UPDATE 2/20/09: It appears Obama’s White House is mocking CNBC’s Rick Santelli’s criticism of the Obama admin’s housing plan. Apparently:
White House press secretary Robert Gibbs poked fun at Santelli by inviting him to come to the White House to read the details of Obama’s plan. “I’d be happy to buy him a cup of coffee,” Gibbs said. In a nod to Santelli’s caffeinated style, Gibbs then wryly added: “Decaf.”
All I can say to Gibb and Obama is… PICK ME! PICK ME! I’m ready, you idiots….
Back to your usual programming….
Oh fer heavens sake, are these people brain dead in Washington? And whoever Obama has “outsourced” his so-called-foreclosure-rescue bill to has really proven to ignore realities about our foreclosure problems.
It was back in September that I put together the post on the perfect storm of events that, combined, led to this housing bubble… and it’s ceremonious burst sending shockwaves thru the economy.
Figuring prominently in those events was the astronomical rise in housing prices that started late 1997, and ran thru late 2006 and part 2007. It’s as simple as this… house prices are too danged high. And even with the decline that all in the beltway are moaning about, they are still higher than they would have been traditionally with the normal, conservative appreciation yearly that has always been the hallmark of homeownership.
So what do we have in Obama’s… or whomever he’s playing the dummy/ventroloquist act for… in his Homeowner Affordability and Stability Plan?
Audacity meets absurdity.
First, let’s address the few details we have. WSJ ‘s Evan Newmark had an article on the WSJ blog yesterday, pointing out only some of the idiocies these beltway brain trusts have come up with.
Is there anything more heartless than foreclosing on a home and throwing a family out on the street?
How about taxing the family next door into penury to pay for the reckless borrowing of its neighbors?
Welcome to the Obama Homeowner Affordability and Stability Plan — a complicated wealth redistribution scheme dressed up as a cure for the nation’s housing woes.
It is almost certainly bound to fail.
~~~Just read the four page White House Executive Summary with its laundry lists of programs, federal and state bureaucracies, conditions and caveats.
It’s confusing stuff even for the average MBA. How will it be digested by the average low-income subprime borrower?
Here’s the loan modification process:
“For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38% of his or her income. Next the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent…”
Again, that’s the Executive Summary.
Can you imagine the chaos of a loan modification meeting between a subprime borrower and a bank officer?
Multiply that a few million times — and that’s the $75 billion “homeowner stability initiative.”
That’s if Obama is lucky enough to find the 3 to 4 million “responsible homeowners” he thinks would qualify or want to qualify for the government moolah.
But he’s almost certainly overestimating the number of “responsible homeowners” out there.
Those 3 to 4 million “responsible homeowners” are actually “credit challenged” borrowers. They put down very little money to purchase homes at very inflated prices.
Not only do they hold no equity in their homes today. Even with a modified loan, there is only a remote prospect of building equity in the future.
Bingo, Evan. Welcome to the mainstay of my argument that, had housing prices not gone thru the roof, and unqualified buyers be given loans, our real estate economy… that is at the very heart of our national economy… would not be sweating bullets.
The point? It’s absurd the way Obama’s planning on rescuing the real estate world with government interference because they are not considering housing prices today… or even five years down line. At best he is staving on the inevitable. Allow me to ‘splain…
Geithner’s Treasury Department has provided us with a few sample cases to show how this would work.
Family Case A involves a property with less than 20% LTV (loan to value). Meaning that with conventional mortgages, they are hard pressed to want to provide a refinance loan that’s any more than 80% of the declining value on the market today.
Family Case B is an example of a property who’s mortgage matches the current value of the property in today’s market.
Both of these families… with declining value, or less than 20% equity… end up with HIGHER MORTGAGES after the government loan modification. Well, now… that’s curing the problem of an over valued asset, right? …. sigh…. Talk about ignoring a huge piece to the problematic puzzle.
But, I will say, both of those scenarious are entirely possible to end up okay… providing housing doesn’t decline further, and they don’t move for the next five or six years (see later…).
But neither of those families are the ones who are the most likely candidates for Obama’s plan.
Family Case C is indicative of most that are distressed properties… people that are upside down in their mortage to current value. That includes not only people who purchased during the boom, but for those that refi’d their homes, took out equity and (perhaps) spent it on anything *but* home improvements.
