There should be more and quicker foreclosures, not fewer. In the former bubble areas, few troubled borrowers have equity anyway, which is why some people are choosing foreclosure even if they could prevent it. Banks really do not want to own these houses. If the bank loaned $500K on a house and has received $50K in mortgage payments, but the house is now only worth $300K, they stand to lose money if they foreclose. Foreclosure gets borrowers back into homes they can afford and frees houses up to be sold to people who can afford them, which increases supply and corrects housing prices back to where they should be.
Whaaaat? You want to help homeowners, not the banks, by giving the banks money?
Look, if you give a homeowner money, he’s going to pay the bank with it so he can keep his house. That’s putting money in the bank coffers in exchange for lowering the principle on the loan. It’s precisely the same thing as just giving the banks money directly and saying “now you have to re-fi all those loans at a lower rate”. Precisely the same thing.
The only way you can bail out homeowners and not banks is to make the banks, by force of law, write down the principles on the mortgages without any compensation. That gets the homeowner a little out of debt and doesn’t cost the taxpayer anything.
It should be obvious why that can’t work. You can’t just change the rules in the middle of the game like that, and I’m not even sure it’s within Congress’s power to do that. We did the right thing by giving the banks money in exchange for a piece of their business.
I’m not sure if OP is aware of Housing and Economic Recovery Act of 2008
That went pretty shitty with one fine quote:
One big 
:o for bolded part.
It’s funny how this guy did not “mishandle” it when it was time to take care of Banks.
Have you noticed the unemplyment rate?
Do you think there might be correlation between regional unemplyment and the rate of foreclosures?
If the state pays interest on a mortgage loan for a family in temporary distress, is that really “precisely” the same thing as safeguarding the investments made in a bank by a shareholder?
That’s what happened, shareholder interests - the so-called 1% - won out. At what cost to the greater society.
Yes, it’s precisely the same. What do you think paying loan interest does? It gives the banks the money they’re asking for. The only loser is the state, who had to come up with the money.
What really happened was instead of just giving the banks money, the state bought part of it. The banks later bought that piece back with interest. The so called 1% only won out in the sense that they got to continue existing.
I wonder if you realize that when you deposit your paycheck in a bank, you’re an investor in the bank.
If they are under water, where do they come up with the money to pay the difference between their old loan amount and the value of the house? If they walk away, who is going to lend them money for the new house?
This is a fine strategy if your income declines during a strong housing market. Doesn’t work very well today.
Your second cite says why the program was so ineffective. It took a lot of paperwork, and banks would have to recognize losses. It is classic case of loss aversion, where people and institutions would rather let losses accumulate than make them solid. Several people have already said how irrational it is for banks to resist renegotiation when foreclosures actually cost them more money.
I also don’t understand your glee at the bolded part. Volcker and the Bush Administration screwed the pooch. Are you one of the people who think liberals must love all government, even when run by nitwit Republicans?
Would the homeowners be paying us back? Because AFAIK, the banks have made good on the loans we (The People) collectively made to them and we might actually turn a slight profit on the transaction.
Also, would bailing out the homeowners have averted a full melt down of or financial system? Because bailing out the banks seems to have done so.
(basically, if you are listening to Ron Paul about this sort of thing, I’ll just say (to paraphrase the Mythbusters): Well THERE is your problem!)
-XT
It allows me to keep living in my home.
Helping homeowners pay does 3 things. It reduces the banks loss. It keeps people in their homes. It keeps homes off the market, reducing supply and downward pressure on prices.
Paying banks directly only helps the banks stay afloat.
On the plus side for helping the banks alone, it seems to have gone through without costing the government any net dollars, where helping homeowners would certainly have cost the government money.
Loaning trillions interest free and without collateral etc. to banks of public funds when that is not available to human beings is what is repulsive. Private corporations are treated as though they are more important than human beings.
Bailing out each homeowner would require individual paperwork, consideration of each situation. That is what is unworkable.
As for Congress trying to help individuals with as John Mace puts it “3 iterations”, none of them are even slightly effective. The banks ignore the laws and the courts, in fear of getting 100,000 lawsuits in every hard hit county do so also. I’ve seen it.
