http://news.yahoo.com/s/ap/20090218/ap_on_go_pr_wh/obama_home_foreclosures
It seems like Bush’s plan, only it costs more. It still doesn’t change the fact that these banks don’t own the notes; they have already sold them and the investors don’t want them to negotiate them down.
I voted for Obama and am rooting for him, but what is here that won’t end up like the last two efforts to stop foreclosures?
CalculatedRisk has a good post on the topic: Calculated Risk: Comments on Housing Plan
I think the plan has the same failures as Bush’s: it doesn’t do enough to really address the problems in the housing market. It is akin to trying to put out a four alarm fire with a household fire extinguisher. I don’t think it will make things worse (except for the addition of billions more in national debt).
The plan (like Bush’s) never gets around to addressing the real problem in the housing market, mainly that many many people simply owe much more than their homes are worth. The plan doesn’t significantly address this fundamental problem.
There are 2 problems. the first is that with a variable mortgage that the payments went up to a level that they could not afford payments. If we can fix that then some will be able to stay in their homes and make payments. That helps everybody, the banks, the neighborhood and the community. Many will stay in and make payments if they can.
House prices are way off. Home owners will do the calculus and if the home is way overpriced, they have to decide if they should walk . That too has to be addressed.Would you stay and make payments on a house that was double todays market?Should you? It is not a logical and mathematical it makes no sense.
From the OP’s link:
*
Obama said he backs legislation in Congress to allow bankruptcy judges to modify the terms of primary home loans — an idea ardently opposed by the lending industry.*
This is a great idea. If passed, it would give the homeowners real leverage to rework these loans into a viable payment plan. The banks still get something…likely more than they’d get in a foreclosure, and the debtors get to stay in their homes.
Right now, the mortgage holders have little reason to work with the homeowners. But with the possibility of a bankruptcy judge re-writing these contracts, the playing field gets closer to level.
Only those homeowners who have a loan owned by Freddie/Fannie will be helped by the refinance part of the plan.
People with variable rate mortgages have had plenty of time to refi. The problem is, they can’t because they could never qualify for a ‘real’ mortgage in the first place. The plan does nothing to address the NINA and NINJA loans that are out there.
Many of the problems in the market are because of speculators/flippers (etc.). The plan does not address the flood of speculator foreclosures.
I agree that it doesn’t (in many cases) make sense to stay in a home that has lost significant value. The plan doesn’t address this problem.
Right, he supports this legislation, but it isn’t a part of this package. I still think that this, if passed, would have a minimal effect. Right now you would think that lenders have an incentive to modify the terms, but they won’t/can’t.
This will simply force them to, through the power of the bankrupcy courts (which will be flooded with filings, destroying credit for the next 10 years).
And the flippers, yes, fuck 'em, no help for them! But their foreclosed homes are glutting the market and blighting neighborhoods just like the poor little old lady who couldn’t make her mortgage payment. These value judgements about who should be helped when macroeconomically it makes no sense have been a pervasive part of Democratic policy for too long.
the key problem is for all those people that bought houses with zero down, ballon payments, and could barely make the first payment - with all due respect they ain’t homeowners. The plan is just warehousing bad debts (delaying the pain and making it bigger) if it does not distinguish between who is a viable owner in a rough patch, and who should never have gotten that sub-fucking-prime loan in the first place.
I’m under the impression that the housing plan is not trying to facilitate out those that should never have " bought" in the first place.
Getting those buyers “out” means their homes go back into an already saturated real estate market, further depressing prices and putting more loans underwater.
That’s the primary benefit I see in preventing foreclosures. Let’s say you go so far as to force banks to refinance bad loans at current interest rates, with current home values. The banks/investors do not lose any more money than they otherwise would have in a foreclosure, but those homes never enter the market, and don’t compete with other homes for buyers. You are working to restrict the supply of available homes for sale, which will help support prices.
