News President's Homeowner Affordability and Stability Plan

[mheslep]

The recently announced $275B http://www.whitehouse.gov/blog/09/02/18/9-million-plus/#TB_inline?height=220&width=370&inlineId=tb_external" states that it intends only to reach 'millions of responsible home owners'. Indeed, Press Sec. Gibbs said today that the bailout is for ''those who have acted responsibly, played by the rules...". Yet the Stability part of the HASP will apply to those with payments up to 38% of income. A debt load that high means it includes sub-prime borrowers. It includes those who took a flyer with interest only heavy back-end loans, of which they took no heed because they were initially intent on flipping the house. In the words of the plan:

...Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and
exotic loans with exploding terms and hidden fees.

Now how can these recipients all be called 'responsible'? The wording of this plan is, at least, misleading.

Compare:
Borrower: $220,000 mortgage at 38% of income. Plan reduces interest payments by $400/mo by using taxpayer dollars. If borrower keeps making payments receives additional $1000/yr for five years.
Renter: nothing.
Old School home owner that bought humbly and paid off early: nothing.

What's the lesson here? Be frugal, and BTW shut up and pay your taxes? Or buy the biggest house you can possibly get, the government will get you a pass.

For those who might criticize the plan, note that http://www.whitehouse.gov/the_press_office/Briefing-by-White-House-Press-Secretary-Robert-Gibbs-2-20-2009/" to heap condescension a CNBC editor: where and how he may live, and what he does for living:

Q -- there really does appear to be some anger out there from people who just don't believe the President when he said that only people who acted responsibly are going to be helped here. How can you assure people that you're going to reward only people, only homeowners who acted responsibly?

MR. GIBBS: Well, let's go through this, because I do think this is very important. And I've watched Mr. Santelli on cable the past 24 hours or so. I'm not entirely sure where Mr. Santelli lives, or in what house he lives, but the American people are struggling every day to meet their mortgage, stay in their job, pay their bills, to send their kids to school, and to hope that they don't get sick or that somebody they care for gets sick and sends them into bankruptcy.

I think we said a few months ago the adage that if it was good for a derivatives trader that it was good for Main Street. I think the verdict is in on that.

Here's what this plan will do: For the very first time, this plan helps those who have acted responsibly, played by the rules, and made their mortgage payments. This will help people who aren't in trouble yet keep from getting in trouble. You can't stay in this program unless you continue to make mortgage payments. That's important for Mr. Santelli and millions of Americans to understand...

 

[Ivan Seeking]

Now how can these recipients all be called 'responsible'?

Predatory lenders.

Have you ever bought a house?

 

[edward]

Greed. Mortgage brokers made more money if they sold loans with higher fees and interest rates. So borrowers would often be steered toward riskier products, even if a more traditional (and less risky) loan were available. "My income was directly proportional to the revenue I generated, and subprime was three to five times more profitable than any other type of loan we securitized," Bitner says. "I saw no logical reason to sell something that made less money and carried no competitive advantage."

EDIT link

http://narblog1.realtors.org/mvtype/theweeklybookscan/2008/08/

In short a loan originator made more by writting sub prime mortgages. They all drank the Kool Aid.

 

[mheslep]

Predatory lenders.

Yes they exist. How is that relevant to the above?

Have you ever bought a house?

Couple of them. Relevance?

 

[Proton Soup]

the problem may be that if you don't help these people keep their homes, then huge numbers of people will default and the government will be forced to either buy up the bad mortgages or let the banks fail. and the consensus seems to be that we don't want to let banks fail. so, even though this doesn't seem fair (neither is bailing out rich people to a bunch of poor folk) and shows favoritism, renters aren't carrying the same risk of bringing the whole house of cards down.

at least this way, you keep getting payments from them and limit your losses.

 

[mheslep]

the problem may be that if you don't help these people keep their homes, then huge numbers of people will default and the government will be forced to either buy up the bad mortgages or let the banks fail. and the consensus seems to be that we don't want to let banks fail. so, even though this doesn't seem fair (neither is bailing out rich people to a bunch of poor folk) and shows favoritism, renters aren't carrying the same risk of bringing the whole house of cards down.

at least this way, you keep getting payments from them and limit your losses.

Yes there's the issue of what to do about foreclosures in general. For the moment I object to the baloney in the selling of this plan ala all the borrowers are 'responsible'.

 

[Proton Soup]

Yes there's the issue of what to do about foreclosures in general. For the moment I object to the baloney in the selling of this plan ala all the borrowers are 'responsible'.

i think that "responsible" implies intent, which can be hard to judge. people with 2 or 3 mortgages so they can buy jet skis and refinance credit cards are one thing. folks who simply lack the mental toolbox to do the math and understand the terms of just what the heck they've gotten into are another thing. but yeah, some of it is simply placating political language.

 

[mheslep]

i think that "responsible" implies intent, which can be hard to judge. people with 2 or 3 mortgages so they can buy jet skis and refinance credit cards are one thing. folks who simply lack the mental toolbox to do the math and understand the terms of just what the heck they've gotten into are another thing. but yeah, some of it is simply placating political language.