For this Family C case study… below, a segment of the Treasury Dept PDF.
click to enlarge
Note: This is far more readable using the link above – located on Pg 2 of the case study example document.
Here’s the scene… borrowers have a $214,016 mortgage on a home worth $189K today. The “help” Obama proposes is to renegotiate the same loan amount for lower percentage. This is the equivalent of an already-in-practice method for borrowers by buying down in the interest rates via points.
Per the Executive Summary I linked in above (in the blockquote article), Obama’s admin is asking the investment bank to cover to cover the costs of those points to bring the monthly payment down to no more than 38% of the borrowers’ income. He’s advocating the government then absorb the costs of the rest of the points charge to bring it down further to 31% of the borrowers’ income.
Just for your reference, to buy down one permanent (over the life of the loan) point is the cost equivalent of 1% of the mortgage amount. In the case above, that would be (rounded off) $2140 per point.
Buying one point lowers one’s interest rate by about 0.125%. Or to make it simple for you, for the cost of two points, you can lower your interest rate a quarter of a point, or .25%. And the cost of that would be $4280.
In other words, in the real world, paying $4280 to buy down the interest rate in the case above would take that 6.5% interest rate down to 6.25%.
Well dang… we’re a far cry shy of 4.42%, aren’t we?
Needless to say, there’s a lotta money in “points” between the 7.5% interest rate on the current loan, and the 4.42% suggested in the example above. Even based on a current rate of say 5.8%, we’re still miles apart in the cost of points.
Reality dictates, *someone* has to eat these costs…. and this is this only part one of the devil in the details.
This is nothing more than “affirmative action”, but instead of based on race and nationality, this is “economic affirmative action”. If you are a solvent qualified buyer, you pay the full rate for a buy down. If you are not a solvent, qualified buyer you get a discount rate.
I have to ask… why bother to be qualified or solvent? And why bother to have a prime rate at all?
Obama’s economic brain trusts are not being genuine, nor realistic about the costs of this program and, instead, have just “capped” it. At what, who’ll know after Congress gets ahole (sorry… freudian slip typo…) – I meant gets *a hold* of this thing. But they throw out the number of 3-4 million “at risk” borrowers with a $75 bil initiative. We’ve already seen that even two points buy down… which doesn’t get Family C anywhere close to 4.42%… is about $4280. Take that to 3-4 million people, and we are well over $75 bil.
And how does that loss get split between bank and government/taxpayer? (and that’s assuming it *would* take them to a 31% of income level….) Let’s look a how the Obama economic brain trust figures it…
Click to enlarge
First, the Obama admin says that in order for Family C to meet their lender base of 38%, they need to come down from 7.5% to 6.38%. In the real world, this would cost a borrower over $19,000. And that’s still not low enough.
So Obama’s government… meaning you and I dig *deep* into our pockets… wants to kick in the additional cost for the matching points.
What are they offering the lenders as incentive? $1000….
Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees — awarded monthly as long as the borrower stays current on the loan — of up to $1,000 each year for three years.
Uh… am I crazy and misunderstanding this? But what happens to the other $18K bank loss for the first year of this loan modification, while they wait to see if the borrowers stay current for a couple more years?? Multiply this initial loss times 3-4 million loans – despite that “pay for Success” pittance – and we’re STILL talking future bank bailouts.
Stablize, my arse.
But wait! There’s MORE!
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
After buying down the points, we… the tax payers… are now paying these borrowers bribe money to make their payments on time.
I’d like to say we’re done, as this is absurd enough as it is… but we’re not.
Let’s look at the loan balance after all this money spent. They have a $214K loan on a $189K valued home before this taxpayer/banker charity loan modification.
After the modification? The borrowers STILL have a $214K loan on a house only worth $189K.
Okay, I’m a realist. Home properties go up and down in value. Sometimes you’re making money, and sometimes your not. That’s not the problem here. There’s a few more ugly facts in this “cure”.
This little charity loan modification is only a five year grace period. Yup… remember that fine print in the first jpeg above from the Treasury PDF about their specific figures and monthly payments?
It specifically says:
Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.
Wow… and that’s different from an ARM how? Perhaps only that “‘phased in level” is not based on prime rates.
Or is it? They don’t tell us what “phased in level” *is* based on, do they?