If we were to succeed in re-inflating this bubble one more time, everyone in their right minds would know it was temporary and many might try to cash in by dumping their properties on the market.
I use the term “reinflating the bubble” very deliberately. Housing prices got out of alignment with incomes. People should be able to afford to buy their house without assuming that its value will continuously increase, and not be so precariously situated financially that a six month layoff (or an expensive car repair) causes them to go into default on their mortgage. Anything else is a “don’t look down, and you will be okay” type of scenario.
That is the way the market used to work, with lenders taking into account income, credit history and other assets of the borrower, and not just the current value of the collateral.
House prices need to fall, a lot. If people believe they are going to fall slowly in the long run, they are going to fall fast, because everyone wants to sell before they fall. The only people who don’t care about house values, and only about being able to stay in the house, are people who in the long run are never going to pay. They are just defaults waiting to happen.
From 1996 to 2006 housing prices increased by 140%, while median household incomes increase by 53%. Yet home ownership skyrocketed during this period. Mathematically there is no way around it. Tens of millions of people bought homes that cannot be supported by their income levels unless they spend a lot more of their income on housing than they would have a decade ago. The only way out of this is for the homeowners, the banks, the investors and maybe the taxpayer to share the big losses, and for future generations to reap the benefits of lower housing costs.
Do you have a cite on how big this problem is? I’d have guessed that a speculator would be out already, since there is no incentive to try to save the property. Plus, there would be significant pushback on any plan to bail out speculators.
The Times quoted a study of the Boston area during a downturn that showed only 2 - 3% of underwater homeowners walked away from mortgages. If this is anywhere close to being accurate in the current situation, anything to solve this problem would be very expensive and probably ineffective, since if you are not moving and can afford the house, being underwater has no real impact. (Except for not being able to get a home equity loan, probably a good thing.) Maybe there should be support for those proving they have to move for work, but that should be just about it.
On this particular issue, I suppose I come down left of center. The lenders here knew exactly what they were doing…taking advantage of unsophisticated consumers, tricking them into signing things that were not properly explained, sometimes outright lying about the terms of the loans. I don’t have much sympathy for them. Odds are good that I’ll be litigating some of these cases over the next year or two, at least as co-counsel. I’m looking forward to getting some of the bastards on the witness stand…
The impact of speculators and flippers is different from region to region. Even in a region it is difficult to tell who was a flipper/speculator and who wasn’t. Many flippers/speculators used owner occupied mortgages, so there really is no good way to tell them apart from average homeowners. However, here are some quick cites: in 2005 27.7% of all single family home purchases were for investment purposes. And these are ones that can be easily discerned from mortgage docs (Calculated Risk: Toll Bros CEO: Speculators Impacting Supply). In Miami, in 2005, " it was reported that 85% of “all condominium sales in the downtown Miami market are accounted for by investors and speculators”. This is clear evidence of speculation." http://angrybear.blogspot.com/2005/04/housing-speculation-is-key.html
Some speculators may be out already, many more may be in some part of the foreclosure process and many may still be holding on.
There is little incentive to stay in a home that is upside down (big time!), regardless of any refi help or aid. O’s plan doesn’t really touch on this crucial fact.
Right. The problem is that the people who are in trouble should have never been homeowners in the first place, they were renters and it seems to me the solution has to be to put them back as renters. Keeping them in their homes as renters keeps the house from going onto the market adding to the inventory, futher reducing prices. Perhaps the best use of Govt funds is to actually buy the homes (negotiating a deal from the troubled lenders), rent them to the current occupants (who lose ownership and any equity but don’t get evicted), and then gradually sell them over a decade to avoid a huge glut of houses. A limit on new contruction would also help, perhaps limiting new home construction to 15-20% of what it was the previous year. This could be done by limiting residential building permits. Commercial and industrial construction wouldn’t be affected.
My first thought for this thread was “You mean in case the White House burns down, everybody head for the nearest exit and meet up at Blair House?”
