't in debt, and giving the people who made bad decisions a 'get out of jail free' card. That's the worst possible thing we could do.

Well as I said it wasn't my idea. He was pretty proud of his idea, I was drinking margaritas so it's a little fuzzy on all his details.

I personally hate the thought that government would reward bad decisions regarding personal spending. I have done exactly the right thing in buying only what I could afford, staying out of debt and saving money. If I lost eveything tomorrow and the house had to go, I'd get an apartment. I would not turn to the government for help in keeping the house, period.

We are still "screwing the responsible people who aren't in debt" with the original plan. They just won't get any stimulas money.

 

[30ashopper]

The choice we have here is pretty simple. The pain and suffering caused by the mistakes of a few has been socialized - we are all suffering now and will continue to suffer in our own ways for quite a bit of time. The question we have to ask is, do we want to take the bullet today, or do we want to offload some of that pain and suffering on future generations? Personally I'm the type of person who firmly believes that I should pay for my own mistakes. If I'm somehow resposible for this because I took out an interest only loan or voted for Bush or bought a wide screen I couldn't afford, I should pay for that through today and hopefully learn a lesson or two from it. I just can not believe the mentality of this nation today, we all think we are entitled to free ride, and if that mean we have to dump all of bad debt on our kids, so be it.

Now if you'll excuse me I have to go do my taxes now and cough up a big fat check to the I.R.S. to help fund the pork-u-lus bill. Bah humbug.

 

[NotDeadYet]

Very long and interesting article How Banks Are Worsening the Foreclosure Crisis - Yahoo! News

This is the part that jumped out at me:
"A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs (NYSE:GS - News) in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns."

If we can get past the blame issues, this is the problem facing us. Many banks are insolvent, imho, and if we want to avoid large bank failures and the resulting panic, we've got to clear out the toxic debt somehow. And soon. I think even this paragraph understates the extent of the problem. The reaccounting comes not only with a lowering of the balance, but when a bank sells off a foreclosure at the market price, right? Could this be why banks are turning down market offers? What value are they showing for those foreclosed assets, anyway? Something higher than true market? It's delay and deny, that much in this article I agree with.

 

[30ashopper]

That's what I have been saying along. Nationalization. But, there are still many write downs that haven't hit the books yet and perhaps this will stave them off. Your spreading the work load around vs. being bungled with a boat load of toxic waste to wade through. We still do not know the details, but I would hope that there will be a maximum between the spread on what is paid out and what the servicer needs to pay investors. If they are matching the prior investment without any loss whatsoever, I would be surprised. If they do, I will be peeved.

Roubini proclaims the write offs still to come amount to around 2 trillion or more with 1 trillion already scratched from the books. I'm not sure how a 100 billion in mortgage subsidies is going to prevent those. Besides, part of the plan involves write downs of principal, which the banks will have to write off and replace with capital to stay solvent. If 1 trillion in write offs can do this much damage, what will another 2 trillion do? Treasury needs to just bite the bullet and get this over with but I sense Obama is not interested in talking nationalization until it's perceived as unavoidable. In the mean time we're just wasting money on interim programs.

 

[Mango]

Roubini proclaims the write offs still to come amount to around 2 trillion or more with 1 trillion already scratched from the books. I'm not sure how a 100 billion in mortgage subsidies is going to prevent those. Besides, part of the plan involves write downs of principal, which the banks will have to write off and replace with capital to stay solvent. If 1 trillion in write offs can do this much damage, what will another 2 trillion do? Treasury needs to just bite the bullet and get this over with but I sense Obama is not interested in talking nationalization until it's perceived as unavoidable. In the mean time we're just wasting money on interim programs.

So far, I haven't read anything purporting a write down of principal, just a rate reduction. Most likely, FNMA and FHLMC will administer the program because they have the underwriting vehicle that everyone is tied to and it's much more efficient. I also heard that it will be a shared subsidy between the Gov't and the investor. For example, if X mortgage is currently 9%, the Bank brings it down to 5%, 2% paid by Gov't and 2 by investor. Apparently, the numbers work out better than foreclosure. It won't save everyone, especially the liar loans because they will have to prove income. The scuttlebutt is they may increase the DTI from 38 to something higher of gross income for qualifying purposes. A principal reduction goes on balance sheets and that is what is trying to be avoided. If I had to fathom a guess, I would say that probably only 35% of people facing foreclosure would qualify and I think that would be a high figure. Something is better than nothing, though, IMHO.

 

[scooterbug44]

With the exception of a fat check from the taxpayers, exactly how do the banks (WHO MADE THE DUMBARSE LOANS AND ACCEPTED THE RISK IN THE FIRST PLACE) expect to solve the problem without it affecting their balance sheets?