Both of which qualify for money under this plan (if they meet a) <=38% of b) simply underwater )

 

[Ivan Seeking]

Yes they exist. How is that relevant to the above?

Couple of them. Relevance?

You are assuming that everyone with a bad loan was irresponsible. Keep in mind that the average home buyer is not an economics expert or a real estate lawyer.

The point about buying a home is that the paperwork is overwhelming. It is easy to see how people could get snookered. Many people just sign the papers without even knowing what they're signing and trust that the loan company is representing the loan honestly - which they are legally required to do.

There are stories emerging about people who qualified for a standard loan, but were sold subprime loans anyway. They were deceived by the loan company.

Note also that the bailout only applies to a person's primary home. This helps to exclude those who were simply buying and flipping houses; who were taking advantage of the hyperinflated market; who were taking advantage of exotic loans in order to make a fortune.

When we bought our house, I had a hundred questions about prexisting conditions on the propery, what can and can't be done by the current owners before we sign the papers... I don't remember the specifics anymore but I remember having many questions. The answer generally given was that the mortgage company and the title company take care of those concerns.

 

[mheslep]

You are assuming that everyone with a bad loan was irresponsible. ...

Not at all. I assume as stated that predatory lenders were out there and that some people were ripped off by them. I assume that many other borrowers were simply irresponsible, and they will none the less be rewarded by this plan. I assert that if individuals can not in large measure be held accountable for mortgages in good times and bad, then the entire mortgage system must fail, leaving housing only to the extremely wealthy or the government.

 

[Astronuc]

I am troubled/bothered by the government help/assistance on home affordability when it involves allowing people to keep ownership of their houses when they cannot afford payments. I'm also disturbed by people the claim that people were mislead by predatory lenders, because if these people did not understand the details of the financing, then they had no business buying a house and entering into a contract in the first place. It's a bit like making a promise and then claiming one did not understand the promise and therefore should not be held to the terms to which one agreed. Part of becoming an adult is to accept responsibility for one's actions. But I see a lot of irresponsible people expecting some forgiveness for their recklessness or irresponsbility. Bottom line is - if one makes a promise, one is expected to keep it or accept the consequences of not doing so.

I watched an interview with a home owner who could not afford payments on an $800+ K house, which had dropped in value by $200K. She and others like her are waiting for government assistance in order to keep their homes. Why in the heck is this woman and husband living in an $800 K home in the first place? Why didn't they just buy something they could afford? Why should people expect to live in expensive housing they cannot afford?

I bought a house that my wife and I could afford, and as time went on, the monthly payments have been about 20% or less of pretax income (taxes have about doubled or tripled since we bought the house, but we also doubled the size), and our house is still worth way more than the remaining principal. We rejected ARMs and other plans in favor a 30-yr fixed rate mortgage with a reasonable rate - as low as possible. We refinanced once after we used a construction loan to add a second story, and replace the old driveway which had deteriorated.

 

[russ_watters]

Part of becoming an adult is to accept responsibility for one's actions.

Agreed.

 

[Evo]

I am troubled/bothered by the government help/assistance on home affordability when it involves allowing people to keep ownership of their houses when they cannot afford payments. I'm also disturbed by people the claim that people were mislead by predatory lenders, because if these people did not understand the details of the financing, then they had no business buying a house and entering into a contract in the first place. It's a bit like making a promise and then claiming one did not understand the promise and therefore should not be held to the terms to which one agreed. Part of becoming an adult is to accept responsibility for one's actions. But I see a lot of irresponsible people expecting some forgiveness for their recklessness or irresponsbility. Bottom line is - if one makes a promise, one is expected to keep it or accept the consequences of not doing so.

I watched an interview with a home owner who could not afford payments on an $800+ K house, which had dropped in value by $200K. She and others like her are waiting for government assistance in order to keep their homes. Why in the heck is this woman and husband living in an $800 K home in the first place? Why didn't they just buy something they could afford? Why should people expect to live in expensive housing they cannot afford?

I bought a house that my wife and I could afford, and as time went on, the monthly payments have been about 20% or less of pretax income (taxes have about doubled or tripled since we bought the house, but we also doubled the size), and our house is still worth way more than the remaining principal. We rejected ARMs and other plans in favor a 30-yr fixed rate mortgage with a reasonable rate - as low as possible. We refinanced once after we used a construction loan to add a second story, and replace the old driveway which had deteriorated.

Absolutely agree.

I am completely against a bail out, with my tax dollars, for irresponsible people that bought homes they knew they could not afford . Why do these people deserve my money when millions of people are in danger of losing apartments due to losing jobs? They did nothing wrong, they didn't try to spend beyond their means. Yet now they are being told that they have to hand their tax money over to people that wanted things they couldn't afford?

I do not understand how this is even being considered.

 

[rootX]

I do not understand how this is even being considered.

I think they trying to invest too much in very limited amount of time ...

