Foreclosure bill: How does it make sense?

Just to show that I'm not at all locked into a party line with blinders on, I was listening to the radio today on the way to work. The first sentence from the start of the program was that ADP reported close to 700,000 potential job losses. The next story was that Congress is enacting a plan to save homeowners from foreclosure. In the same paragraph it was mentioned that falling home prices and job layoffs were taking their toll on homeowners.

WTF? Back up the train. So... we're getting ready to pass a bill that will try and help homeowners stay in their homes, yet increasingly the reason that many of these homeowners are now starting to lose them is from job losses? How in the hell does that make any sense? To me it seems that if you really wanted to do something like this ( which I vehemently disagree with based on moral hazards alone) it should have been done at the start of this whole foreclosure business. Now home values are falling more because of a general economic decline in addition to the initial reason, which was that prices had gotten too high for median salaries to afford.

Thus the prices HAVE to come down more. Any efforts to prop up values will fail. I say "will" because I feel confident that now its too late to reverse what will and has to happen- a deflation back to basic underlying financial principals.

This latest lame housing bailout is doomed.

 

I'm not thrilled about the housing bailout. I put nearly 30% down on my house last year to make my payment manageable, I paid down my interest rate as well, and I have kept enough in savings to pay my mortgage for 18 months if I get laid off. If people bought more house than they could afford, they should lose it. If home values drop as a result, so be it, they were too inflated to begin with. I'm not going to get any benefit from the bailout.

On the flip side, I have some friends that were living and working in Hawaii. They saw home prices rising rapidly, and decide that they should buy something before prices were completely out of reach. They both got laid off not long after, and couldn't find work. On top of that, their home value dropped far below what they paid for it, to the point where they now have negative equity. They decided to move back to the mainland, and found jobs, rented out the house, and have continued to pay for it. They both got laid off from their jobs here a couple of months ago. They're still finding ways to pay their mortgage, but for what? They want to do the right thing, but it seems hopeless to me. If they can get their loan restructured by the bailout, they can at least avoid foreclosure, and sell it without having to show up with money at the closing table. I think they've done the responsible thing given their circumstances, and hope they can get some relief from the bailout.

 

Those who can swim stay alive, those who cant will meet their demise.

Its time for the pitch fork and torches again. Well maybe in todays time that is an AK and a sword. The economy, to include housing, jobs, etc must correct itself. Creating more debt and obligations this country cannot afford will only create deeper and deeper depression times.

 

If they wanna bail out the right group of folks to get the economy back on track then GIVE IT TO ACTUAL TAXPAYING HOMEOWNING CITIZENS!!!!!!!!!! What's 1/2 a million x 200,000,000? Less than the 3 trillion they're planning on wasting on this shit & 9 or 10 trillion with the interest accrued by the time it gets paid off. People can then pay their mortgage even if laid off & we can also get the spending by john q public moving again & that will make the most immediate difference. All they're doing is taill waggin the dog beatin off with taxpayer cash that will not get things going in the right direction, only fuck us worse. Heaven help us all. Fucking idiot politicians!!!!

 

Except when the gov props up the ones who need to fail.

 

Same for businesses who made fucked up decisions trying to make money the wrong way-they should fail & not be rescued. Who's gonna be rescuing the people/businesses out there doing the right things that are getting drug into the shitter because of the others?

 

It just aggravates me because truth be known- every family is really a miniature corporate enterprise and as such, has the RIGHT to fail regardless of how well or bad they managed their finances. For example, my best friend in SC bought 2 condos as an investment several years ago. Good guy, good head on his shoulders, but he saw everyone else doing the same thing and dove in. He lost both of them and is bankrupt. Yet he is doing fine, rents a nice place, and lives pretty much the same as he always has. Its not like once he lost the home he was paying for he was thrown out on the street. That's one of the problems I hear over and over again, which is to somehow instill this image of poor homeowners being tossed out on the curb. RENT. I rent, and its really not all that different from owning. I've been renting the same house for 5 years. The landlord would probably let me stay here forever. He doesn't raise the rent. I have a yard, garage, deck, and backyard BBQ. All for about 1/3rd the cost of buying the same house.

Yet somehow letting homeowners go into foreclosure is a bad thing even though if I suddenly couldn't pay rent I'd get zero sympathy. Of course I realize that home values have become the US economy since we don't really produce anything anymore. Thus propping up those values is about the only way to get the ball rolling again.

But this problem is too big to fix. Those prices will continue to fall, people will learn how to deal with less, and how to save money again. Once people can actually afford homes with real incomes, then we're good to go.

PS: Looks like the DOW isn't impressed with the plans.

 

I personally believe the economy would recover stronger and faster if the government would just leave it alone.

 

It sucks to lose a job or not beable to afford the house you have but this is wrong. the way I understand they will give people money to refinance their mort. to bridge the gap of original house value to current. then if they sell it later at a profit they owe some of it back to the gov.

OK.. the way I see it is that if they do sell the house at a profit they owe all the money back until they hit the original purchase amount. Then if they make money over the original amount they can keep a portion of it due to interest on the loaned money by the gov.

the reason is while they get the bail out, we are getting taxed to support it so we lost money and then when we sell our houses at potentially no gain we lost money again. it is a lose lose for the people not in that situation. not to mention taxing people more when they are holding on to what they have as it is so they don't end up in the same situation.

 

Lets assume they gave $100,000 to each homebuyer to resolve, catch up, or relieve some of their mortgage issues. How many of those people getting that check would actually put it towards the upside down mortgage payments and how many would be out shopping for DUBS to put on their hoopty.


