Obama plans to subsidize mortgage payments of underwater homeowners

[Mango]

Obama sets aside $75 billion to slow foreclosures - MarketWatch

Ok, so the plan has been released. Essentially a two parter, one, 75 billion for mortgage subsidies on underwater non-jumbo owners that qualify, and two, give bankruptcy judges the right to modify loans as they see fit.

The repercussions of the later part are pretty interesting - why would lenders lend if they knew judges could null and void their contracts with a stroke of a pen? I sense this will add quite a bit of uncertainty and instability to the lending markets going forward.

Personally I complete disagree with both parts. 75 billion to help people who bought houses they couldn't afford just rubs me the wrong way.

Mango, care to comment, I'd love to hear what you have to say about it, especially cram downs.

I would imagine that Durbin's Modification Bill will include these provisions:

Only mortgages closed before the date of enactment will be eligible for cramdown protection. In other words, the focus will be on helping current owners, rather than future borrowers who become delinquent.

To be eligible, owners will need to inform their lender or loan servicer in advance of their intention to file for bankruptcy protection. That's intended to get the lender's immediate attention and prompt its best offer on a modification of the their loan terms, including principal reduction because including mods under Chapter 13 will effectively stop any collection efforts.

As far as market impact, "Adam J. Levitin, a professor at Georgetown University Law Center, recently published a study that examined the potential impact of modification of home mortgages on interest rates and concluded that ?permitting unlimited strip-down would have no or little effect overall on mortgage interest rates.?
"It isn?t only Professor Levitin who thinks that allowing strip-offs would have little impact on mortgage rates. The originator of mortgage securitization, Lewis Ranieri, said that such relief is the only way to break through the problem posed by second mortgages. For this reason, even though he was the one ?who wrote the bankruptcy exemption for first mortgages,? he ?finally gave up? and now publicly supports letting bankruptcy courts modify home mortgages." Full text here >>

The only problem I have with modifying under Chapter 13 protection would be if the Judges also simultaneously modifying, and when I say modify, I mean lower the principal balance on unsecured debt, like credit cards. What will happen is every putz who lived beyond their means will be rushing to the courts to file for Chapter 13 protection and that could increase lending costs on unsecured debt. On the flip side, if the judges don't modify CC debt, then under Chapter 13 it has to be repaid, which will keep it off the Banks balance sheets as a P& L write down if they stopped paying altogether. In all likelihood, if someone goes to foreclosure, they will let their other credit go to pot also.

I'd like to see the full Bill and all the amendments.

 

[Lynnie]

I would imagine that Durbin's Modification Bill will include these provisions:

Only mortgages closed before the date of enactment will be eligible for cramdown protection. In other words, the focus will be on helping current owners, rather than future borrowers who become delinquent.

To be eligible, owners will need to inform their lender or loan servicer in advance of their intention to file for bankruptcy protection. That's intended to get the lender's immediate attention and prompt its best offer on a modification of the their loan terms, including principal reduction because including mods under Chapter 13 will effectively stop any collection efforts.

As far as market impact, "Adam J. Levitin, a professor at Georgetown University Law Center, recently published a study that examined the potential impact of modification of home mortgages on interest rates and concluded that “permitting unlimited strip-down would have no or little effect overall on mortgage interest rates.”
"It isn’t only Professor Levitin who thinks that allowing strip-offs would have little impact on mortgage rates. The originator of mortgage securitization, Lewis Ranieri, said that such relief is the only way to break through the problem posed by second mortgages. For this reason, even though he was the one “who wrote the bankruptcy exemption for first mortgages,” he “finally gave up” and now publicly supports letting bankruptcy courts modify home mortgages." Full text here >>

The only problem I have with modifying under Chapter 13 protection would be if the Judges also simultaneously modifying, and when I say modify, I mean lower the principal balance on unsecured debt, like credit cards. What will happen is every putz who lived beyond their means will be rushing to the courts to file for Chapter 13 protection and that could increase lending costs on unsecured debt. On the flip side, if the judges don't modify CC debt, then under Chapter 13 it has to be repaid, which will keep it off the Banks balance sheets as a P& L write down if they stopped paying altogether. In all likelihood, if someone goes to foreclosure, they will let their other credit go to pot also.

I'd like to see the full Bill and all the amendments.