 

[Gokul43201]

Saying adults should take responsibility for their actions and I'm not going to bail out a bunch of irresponsible people with my money is okay for a philosophical argument, but becomes useless when it comes to implementing a working government policy.

Or else, you should stick with that argument, but take it to its logical end, and refuse to pay for the fire service that hauls someone out of a burning house because they screwed up and left the iron on. Refuse to fund FEMA's post Katrina operations because people weren't responsible enough to leave when told to. Going further, close down Social Security, shut down all welfare programs, stop funding public health initiatives, eradicate all import tariffs, and so on ... eventually you will find that you'd probably have to throw out most of Government if you take the "personal responsibility" argument to its logical end.

The way most modern governments work today, they are continually making life easier for people by drawing out of a common pool of money. In dozens of different ways that translates to people being bailed out by others for one reason or another. In that respect, the current bail-out of homeowners is different only in shape and size, but is still essentially the same as scores of other continuously operating bail-out programs that few people will question because they've become an ingrained part of our lifestyles.

 

[Astronuc]

Or else, you should stick with that argument, but take it to its logical end, and refuse to pay for the fire service that hauls someone out of a burning house because they screwed up and left the iron on. Refuse to fund FEMA's post Katrina operations because people weren't responsible enough to leave when told to. Going further, close down Social Security, shut down all welfare programs, stop funding public health initiatives, eradicate all import tariffs, and so on ... eventually you will find that you'd probably have to throw out most of Government if you take the "personal responsibility" argument to its logical end.

The way most modern governments work today, they are continually making life easier for people by drawing out of a common pool of money. In dozens of different ways that translates to people being bailed out by others for one reason or another. In that respect, the current bail-out of homeowners is different only in shape and size, but is still essentially the same as scores of other continuously operating bail-out programs that few people will question because they've become an ingrained part of our lifestyles.

Maybe it's time to end the subsidies by the government, and develop a fair and sensible policy that will mitigate future occurrences of what is now happening. Clearly the Bush administration policies failed, but so did the policies of his predecessors.

I agree with Reagan's concern about people developing a dependency on welfare programs, but he and others did not address the problem effectively - and we still have dysfunctional governments and welfare systems.

Many poor in New Orleans did not have the means to evacuate, or a place to where they could evacuate, but then the local (city), state and federal governments failed to protect them. That failure was simply a consequence of an evolution of dysfunctional governments, including simple basic corruption.

One of the systemic flaws in the American economy is a gross inequality/disparity in income (and wealth) - and I'll post about that later.

 

[mheslep]

Saying adults should take responsibility for their actions and I'm not going to bail out a bunch of irresponsible people with my money is okay for a philosophical argument, but becomes useless when it comes to implementing a working government policy.

Or else, you should stick with that argument, but take it to its logical end, and refuse to pay for the fire service that hauls someone out of a burning house because they screwed up and left the iron on. ...

I see where you're going but the analogy is flawed. The problem w/ bailing out the mortgages is that it encourages people to do the same in the future, without consequence. Burn your house down through stupidity or even from the most unpredictable accident and you will at the very least lose some irreplaceable property, and likely someone's life will be endangered. In addition the government can bring civil or even criminal charges if they can show you were really stupid/intentionally reckless, like storing certain banned incendiaries on the premises. Last, you might face increased home owners insurance premiums down the road. Clearly there are many disincentives in place for people to be reckless w/ burning their houses down, and no incentives caused by sending in the fire department to help them out.

 

[russ_watters]

Or else, you should stick with that argument, but take it to its logical end, and refuse to pay for the fire service that hauls someone out of a burning house because they screwed up and left the iron on...

One doesn't imply the other: a home foreclosure does not put one at risk of imminent death and a rescue from a fire does not provide an incentive for the person rescued to start another fire.

Refuse to fund FEMA's post Katrina operations because people weren't responsible enough to leave when told to.

Agreed. More generally, government bailouts of people who build homes in flood prone areas are a disgrace.

Going further, close down Social Security...

Agreed.

...shut down all welfare programs...

Most - not necessarily all.

...stop funding public health initiatives...

Again, most, but not necessarily all.

...eradicate all import tariffs...

and again...

... eventually you will find that you'd probably have to throw out most of Government if you take the "personal responsibility" argument to its logical end.

Yes.

Have you never considered these possibilities before? Personal responsibility is the driver of the conservative philosophy!

The way most modern governments work today, they are continually making life easier for people by drawing out of a common pool of money. In dozens of different ways that translates to people being bailed out by others for one reason or another. In that respect, the current bail-out of homeowners is different only in shape and size, but is still essentially the same as scores of other continuously operating bail-out programs that few people will question because they've become an ingrained part of our lifestyles.

Yes, that's correct: modern western governments today are actually quite socialistic and generally moving even further to the left. The US is actually one of the furthest to the right. But the fact that they work that way doesn't automatically make it right. To a conservative, the socialistic nature of these governments is essentially slapping a yoke onto the backs of the productive to pull the unproductive with them. It is the antithesis economic freedom which is one of the more important freedoms on which western government was originally founded.