I had 2 homes that I put $100,000 down on both when i bought them. I was lucky and sold one for $70k less than I bought it for. I have the other one on the market for $75k less than I piad for it. My net loss will be at least $150k. But I have tried to continue to pay for them and sell at my loss rather than contribute to the market problems. Will I get bailout assistance, hell no, becuase my conscience made me keep paying payments regardless.

 

I agree with this statement 100%. I say let it ride and it will be fine.

People are scared of govt and while most have been saving more , few are willing to part with it and start investing on anything again.

 

interesting reading in here... good posts all!!

bobwilson.. i like ur style-rep sent

 

qfe

 

Fundamentally and morally I believe this as well. But the government didn't really do anything during the first 2 years of the 30's Depression and the result was a total failure of the system. So yes, I think the government has to take on a more authoritarian role during financial crisis.Good example is AIG, which insures pretty much every single investment bank in the US as well as numerous international banks. They are the glue that holds banks together. Had they failed, the system would have failed immediately and we would be in soup lines. That's kind of scary.

The problem I have with what's going on is how they're doing it. I see what they're trying to do, which is making efforts to create more jobs to I guess prevent more of the spiraling effect that we're in: Job losses= foreclosures=losses to banks=collapse to the financial system. But my problem with the approach is trying to fix what is basically unfixable. The root of the financial crisis is homeowners in homes they would have never been able to afford. These people can't be saved and will lose their homes. So we might as well let them do so. Secondly, if we were to bail people out, the first thing would be to force banks to be absolutely transparent. Get ALL of the damage out front and fast. Get it all over with, see the extent of the problems so there are no more "worse than expected annul results" and therfor limit the headline risk.

But again, it pisses me off royally that somehow, the neighbor down the street from me who makes as much as I do, who bought an overpriced house is deemed more of a citizen than I.

 

+1

 

I haven't read all the posts here yet, but check out this article that was posted over at the Rush L thread...

http://www.foxnews.com/politics/200...tions-increasingly-expensive-economic-crisis/

And the best part?? IT WON'T COST TAXPAYERS A SINGLE DIME!!!!!!

 

I agree with the OP, the gov should just let this bow of shit work itself out.

 

This is a pretty interesting (and so far hostile free) thread. As a real estate agent, i get to talk about this alot from people who have been in Real Estate for quite some time. What alot of people dont realize, is that you should not look at a house as an investment any more than you should look at buying a car as an investment. Sure, you build equity in a house, and TYPICALLY, the value of the house goes up, but not always. A house is an investment, in the fact that in the end, (assuming you make payments) you will own something worth X amount of dollars that you can sell. you will most likely make money but you may not. The problem stemmed when we were in a bubble, and houses in some parts of the country were doubling in value in as little as a few years time. People thought, "hey, i'll get in on this and just sell in a few years and make a profit". Thats a great idea when things work out, and many people made alot of money doing that. But it got to the point where people were buying second homes as a way of increasing their money, similar to the stock market. people thought it was smarter to invest their money into a house, let it sit, then make a 20 or 30% return. higher return than if it was in a savings account right? not if the market fails. or the area is rezoned (does happen from time to time), or low income apartments are put up right behind your house. at that point you're just screwed. Buying a house instead of renting is always a smart move. counting on the equity in that house to take the place of smart investing is not a smart move. We've seen ALOT of people sell their second homes at a huge loss. in fact, we had a beautiful house on lake keowee ($1 million house) sell for $460,000, and that was only after the seller included a $10k bonus to whoever sold the house, on top of the regular commission. When asked why he was selling for so low he said he had to get whatever he could for it to keep from going bankrupt, even if he could only get 100k for it he would have had to accept his losses. otherwise it would have been foreclosed and he would have lost even more. Sad thing is, he never even slept in the house for a single night. he built it solely as an investment to cash in later on down the road, and it backfired horribly. BTW, we found out the guy only makes about 200k a year combined with his wife, already lived in a $500k house, had 2 BMW's and then decided to build a million dollar house on the lake. in reality, he never should have been approved for the loan for his second house. in the "business" we call that, "stupid".

The older agents remembered Clinton pushing to approve sub prime loans. They recall all the young agents being ecstatic because it meant a huge bump in their yearly income, but the seasoned vets knew it was a bad idea from teh get go. what goes up must come down. anyone that knows that they are doing knows that record sales one year is great, but save your money, because it will ALWAYS be followed by substantial low points.

To be fair, i'm not playing the "party lines" game where i just blame the democrats. This was all set in motion by Clinton (a democrat) but the reason it got so bad was due to Bush (republican). So the dem's may have started the spark, but instead of putting it out, the rep's got greedy and stupid and fanned the flames, making a somewhat bad situation turn into a catastrophe. (this is simplified since it wasn't just Clinton, or just Bush who is responsible, but they were the presidents at the time so its easier to just say their names, and being the country leaders, ultimately, they are the ones to blame) Bush may have been a moral conservative, but fiscally there was nothing conservative about him. the bush bailout was stupid, and the obama bailout is equally stupid.

The source of the problems at the moment is jobs. people need jobs to pay the bills. not $13 bucks a month in their paycheck (most the people who need the money aren't receiving paychecks). i hate to say it but some people need to lose their homes. i'm not saying they need to be homeless but they need to move into houses they can afford. helping someone making 50k a year stayin in a $350k house just doesn't make sense. people need to learn to live within their means. Now i'd be ok with the government urging banks and creditors to make this transition as smooth and painless as possible, but they shouldn't help or encourage people to continue to live above their means.

Now notice, i never mentioned democrats as being stupid, or republicans as being evil. I am being non partisan. I hate when each side tries to blame the other. boths sides are to blame for the situation we are in. If anyone posts here blaming or ridiculing either side, this thread will spin out of control and get locked.