Holy Smokes, did you see that? Eloquently spoken, indeed. Good new is you must qualify, but if someone qualifies, why are they in foreclosure unless they're one of those speculators who is unside down. Dang - I just don't feel sorry for them at all~~~~~

Bad news is he is willing to allow them to reborrow 100% of the current value.

Hmmm, that is one of the variables of this mess. Oh well.........I'm out!

 

[Mango]

Holy Smokes, did you see that? Eloquently spoken, indeed. Good new is you must qualify, but if someone qualifies, why are they in foreclosure unless they're one of those speculators who is unside down. Dang - I just don't feel sorry for them at all~~~~~

Bad news is he is willing to allow them to reborrow 100% of the current value.

Hmmm, that is one of the variables of this mess. Oh well.........I'm out!

Do you have any better ideas? Or should we let the whole Banking system go to pot and sink into a depression? :roll: It's interesting to listen to people talk about speculation when these programs are for primary residences only. Also, what about people who bought in 2005-2008 to provide a home for their families and now under water and their spouses or one wage earner lost their jobs because of this economic crisis? Should there have been a law enacted that said everyone should have stayed renting?

This is a fiscal disaster and do people really think that the government isn't trying to find a way to limit our losses? There is a system of checks and balances. We let the foreclosures all hit the books and you'll see Banks fail globally, the markets tank completely and we'll all be at soup kitchens. All these bills are all pieces to a larger puzzle that we have never put together before. Some will prove faulty, some will work, but I do not think anyone has all the answers when economists who study this all their lives do not.

 

[scooterbug44]

I definitely approve of the primary home & non-jumbo provisions, but I still think there should be a way that that they either eventually pay it back or become ineligible for future assistance. Not just from a "fairness" perspective, but from a "don't set a dangerous precedent" perspective.

Yes, it sucks that people are upside down in houses, have credit card debt, and it may be because they are unemployed. Their bad choices are only my problem because of the large scale repercussions, and I don't see how a 'no-consequences to them' freebie keeps it from happening again.

I know I sound unsympathetic, but that's because I am. Life isn't exactly a primrose path for many people right now, but consequences for personal choices and a lack of financial responsibility seems to be getting kicked to the wayside as we look for solutions.

 

[Cheering472]

Do you have any better ideas? Or should we let the whole Banking system go to pot and sink into a depression? :roll: It's interesting to listen to people talk about speculation when these programs are for primary residences only. Also, what about people who bought in 2005-2008 to provide a home for their families and now under water and their spouses or one wage earner lost their jobs because of this economic crisis? Should there have been a law enacted that said everyone should have stayed renting?

This is a fiscal disaster and do people really think that the government isn't trying to find a way to limit our losses? There is a system of checks and balances. We let the foreclosures all hit the books and you'll see Banks fail globally, the markets tank completely and we'll all be at soup kitchens. All these bills are all pieces to a larger puzzle that we have never put together before. Some will prove faulty, some will work, but I do not think anyone has all the answers when economists who study this all their lives do not.

Thank you Mango. You make some excellant points in your post.

I'm going to go out on a limb and say I think we should just go ahead with outright complete government takeover of insolvent banks. Yes I said it, the N word, nationalization. It would only be temporary. They can be resold to the private sector later. Now before you all blast me with terms like socialism, remember we are already past that.

 

[Bob]

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.

tell all of that blather to a family that has lost a wage earner due to sickness or layoff, and has drained their bank accounts, run up credit card debt, and has tried every available option to stay afloat. this issue is at the core of our economic crisis, and it can not be solved by telling folks to sell their homes or refi. foreclosures are affecting everyone, and the herbert hoover/gw approach, that is, to do nothing, will all cost us more economically. the selfish posturing i'm reading here that those who need help to keep their primary residences are somehow unworthy is typical of the last 8 years.

 

[scooterbug44]

I don't necessarily think everyone upside down in a mortgage is watching TV on a plasma while their $$ leased car sits in the driveway and they rummage through their LV purse for their Iphone to call their vacation home to see if they left their Manolos there. :roll:

All I am asking is that they have to pay the taxpayers back for picking up their mortgage tab. I don't care if that repayment doesn't come due until they pay off their newly refinanced 30 year mortgage or if it's interest free - I just want the money paid back.