 

[Ms Music]

Have these "responsible" buyers ever thought about selling their home and buying something they COULD afford? What if government became real estate dealers? "You can't afford THIS house anymore, so I will just let you have this smaller one instead"...

The ONLY people I can sympathize with are those who have lost their jobs and unemployment in their town is high, their house has been on the market for sale for months, but all bids fall through, but they are TRYING to make payments. Those who have too much debt are just plain NOT responsible. And helping them isn't fair to me.

I feel like I am being punished.

I hate this subject... Why did I even post?

 

[Astronuc]

Have these "responsible" buyers ever thought about selling their home and buying something they COULD afford? What if government became real estate dealers? "You can't afford THIS house anymore, so I will just let you have this smaller one instead"...

One problem for many is that they owe more on the mortgage than the value of the house in the current market, so they'd lose money if they sold the house, and therefore would not qualify for a new mortgage. I'm not sure of the proportion of mortgage holders in this situation, but it may be as many as 30 to 50% in some areas.

Here's some more on the mortgage problem - Former HUD Chief Weighs In On Foreclosure Crisis
http://www.npr.org/templates/story/story.php?storyId=101027916

Links to other articles on the matter.

 

[Gokul43201]

Have you never considered these possibilities before?

Of course I have. I consider myself more libertarian than anything else. But knowing that there's no way in hell government is going to look anything like I might want to see (which would require throwing it all out and starting from scratch) and expecting only that incremental changes will be made at any time, I find that small changes towards a more libertarian system only seem to make things worse, so I often (but not always) settle for something that I am otherwise opposed to on principle.

 

[Ms Music]

owe more on the mortgage than the value of the house in the current market

My house has dropped in value also. But thankfully I am still able to pay my mortgage. So why are my tax dollars paying for the people across the street that bought at a high LTV, then got a 2nd mortgage and bought a boat and a new truck to tow the boat? I can't sell my home for what the county assesses taxes my property either.

I can't see any way of making this fair. Helping them hurts me.

 

[Astronuc]

My house has dropped in value also. But thankfully I am still able to pay my mortgage. So why are my tax dollars paying for the people across the street that bought at a high LTV, then got a 2nd mortgage and bought a boat and a new truck to tow the boat? I can't sell my home for what the county assesses taxes my property either.

I can't see any way of making this fair. Helping them hurts me.

I'm not sure those people who took a home equity loan or second mortgage will qualify. AFAIK, the mortgage assistance only applies to the primary mortgage, not a home equity loan or second mortgage, especially if it was used to buy a boat and truck.

 

[Art]

There's a better way of helping distressed homeowners without hurting other taxpayers.

In the UK some years back, to help lower paid workers buy homes local authorities introduced low start mortgages. Under these the local authority kept a share of the house equity. The plan being that in the future when the original loan was cleared the homeowner could then buy back the rest of his house equity through a further loan. In the event the homeowner died or sold up the council got it's share of the equity from the sale of the property.

Such a plan could be easily redrafted to help homeowners in the US without actually subsidising them with other people's money.

 

[WhoWee]

There are 2 issues at hand (1) home values and (2) payment terms...they are very different things.

To make a comparison, the Dow fell 250 points to 1997 values today.

http://money.cnn.com/2009/02/23/markets/markets_newyork/index.htm?postversion=2009022318

Nobody would ever suggest the government try to prop up 401K values or cover margin calls...even though both (homes and investments) are assets...and many people approached home buying as a speculative venture since 1997.

Home (land) values (just like the stock market) need to correct...we can't prop up the prices artificially - it will lead to even more people will buying over-inflated assets.

As for payment terms...every troubled mortgage COULD be renegotiated without forcing the financial institution to take a loss...50 years...75 years...whatever it takes...even if you currently have no income, within a year or two, you should be able to resume payments.

If you paid $800,000 for an asset that was worth $300,000 (you made a mistake) but you'll have a very nice roof over your head for the rest of your life. Hopefully your kids will be able to pay it off. Unlike a car that only has a useful life of 10 to 15 years...a house will outlast most lifespans. There are plenty of 100 year leases on the books in the business world.

 

[mheslep]

Have these "responsible" buyers ever thought about selling their home and buying something they COULD afford? ...

Too late. Housing has depreciated, so many are underwater. That is, if they sold the house the proceeds would not cover the mortgage on it.

 

[WhoWee]

Too late. Housing has depreciated, so many are underwater. That is, if they sold the house the proceeds would not cover the mortgage on it.

That's why it's better to re-write the loans...lengthen the terms...as the economy rebounds, some of the values might increase.

The main obstacle right now is banking regulations...not cash reserves.

 

[Astronuc]

Somebody mentioned today that the government should get an effective lien on any property, which the government subsidizes, such that in the future when the property is sold, the profit goes to the taxpayers, i.e. no owner receiving government subsidy profits from the sale of the property.