Thanks for the links. I guess the real question is how much property was still in their hands when the music stopped. In any case, the moral hazard argument still applies - you hold speculators to a higher level of savvy than homeowners, and the social good of keeping people in their homes does not apply here.
A more interesting question is support for tenants who live in foreclosed homes.
The incentive is not having your credit rating trashed, not to mention the cost and aggravation of moving. I left Louisiana just before the market there crashed in late 1980, and I know people who left later who walked away - but only because they had to sell to move for a new job. The big problem is that a program to help underwater home owners would be 8X as expensive (IIRC) and would have to deal with the problem that the prices might fall even more.
It would be more expensive, but the effect on prices probably wouldn’t be much when compared to the amount prices will drop in total. Prices are going to continue to fall for a while no matter what - the question is whether it will be voluntary, or whether they collapse under thier own weight.
Depending on who you ask the home price to income ratio should be between 1.5 and 4 times your annual salary. This ratio provides you with a home you can afford without being “house poor”. The problem right now is that home prices are 6, 7 or even as high as 10 times the annual salary of the owners. No program, bailout, or slowing down of foreclosures is going to fix that problem. Incomes did not keep up with home prices, and home prices will fall until they’re in synch with incomes.
Further compounding the problem is the fact that the number of foreclosures out there are helping to keep the market inflated. For example, if you look at homes in the DC area for sale, you’re going to find that most are foreclosures, preforeclosures, or short sales. The problem isn’t necessarily the status of the house, it’s the obstinancy of the banks when it comes to concessions.
In a seller’s market, it is normal to see terms like “seller will not consider home inspection” or “buyer pays all expenses” or “seller will make no repairs - home is sold as-is”. Right now, however, you see that language in every listing owned by a bank for finance company, and they’re still listing the houses for more than they’re worth given the market. The banks are offering houses for more than they’re worth and expecting the buyers to pay thousands in other costs as well. This is not equal to good business, I think.
So the few houses that are being purchased are still propping up the market values, but that won’t happen forever. The banks will reach a limit on how much they’re willing or able to spend on taxes, insurance, HOA fees, maintenance, etc for the thousands of unoccupied homes out there.
Prices will take a plunge as soon as a major bank folds OR the banks holding all of these empty properties accept that thier losses are higher than they thought and start dropping the prices. Either way, the upside down mortgage holders are going to get nailed.
Not having their credit trashed? For most of these people, their credit is already trashed. When it comes down to it, your credit score isn’t important when you’re tossing $s out the window on a monthly basis ($s that you need now that your hours have been cut back at work). Then, you look next door and your new neighbor bought the foreclosure next to you for $100,000 less than you paid and that credit score becomes even less important. The big incentive to stay in a home, the one that got tossed out the window during the boom, was skin in the game, hard earned $s down at purchase.
I agree that the big problem is homeowners underwater, and that a program to help them would be 8x more expensive, but it is the only viable alternative to the ‘let them foreclose’ route (i.e., it is the only real solution to the foreclosure ‘problem’, assuming you really want to fix the problem).
Being underwater does not necessarily mean that someone has to be rescued. There are plenty of people underwater that are paying their mortgage just fine. This home rescue plan will only reward bad behavior on the part of the borrowers who knew they were buying houses they could not afford. I say let this thing run it’s course without government intervention and let’s get the pain over quickly.
Correct, but being underwater does greatly increase the chance that someone will walk from their home upon experiencing any ‘bump’ in the road. With no money down, and negative equity, any logical person would walk when the time is right.
Letting this run its course without intervention might be the best course. However, if we (as a society) decide that we need to ‘do something’ to ‘fix’ the foreclosure problem, then no solution can be complete without addressing the elephant in the room: upside down homeowners.
I agree but, as TheMightyAtlas pointed out, this will only create another bubble that will again pop or slowly deflate when the government removes itself from this equation. This is a correction that probably needs to work itself out at naturally as possible as opposed to being “fixed” by the same politicians that caused this mess.