I know bad things can happen and snowball, so I don't have a problem w/ making them an emergency LOAN - it's the free money (coming out of MY pocket while I scrimp and work every angle) that I have an issue with.

 

[Lynnie]

Do you have any better ideas? Or should we let the whole Banking system go to pot and sink into a depression? :roll: It's interesting to listen to people talk about speculation when these programs are for primary residences only. Also, what about people who bought in 2005-2008 to provide a home for their families and now under water and their spouses or one wage earner lost their jobs because of this economic crisis? Should there have been a law enacted that said everyone should have stayed renting?

This is a fiscal disaster and do people really think that the government isn't trying to find a way to limit our losses? There is a system of checks and balances. We let the foreclosures all hit the books and you'll see Banks fail globally, the markets tank completely and we'll all be at soup kitchens. All these bills are all pieces to a larger puzzle that we have never put together before. Some will prove faulty, some will work, but I do not think anyone has all the answers when economists who study this all their lives do not.

Well, the better idea I do have is to see all of the variables, which none of us see. We don't see them, because they aren't disclosed. I stated if they qualify why are they in foreclosure? That's a legitimate question.

I do not believe the banking system should slip into a depression (I wouldn't wish that on anyone.....not even on the American Automobile Industry - nor any country would I wish this upon). And, you are exactly right that there are indeed many, many variables to this mess. From what I understand, you and I have experienced the same issues as I am in banking/lending/financial industry as well.

More importantly, I do not believe in throwing money at banks who did not loosen lending with the last bail out. This just surfaced in the press today. (We don't know if some of these banks are even solvent right now, because we don't have the numbers). I don't believe in printing money and creating inflation.

The President spoke very broadly and I am hoping that there are limits and stops placed on this program. Not just for the home owner (I am very compassionate for those out of work, BTW), but stops for the banks as well. It is ridiculously unfortunate that to solve these issues we are becoming quite rapidly a Nationalized, Socialized (whatever you want to call it) Nation.

I think there are other avenues than our government bailing out everyone. I see entitlement looming and I hope I'm wrong. There has never been a temporary entitlement program in our history.

I encourage everyone to write their Senator and Congressman to read the dern thing and insist on the proper documentation to make a well-advised recommendation. Contact the lobbyists as well.

While you don't know me and I understand you don't me, I will state now that it breaks my heart to see people become homeless and lose their primary residences. I volunteer at two organizations to help abate those situations in my home town. One group, we actually pay all of their bills for four months and then reassess their job situation - we have them attend financial classes which we host and teach them how to more effectively prepare for an economy like this one presently. I feel certain there are programs like this across the nation. It doesn't solve the big issue for the nation, but it certainly shows a strong, sharing community. And, most cases it solves the huge issue that a particular family is facing. We have kept them out of foreclosure through private donations. We also house a small grocer where they can come and pick our shelves. I went so far as to take in dog food and cat food. It was turned it away because our focus is human capital.

I Know that we all want a better economy; some believe in the gov't intervention, some do not. I respect everyone's opinion. However, I want to see the books........................

 

[30ashopper]

tell all of that blather to a family that has lost a wage earner due to sickness or layoff, and has drained their bank accounts, run up credit card debt, and has tried every available option to stay afloat.

We have a myriad of systems in place to deal with situations like this. Bankruptcy was designed specifically for folks who manage to dig themselves in too deep, unemployment payments for people who lose their job, ss disability for folks who run into financial issues related to an illness, Medicaid for low income workers who can't afford health insurance, SHCIP for kids, welfare as a stop gap against poverty... the list goes on and on and on. You're honestly telling me that on top of all this, we should pay off the mortgage on the house they bought at the peak of an asset bubble they knew they couldn't afford? Sorry Bob, I'm a compassionate guy, but there are limits to how far I feel we should go.

You should also study up a bit on Hoover, he did quite a bit to try and recover from the recession, most of which was poorly thought out and ended up making things worse.

 

[traderx]

Thank you Mango. You make some excellant points in your post.

I'm going to go out on a limb and say I think we should just go ahead with outright complete government takeover of insolvent banks. Yes I said it, the N word, nationalization. It would only be temporary. They can be resold to the private sector later. Now before you all blast me with terms like socialism, remember we are already past that.

Like Amtrak?