I'd settle for the subsidy being repaid with a reasonable interest. Seems fair to me.

 

[WhoWee]

Somebody mentioned today that the government should get an effective lien on any property, which the government subsidizes, such that in the future when the property is sold, the profit goes to the taxpayers, i.e. no owner receiving government subsidy profits from the sale of the property.

I'd settle for the subsidy being repaid with a reasonable interest. Seems fair to me.

Repaying a subsidy with interest is one thing...taking the profit on the sale is an entirely different objective.

Are there any loans out there that Freddie and Fannie haven't touched? That is a VERY slippery slope...taxation without representation would take on a whole new meaning.

 

[Astronuc]

Repaying a subsidy with interest is one thing...taking the profit on the sale is an entirely different objective.

Are there any loans out there that Freddie and Fannie haven't touched? That is a VERY slippery slope...taxation without representation would take on a whole new meaning.

How about repaying subsidy + interest + a portion of the profit pro-rated on the basis of the ratio of the subsidy to the principal?

 

[WhoWee]

How about repaying subsidy + interest + a portion of the profit pro-rated on the basis of the ratio of the subsidy to the principal?

I guess my problem is in regards to all of the things being discussed relating to business transactions...specifically the value of a written contract.

In the business world, a contract governs the relationship between parties and is enforceable in court.

The government plays by a different set of rules. First they set the lending rules and manipulate Fannie/Freddie and interest rates. Then they "encourage" banks to take TARP funds that some didn't want and (at the time it seemed) no strings attached and "accept" Preferred Stock...because it has a higher priority of repayment in the event of failure.

Now, there are reports of a shortage of oversight of TARP administration and new rules are suggested. It started with wage caps and suggestions regarding not holding any events in Las Vegas (for instance)...and conversion of the Preferred shares into common shares. Converting the shares means they are less interested in a stable investment and more interested in control.

The government has a long history of saying one thing and doing something else...usually for political expediency.

 

[Jimmy Snyder]

Of course liberals love this plan. What makes me laugh is the people who support it and call themselves conservatives.

 

[Gokul43201]

Of course liberals love this plan. What makes me laugh is the people who support it and call themselves conservatives.

That is funny (almost as funny as the people who've supported Bush calling themselves conservatives).

 

[Gnosis]

Absolutely agree.

I am completely against a bail out, with my tax dollars, for irresponsible people that bought homes they knew they could not afford . Why do these people deserve my money when millions of people are in danger of losing apartments due to losing jobs? They did nothing wrong, they didn't try to spend beyond their means. Yet now they are being told that they have to hand their tax money over to people that wanted things they couldn't afford?

I do not understand how this is even being considered.

Why assist homeowners rather than renters? The reason is fairly straightforward.

Failing renters aren’t defecting on any kind of mortgage therefore, there’s little risk that the owner of the apartment property will default on their mortgage. They’ll simply find another renter, which is business as usual in the rental property game.

However, if homeowners continue to default on their mortgages, the already troubled banking industry moves ever closer to a total collapse and the result will be another “great depression”, which is something that should be averted at all costs. Just ask the elderly who actually lived through the “great depression” (as my grandparents and parents had to endure) and most will tell you; their next meal was never a certainty and there was plenty of hunger to go around, as well as some damn cold winters where heat was a luxury that couldn’t be afforded by a great many.

It makes sense that priority must be given to those in jeopardy of defaulting on their mortgages hence, aid to the millions of troubled mortgage holding homeowners.

Ideally, I’d also rather not have any part of bailing out business or private debts, but the time has come to do all that is within our power to hopefully circumvent another great depression. If we fail to avert another great depression despite our best efforts, at least we won’t be saying, “Why didn’t we at least try to prevent the banks from failing by assisting the banks, industry, and homeowners financially as much as possible while we had the opportunity to do so?”

The old adage; “An ounce of prevention is worth a pound of cure” certainly applies here.

This bail out is a relatively small cost considering how bad life could easily and quickly become during another great depression, and there’s no knowing how many years it might take to recover. In many respects, we are in an even worse position than at the time of the 1929 Great Depression! Just look how many stores and businesses have recently gone under and the final tally isn’t anywhere near complete, it’s only just begun. Some food stores have even gone under in my area. I can live without a surplus of money, but a lack of food? I’d rather pass away in my sleep than be hungry, as I surely like the groceries!

Here’s a link to the Great Depression. I suggest everyone read it and seriously ponder the ramifications if our bailout efforts should prove fruitless. I can tell from the various viewpoints that most of you are conveying (as though we have a choice for the bailout, but we don't at this point) that you have absolutely no idea of how bad it could actually get...

http://en.wikipedia.org/wiki/Great_Depression

 

[mheslep]

Why assist homeowners rather than renters? The reason is fairly straightforward.

Failing renters aren’t defecting on any kind of mortgage therefore, there’s little risk that the owner of the apartment property will default on their mortgage. They’ll simply find another renter, which is business as usual in the rental property game.

Is it? Have you ever owned rental property in bad times? (I have and I assure you its not simple).

