Should Homeowners Be Saved?
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Bail Me Out: Judging possible rescues—deserved or undeserved.
Should Homeowners Be Saved?
Rescuing the housing market is harder than presidential politics would have you believe.
By Brandon Fuller
Posted Thursday, October 23, 2008 - 2:24pm
The government has a rescue plan for financial markets. What about the housing market?
A cycle of rising foreclosures and falling house prices threatens to deepen the ongoing economic slump and may prolong the credit crisis. Falling house prices are not all bad, though. There was, after all, a housing bubble. A return to realistic housing values is a necessary development for the country's long-term economic health, but how do we get there?
The housing proposals on offer from the presidential candidates are off the mark. Under Obama's plan, financial institutions participating in the Treasury's rescue package would agree, for a period of 90 days, not to foreclose on homeowners making an effort to pay.
In principle, that's not a bad idea. One big reason behind foreclosures is that more and more homeowners find themselves with homes valued at significantly less than their outstanding mortgage. Given time, prices should stabilize and begin to rise, reducing foreclosure pressures. But 90 days is almost certainly too brief a period to see the housing market through its current slide. Obama's moratorium only prolongs the inevitable.
The McCain plan would use about $300 billion of the Treasury's $700 billion relief fund to buy, at face value, the mortgages of homeowners facing foreclosure on a primary residence. Then, based on the current, reduced value of the home, the government would refinance the mortgages into 30-year fixed-rate mortgages with relatively low interest rates.
This plan punishes taxpayers. It's one thing to convert a 2/28 mortgage to a fixed-rate loan but quite another to base the new mortgage on the new, lower value of the home. So taxpayers take an immediate hit upfront on the difference between the face value of the mortgages and the reduced value of the homes. There's also no guarantee that assisted homeowners will be able to make good on restructured mortgages. McCain's plan too fully rewards the borrowers and lenders that fueled the current crisis and thus probably would never survive Congress.
(Photo by Ethan Miller/Getty Images)
Comments
Homeowner bailout
I'm not happy with the proposed mortgage bailout plans. It appears that the majority of these plans punish the responsible homeowners and reward those who acted recklessly. Those individuals who used a sufficient amount of their hard earned dollars as a down payment and those who worked hard to meet their monthly obligations will be left holding the bag. Should they attempt to sell their house today, they will suffer the loss of any deflation in their home's value. These individuals will also suffer since their tax dollars will be used to bail out the irresponsible parties. The majority of the reckless individuals had no business attempting to buy a house in the first place. These individuals will, however, have a portion of their debt forgiven and suffer little, if at all, when they sell. What's wrong with this picture other than everything? The fabric of our society is coming apart and this situation is just helping to tear it down. Shouldn't the irresponsible be held accountable and participate in the suffering? I always thought society expected one to honor their responsibilities or pay the consequences. It appears that the rules are changing and what applies to someone no longer applies to everyone. In the future I'll be looking to get in the line labeled "Be irresponsible and get rewarded".
NO TAXAPYER BAILOUT FOR IDIOTS W/O EQUITY SHARING
I hear the homeowners want a bailout for their poor investment decision that they made. That is fine with me....if it makes sense. I would never want to ever see a something for nothing bailout, or a bailout that only "helps save the economy right now" by transferring homeowner debt, to the national debt....which almost all proposed bailouts are offering. If there is a bailout, I as a taxpayer I want to be an equity partner
When home prices go back up in 7 to 10 years and are double what they are now, those people bailed out stand to make a HUGE windffall.
Lets say a homeowner bought a home for $700K, and the home is now worth $500K, and payments are tough for the borrower. Assuming a taxpayer bailout, the borrower can now make mortgage payments. Now fast forward 7-10 years, when the market INEVITABLY recvovers, should the borrower keep all the money they gained from the sale of their home if it sells for say 1 million dollars?
All taxpayers should demand that any bailout should include a "shared equity" clause, whereby the govt gets an agreed to % of the equity. This money can be used to repay the taxpayers.
Homeowner bailout
This is such a hard call.
Homelessness will lead to a higher crime rate, yet poor planning is not my responsibility to rescue.
I cannot get a loan, or afford a home, so I rent an apartment.
Why should my money go to someone who chose to ignore their financial reality, and jump into a commitment without clearly thinking it through.
ESPECIALLY if they were using houses as investments, and not homes.
Hard call, I guess it's better than seeing CEOs get foot massages with my money. I still think there should be some sort of penalty for lack of insight.
SIMPLE Solution
Forget vouchers and pointing fingers.
Here's the simple solution. Everyone (rich or poor) who purchased a home after January 22, 2004 (when things were really nuts and greed running rampant) simply has 8% of their existing principal taken off (i.e., if you currently owe $200,000 on your mortgage, the principle would now be $184,000). In ADDITION to that move, everyone (rich or poor) with an interest rate over 6%, automatically has it reduced to 6%.
Why force people to make payments on home loans based on improper, overly-inflated values? Put the values closer to where the SHOULD be, and less people will go into forclosure and mortgage companies will still be making money...probably more of it! Alright...so it also helps the bone-head consumers who went in over their heads, but what the #%%@? Do something for the common people, not just the CEO's who help create the mess.