As corrosive as Nixon’s pardon was (an opinion I’ve recently come to and contrary to past posts) to the rule of law, the current Gitmo laws and bailouts are far worse. We spend $50 million prosecuting Barry Bonds to put him under house arrest for a few months for his evasiveness, but generally ignore everything that Wall Street does, from Bernie Madoff to the recommending of bundled mortgages that they then bet against. As bad as Madoff’s actions were, the recommending of derivatives while investing against them was fraud on a far more massive scale.
The bank bailouts were necessary to keep the banking system from collapsing, but it was still done wrong. Nothing wrong with the government lending freely to banks during a crisis, but such lending should be done in a way to only allow the banks to tread water, not profit from government largesse. Banks taking bailout money to pay bonuses and sock the money away in US government bonds for risk-free profits should not have been permitted.
As for underwater homeowners, I don’t believe a direct bailout would have been, or would be, the best way to proceed. I think allowing cramdowns in bankruptcy is the way to go.
I don’t know that any of this would have been as practical (and as immediate) as bailing out the banks. What I would have liked to see is some type of moratorium on foreclosures as a condition of bailout funds, with unpaid mortgage premiums being reclassified as rent or something and paid back by homeowners at a later date.
No, real human beings would have suffered if the banks were allowed to fail, and not just bankers. The scandal was that no strings were attached, not that the banks got the money. Europe is teetering on the brink today in large part because the EU central bank is not making money available.
Bailing out each homeowner would require individual paperwork, consideration of each situation. That is what is unworkable.
[/QUOTE]
Yes, but they seem to have no problems with foreclosures (except those they created for themselves by cutting corners during the boom.) You’d need to find out the current property value, to determine how much it is underwater, and current income levels, just to be safe, but if you are amending the loan instead of creating a new one then it is simpler.
I think the biggest issue has been that no one knows who owns the loans anymore. The bank just administers it, and the loan itself has been sliced and diced so many times that lots of people own tiny chunks. That is the part which will require tricky legislation.
The real problem for the mortgage market is that there are a lot of people holding junk who have strong incentives not to admit that they are holding junk. They gambled, they lost, now let’s move on.
Not really.
If it’s a adjustable rate mortgage
- The bank bills the homeowner for the original rate
- The bank bills the Federal government for difference of the adjusted and the original, if greater.
No paperwork and nothing specific to an individual. The whole ARM system was flawed.
Fwiw, as alien as the concept might be to so here, means tested aid (inc. paying mortgage interest) is not exactly unfamilair to first-world societies on society-wide basis.
It’s not that hard in the age of computers. Maybe people will even go to the moon one day.
Your system is workable, but is a gift to the banks from our pockets. First, much of the high interest rate loans sold were ripoffs, and I see no reason for continued profit on them. A borrower not underwater would be able to refinance at market rates, . A good, and easy, system would allow those who are underwater to refinance if possible. This needs no subsidy. Maybe there could be a subsidy for reducing the loan amount, but the government should get some of the potential upside benefit.
And I agree it is very possible - and the banks can hire back some of the laid off bankers too.
No it’s not. Your example does not reduce the principal balance owed by the homeowner. It provides people no insulation from extreme devaluation of their home.
Also, the banks are not under any particular obligation to renegotiate rates with most underwater homeowners. You seem to have the impression that they are (or were) according to your post, but it’s just not true. Homeowners who met certain conditions for financial distress, and their mortgage was owned by Fannie Mae or Freddie Mac, and weren’t too under water, could in some cases qualify for refinancing consideration which did not reduce their principal owed. This is a million miles away from my suggestion.
The truth is the government did not do one tiny thing to provide relief for people who eventually chose to strategically default on their mortgage. Of the very few people who did qualify for refinancing their underwater mortgages, zero of them had principal forgiveness.
That is not what I suggested. Unsurprisingly, it’s quite easy to defeat the argument you wish your debate opponent had made, instead of the one he actually made. Of COURSE forcing banks to forgive loans enmasse would be a disaster, which is why I never suggested anything close to it. My argument was that by giving money directly to the banks, we left the people who were really suffering (homeowners) exposed to ALL of the risk and consequence of the failing market, while insulating the banks from it. We could have “bailed out” both the homeowners AND the banks by giving that money to homeowners instead.
What if they had bailed out the banks and then given the choice to which underwater mortgages were going to be forgiven?
Why should mortgages be forgiven for being underwater? If I buy a house for $200k, with zero down and 5% interest, the mortgage is virtually underwater the first day I own it. If not then, certainly after the slightest market downturn.