In any case that misses the point of the OP. It is not about landlords, it is about renters that responsibly decided not to buy and take on some widely speculative mortgage. Now to some degree they must see an opportunity cost in that decision based on the thousands of dollars about to flow to those, some of whom were surely reckless. So now this mortgage plan must be seen as possibly effecting their future decisions to act responsibly.

However, if homeowners continue to default on their mortgages, the already troubled banking industry moves ever closer to a total collapse and the result will be another “great depression”, which is something that should be averted at all costs. Just ask the elderly who actually lived through the “great depression” (as my grandparents and parents had to endure) and most will tell you; their next meal was never a certainty and there was plenty of hunger to go around, as well as some damn cold winters where heat was a luxury that couldn’t be afforded by a great many.

Anybody not a first generation American probably has family that can tell them about the Great Depression Gnosis (I do), you might consider their experiences vary considerably.

It makes sense that priority must be given to those in jeopardy of defaulting on their mortgages hence, aid to the millions of troubled mortgage holding homeowners.

Ideally, I’d also rather not have any part of bailing out business or private debts, but the time has come to do all that is within our power to hopefully circumvent another great depression. If we fail to avert another great depression despite our best efforts, at least we won’t be saying, “Why didn’t we at least try to prevent the banks from failing by assisting the banks, industry, and homeowners financially as much as possible while we had the opportunity to do so?”

The government is aiding the banks, and at a fairly steep cost to the banks, but this thread is about the mortgage assistance aspect.

...This bail out is a relatively small cost considering how bad life could easily and quickly become during another great depression, and there’s no knowing how many years it might take to recover. In many respects, we are in an even worse position than at the time of the 1929 Great Depression! ...

The current situation has some similarities of scale to the recession of the 70s, not the GD.

http://en.wikipedia.org/wiki/Great_Depression

Here's another link:
http://en.wikipedia.org/wiki/Moral_Hazard

 

[WhoWee]

Consider this:

http://www.ftc.gov/opa/2008/09/emc.shtm

In September the FTC fined EMC Mortgage/Bear Stearns/JP Morgan-Chase $28 million for mortgage/collection actions.

We all know Bear Stearns failed and JP Morgan-Chase took a bailout and is on a short list for Nationalization.

Now let's step back and look at the events...the government forced lenders to make loans and allowed the loans to be bundled and sold, EMC bought loans to service, the FTC found that EMC engaged in bad practices, the FTC won a $28 million suit against EMC, Bear Stearns/EMC failed, JP Morgan-Chase acquired Bear Stearns/EMC, the government gave JP Morgan-Chase Tarp funds, (EMC was paid the $28 million back?), the government took preferred stock, the government is considering additional funding and a conversion of preferred to common (control) and EMC is still servicing mortgages (read Rip-Off Reports).

Will the government allow EMC to continue to operate business as usual? Why not just shut it down to an administrative staff and renegotiate ALL of the loans in the Bear Stearns/EMC portfolio?

 

[Ivan Seeking]

Absolutely agree.

I am completely against a bail out, with my tax dollars, for irresponsible people that bought homes they knew they could not afford . Why do these people deserve my money when millions of people are in danger of losing apartments due to losing jobs? They did nothing wrong, they didn't try to spend beyond their means. Yet now they are being told that they have to hand their tax money over to people that wanted things they couldn't afford?

I do not understand how this is even being considered.

This has nothing to do with what's fair. We are way past that. It is a matter of following the shortest path to recovery.

Entire communities are being destroyed by the current crisis. Obama and his team are trying to prevent a virtually inescapable deflationary spiral.

 

[Ivan Seeking]

The point I think many people are missing is that this is part of a complete recovery package. The economy can't recover until the credit and housing markets are functioning again. We could just allow nature to take its course - forget the antibiotics and allow the disease to run its course and hope the patient recovers - but if we do, the threat is that we may not recover for a decade or more. There is even a chance that we will never recover completely [at least not in my lifetime].

 

[Ivan Seeking]

I am troubled/bothered by the government help/assistance on home affordability when it involves allowing people to keep ownership of their houses when they cannot afford payments.

That is not the plan. The idea is to renegotiate mortgages - primarily interest rates - to levels that are sustainable. If someone simply cannot afford the house, there will be no help. However, the argument is that when possible, it is in everyone's financial interest to see that people keep their homes. This includes all of us, the banks, and the homeowners. I heard one claim that one can even show that in many areas, the loss of value in one's home due to neighborhood forclosures is far greater than the added tax liability due to the bailout. I know we live in an area that has been relatively unaffected by the housing crisis, but we still took a ~ $50,000 hit in equity last year - the first drop in value in twenty years! And if we consider where we would be given the last twenty year trend [note that we have not seen the hyperinflation found in the cities, ours has been slow and steady growth], it cost us another $30K. I would gladly pay an extra $1k [picking a number from the blue] in taxes to avoid another drop like that. I could do that for fifty or eighty years and still break even.