If they were this concerned about protecting their balance sheets earlier, we wouldn't be in such a mess.

The banks chose to make these loans because they evaluated the paperwork and felt it was an acceptable risk. The fact that THEY failed to properly vet these loans and loaned money to people who couldn't pay it back because they were greedy is MORE than enough reason for them to have to take a loss of a percentage point or 2 if the mortgage gets adjusted.

Related question - how much of the "toxic" is mortgages on primary homes vs. second homes, real estate investing or commercial projects?

 

[Mango]

With the exception of a fat check from the taxpayers, exactly how do the banks (WHO MADE THE DUMBARSE LOANS AND ACCEPTED THE RISK IN THE FIRST PLACE) expect to solve the problem without it affecting their balance sheets?

If they were this concerned about protecting their balance sheets earlier, we wouldn't be in such a mess.

The banks chose to make these loans because they evaluated the paperwork and felt it was an acceptable risk. The fact that THEY failed to properly vet these loans and loaned money to people who couldn't pay it back because they were greedy is MORE than enough reason for them to have to take a loss of a percentage point or 2 if the mortgage gets adjusted.

Related question - how much of the "toxic" is mortgages on primary homes vs. second homes, real estate investing or commercial projects?

You have to remember, Scooty, that firstly, quite a bit of the acceptable risk was taken by the government via Alt-A and subprime who bought the paper from the Banks. Secondly, the Banks issuing loans on the CDO's to hedgers who sold insurance. So, the Banks are hit in every direction because they were all in bed together. But, that's all been discussed here before.

If the investor is taking a hit from a performing loan, the point is I do not think it can be a write-off on balance sheets vs. a foreclosure because they are not in possession of the asset. If there's no money on balance sheets, they do not lend. They also need to meet minimum reserve requirements.

 

[scooterbug44]

I know it's a convoluted mess and we can't just blame the banks, but I keep getting the sense that the financial/lending industry and Wall Street as a whole think they should be able to get through this mess unscathed and with their profit margins and bloated salaries and perks intact.

There is more than enough blame to go around, so I think there should also be more than enough consequences and changes to go around too. The average American is hurting and IMO the financial industry needs to face reality and take some action ........... and some lumps.

I started writing up my own minimum lending standards between snooze alarm smacks this morning, but rejected it because they were way too simple and practical to be acceptable to the lending industry. :roll:

 

[mikecat adjuster]

Sweeet! Any help for me?? I've bought only the house I could afford and paid my house payment on time every month. I'd like my mortgage debt and payment reduced. This is giving me a headache.

I agree. Let me see, I eat peanut butter and jelly every damn day, and Ramen noodles (3 for a dollar). I have budgeted like crazy while I've watched so many poeple buy big houses and pricey toys and now they're in trouble. Bail them out? Hell no. If the government bails them out, then I want my new car, my trip to Vegas, my new waredrobe etc. etc.

I've always been amazed at how people in this country (and elsewhere I guess) view hand-outs. I like to think of things in a scaled down version like a little village or something. Take this current event as an example. The woman who had six kids via in vitro then eight more through in vitro. If we lived in a small village and she did this, I'm sorry, we would send her crazy ass away out in the woods to fend for herself. We wouldn't use our resources to care for her ignorance and selfishness. And the doctor who implanted her would be hung from a tree. This being allowed is a microcosm of our problem.

We should not allow this. And the banks and the people who made this happen in the first place will make it happen again. IT WILL HAPPEN AGAIN! People need to pay for the decisions. People like Madoff and people who perpetuated mortage fraud should be cast out. Not even jail. Put their asses on an island in the woods. I'm dead serious. Why, as a society, do we put up with this? Why?

California alone has one of the largest economies in the world and it is basically bankrupting itself. People are complianing about their 'entitlements' or 'benefits' being reduced. 'Yes' that's the point. And what are these people? Constituents who have been trained.

 

[Susan Horn]

Mikecatadjuster, your notion of appropriate village justice reminded me of a wonderful little movie. Antonia's Line. You might enjoy it, if you haven't already seen it.

As for the bailtout and so on. Has anyone here read Steven Forbes' thoughts on all this? He spoke a coupla weeks ago to the Huntsville, AL, Chamber of Commerce, and spelled out what he saw as the causes of the mess, as well as the fixes, and he said doing it his way, we could quickly emerge from the mess as early as this spring.

Since I don't understand a lot of the jargon of finance, I cannot explain what he said in any detail, sorry, but it did impress me that such a well respected and clearly intelligent fellow could express such optimism while everyone else is wringing their hands and rending their garments...