I'm also disturbed by people the claim that people were mislead by predatory lenders, because if these people did not understand the details of the financing, then they had no business buying a house and entering into a contract in the first place.

In an ideal world that might be reasonable, but this is not an ideal world. Almost anyone with whom I discussed this sort of things admitted that when they bought a house, it reached a point where they were just signing whatever they were handed. Also, not only is there a burden on the loan company to represent the loan accurately, not everyone is sophisticated enough to understand what they're signing. They rely on the loan company to help them understand their liability [Even stupid people should be able to buy a house]. And there is certainly precedence for the legal argument that sophisticated crooks don't win simply because they tricked people into signing a document. The banks also had a moral obligation to issue loans that were sustainable. But with the advent of bundling, the incentive for responsible banking was lost - issue as much crap as possible and then dump it [and the liablity] for a profit.

According to one expert from the past somewhere, no one should ever buy or sell a home without using a real estate lawyer. How many people do that? I know I didn't. Luckily we did just fine. But I've learned a lot since then and I will use a lawyer the next time.

 

[Astronuc]

That is not the plan. The idea is to renegotiate mortgages - primarily interest rates - to levels that are sustainable. If someone simply cannot afford the house, there will be no help. However, the argument is that when possible, it is in everyone's financial interest to see that people keep their homes. This includes all of us, the banks, and the homeowners. I heard one claim that one can even show that in many areas, the loss of value in one's home due to neighborhood forclosures is far greater than the added tax liability due to the bailout. I know we live in an area that has been relatively unaffected by the housing crisis, but we still took a ~ $50,000 hit in equity last year. I would gladly pay an extra $1k [picking a number from the blue] in taxes to avoid another drop like that. I could do that for fifty years and still break even.

The assessed value in my house has also dropped about $50K in the last year to 18 mo. But then the appreciated value was ridiculous.

In an ideal world that might be reasonable, but this is not an ideal world. Almost anyone with whom I discussed this sort of things admitted that when they bought a house, it reached a point where they were just signing whatever they were handed. Also, not only is there a burden on the loan company to represent the loan accurately, not everyone is sophisticated enough to understand what they're signing. They rely on the loan company to help them understand their liability. And there is certainly precedence for the legal argument that sophisticated crooks don't win simply because they tricked people into signing a document. The banks also had a moral obligation to issue loans that were sustainable. But with the advent of bundling, the incentive for responsible banking was lost - issue as much crap as possible and then dump it [and the liablity] for a profit.

According to one expert from the past somewhere, no one should ever buy or sell a home without using a real estate lawyer. How many people do that? I know I didn't. Luckily we did just fine. But I've learned a lot since then and I will use a lawyer the next time.

It's not so much ideal as expecting people to behave responsibily as one might expect from animals with highly developed brains. I read the loan terms and ran the calcs on taxes and interest, and new exactly what the monthly payments would be in relation to my paycheck and other debts, such as a car.

We also hired a real estate lawyer who gave us a standard contract he used, and who collected $400 for that standard contract. He let me know that he spent more than an hour on adding some terms we insisted on because we needed the owner to clean out the garage and basement.

 

[Astronuc]

As for the government 'forcing' banks and financial institutions to make loans to whomever, from I've read that just doesn't seem to be the case. The government did make money less expensive for institutions like Fannie Mae and Freddie Mac to borrow money, and they simply made lots of loans in order to make money. The subprime mortgage business generated a lot of income for the banks, and they simply bundled them with better mortgage, securitized them and sold those as investment grade instruments to unsuspecting clients (e.g. sovereign funds), who were looking for high yields.

People leaving the government were going to work for Fannie Mae and Freddie Mac, which had established a lobbying effort to discourage tighter regulation on their activities. Meanwhile, the Wall Street investment firms were using creative financing to create dubious financial instruments, which resulted in an over-leveraged market.

The government failed in its role to regulate, and the market failed in its role of fiduciary responsibility and self-regulation.

As for whether or not the current recession/correction is similar to the Great Depression, is one considers the following discussion from the Wikipedia article, it sure seems to echo what we now observe, particularly with respect to over-indebtedness and asset depreciation.

http://en.wikipedia.org/wiki/Great_Depression#Causes

Second, there are structural theories, most importantly Keynesian, but also including those of institutional economics, that point to underconsumption and overinvestment (economic bubble), malfeasance by bankers and industrialists, or incompetence by government officials. The only consensus viewpoint is that there was a large-scale lack of confidence.
. . . .
Irving Fisher argued that the predominant factor leading to the Great Depression was overindebtedness and deflation. Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles.[12] He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust. The chain of events proceeded as follows:

1. Debt liquidation and distress selling
2. Contraction of the money supply as bank loans are paid off
3. A fall in the level of asset prices
4. A still greater fall in the net worths of business, precipitating bankruptcies
5. A fall in profits
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence
8. Hoarding of money
9. A fall in nominal interest rates and a rise in deflation adjusted interest rates

Certainly we've observed 1 - 8.

 

[Phrak]

Now how can these recipients all be called 'responsible'? The wording of this plan is, at least, misleading.

"ignorant."

I say good to it. Should homeowners or the people that took this economy on a joy ride be left holding the bag? I'm talking about the internet/PC/communications joy ride that sent millions rushing-in, hell-bent to get rich.

Ask Astronuc.

Should only those with enough lobbyist influence on government be bailed out? There's no free lunch. Someone will pay. Some pay now.

This economy didn't just happen because of some preordained 'economic cycle'. The housing boom-bust didn't just happen.

There were these dangling bananas to make life better, and the banana stampede left some ruin in it's wake that may have done greater damage than the dangling bananas did good. (But it shook some of the entrenched money to lower bows--so I can't say it was all bad.) It will take some time to recoup for most people. I sold real estate short--I'm still standing short--so I don't have anything to gain by this stance, but fair is fair.

You're rent will decline, in any case. The value of realestate in normalized dollars will not recover until the 2030's.

 

[Phrak]

Certainly we've observed 1 - 8.

What money hording?

He left out a decrease in the velocity of money, and falling prices--the price of goods chasing a contraction in sales.

 

[mheslep]

[

The chain of events proceeded as follows:

1. Debt liquidation and distress selling
2. Contraction of the money supply as bank loans are paid off
3. A fall in the level of asset prices
4. A still greater fall in the net worths of business, precipitating bankruptcies
5. A fall in profits
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence
8. Hoarding of money
9. A fall in nominal interest rates and a rise in deflation adjusted interest rates

Certainly we've observed 1 - 8.

Astronuc, it is commonly agreed that #2, contraction of the money supply, was a major cause of the depression, and no, we have not seen #2 now. The fed has done exactly the opposite this time, the money pipes are wide open, as they very well understand at least that aspect of the Depression. Bernanke has written and spoken extensively on the contribution of bad monetary policy to the GD; he's gone to extremes to prevent at least that recurrence.
http://www.federalreserve.gov/releases/H6/Current/

 

[mheslep]

I say good to it. Should homeowners or the people that took this economy on a joy ride be left holding the bag? I'm talking about the internet/PC/communications joy ride that sent millions rushing-in, hell-bent to get rich.

Ask Astronuc.

Should only those with enough lobbyist influence on government be bailed out? There's no free lunch.

You are arguing in fact that there be a free lunch for many mortgage holders.

 

[Astronuc]

How about 1-9, except 2? What's different now as opposed to then is the flow of money in the global markets. Back in the 1930's, the US didn't have countries like China and the Gulf States willing to loan $100's of billions.

On the other hand, I'd like to know how the heck the government is financing all of this - borrowing? Printing more money? And how the government expects to pay off what it borrowed and when?

I am absolutely bewildered by the state and local governments discussing their portion of the bailout. This is so surreal and ludicrous.

I think a lot of money has moved off-shore, or rather the money off-shore has been parked pending an end to the decline in the financial and equities markets.

 

[mheslep]

How about 1-9, except 2? ...

Certainly, though without some reference to absolute scale those are also true of any common recession. Loss of confidence, falling asset prices,...

 

[Ivan Seeking]

The assessed value in my house has also dropped about $50K in the last year to 18 mo. But then the appreciated value was ridiculous.

I edited a bit late. We have seen a fairly steady increase in value over the last twenty years [as a percentage the last year's price]. In the last five years or so we did see the value increase more quickly, but we have not seen the hyperinflation of housing prices as seen in the cities - we were not artificially inflated. This is mainly because we are still living in the sticks, but civilization is beginning to catch up with us.

It's not so much ideal as expecting people to behave responsibily as one might expect from animals with highly developed brains. I read the loan terms and ran the calcs on taxes and interest, and new exactly what the monthly payments would be in relation to my paycheck and other debts, such as a car.

You are making my point: Many people have no idea how to do a calculation like that. You don't think that having a masters in nuclear engineering puts you at a bit of an advantage compared to the average Joe? There are plenty of people who can barely do fractions, but they still have jobs that pay well and allow them to buy a home. What's more, they don't know enough to know that they need help, or where to get it.

 

[Astronuc]

You are making my point: Many people have no idea how to do a calculation like that. You don't think that having a masters in nuclear engineering puts you at a bit of an advantage compared to the average Joe? There are plenty of people who can barely do fractions, but they still have jobs that pay well and allow them to buy a home. What's more, they don't know enough to know that they need help, or where to get it.

I do have the advantage of having an undergraduate course, Engineering Economics, in which we did a lot of theory and calculations on present/future worth, monthly or term payments, effects of interest rates and taxes. It was very useful when buying a car or house to sit down and run the numbers. The car salesman had to get up and leave during our conversation to go talk to his manager. I got a good deal.

Something like basic economics, cost of money, interest and installment payments should be taught at the high school level, since it is such a fundamental aspect of living in a developed society.

 

[Ms Music]

What's more, they don't know enough to know that they need help, or where to get it.

Are we rewarding ignorance then?