But let’s skip that vague detail for a moment, and just look at the current value of $189,000. Let’s assume that as soon as they got this modification, real estate wasn’t still going down in value, but started instantly rebounding, rising at a nominal 3% annual appreciation.
At the end of the five year period, before the government modification “ARM” kicked in, that house would then be worth $219,102. That’s a big $5033 over the mortgage value.
Get serious… this won’t even cover closing costs on a sale in most states except for in a FSBO (for sale by owner) scene. And that’s hoping there are no transfer taxes.
So what if the family needs to sell or move anywhere between 1-6 years? They are still a dang SHORT SALE and the bank takes yet another hit after already taking the hit for the initial mortgage discount points.
Brilliant. Who thunk this crap up anyway? And this is only my first, quick read of this “plan”.
What we have here is the height of absurdity.
The taxpayers and the banks are on the hook for paying trillions in discount points if they take care of the “3-4 million people” they promise to. The mortgage is still probably overvalued for the asset’s worth, and all these taxpayer gift low mortgages reset – just like an ARM – in five years… so nobody better move!
Again, I wish I were done, but….
And what of more than 50% failure rate of modifications already done? What’s the “point”, pardon the economic pun…. The banks give up tens of thousands per loan to refinance at lower rates, the taxpayer pays additional points, the upside mortgages are still over value and the five year government “ARM” isn’t long enough to possibly bring it up to even current value…. Only to have them default again?
Someone has got to stop these bozos in charge of the nation’s money… talk about both audacity and absurdity.
Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.
It’s not their fault. I mean, the banker’s forced them into these loans. If you don’t expect our representatives to read 1000 pages of a bill that puts us on the hook for $1 Trillion dollars, why would you possibly expect the average person to read a piece of paper that puts them on the hook for 30 years?
That’s truly unfair! That banks grabbed people off the street, held them at gunpoint until they signed a mortgage that was beyond their means. If we don’t help these victims, we are heartless.
What does it matter about the cost anyway? It’s just money. It’s not like you have to go out and earn it you stupid Republicans! For you, money comes easily. That’s why we wealth redistribution. For the Democrats, money is much harder to come by. McCain was able to out raise Obama by trillions. And we need to help them.
How dare each and every one of you from bringing reality to this situation. Life isn’t fair and the Democrats are here to ensure it is. You heartless, soulless people. You should be ashamed of actually analyzing this information. Obama won, and despite the fact that our Founding Fathers intended for the government to have Checks and Balances, this is a new day and we must blindly follow this great, great man.
Years from now, you will be thanking me for voting for Obama. I swear! If not, you don’t really understand what Change means. He has the audacity to hope you won’t read this bill. Obama is my god, and don’t forget it.
Sincerely yours,
A person looking for his fair shake, and by fair shake, I mean government sanctioned pick-pocket.
the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment
———
Fine. But lower mine too! There is now way in hell I’m paying a higher interest rate if I have a higher credit score.
ta hell you won’t, Joe. They’ll run out of grift bucks by the time any solvent buyer lodges their financial hardship complaint (and you will have to show “hardship”…). By then the banks will already have taken the big hit on the “economic affirmative action” and the damage is done to the nation and economy anyway. The whole thing is a crock of shit… ‘scuse my language.
Chipset… LOL. I keep saying we need an official “sarcasm” icon button here. Some fly by night might slither thru and think you’re serious!
Sorry for the double post, but a few points.
1.) Most of these people would be better off viewing their “house” as a commodity like we all knew they did in the boom years. Now when things go bust, it is a “home”. Walking away from the debt trap is the best thing to do. Sometimes you just have to unload that dog-a** stock your cousin talked you into buying. Same with a debt trap RE investment. Rents are going down and it will be a BIG life lesson to the f-ed buyer’s kids so THEY don’t fall in this trap also.
2.) Short sale rules need to be changed. RE should be simialr to automobiles. If I short sell a car the auto loan originator does not eat my remainign balance. So why should a mortgage originator?? Short sell your house fine, but the balance will follow you around, untill you have meet your obligations. Agree to this and credit scores are left alone. The remaining balance can be re-fi’ed over a longer term. Say the remainder is $50,000. Instead of paying $2000+ a month, that 50 will be re-amortized for 10 years at say 7% = $580 a month. F-ed buyer gets to leave with their credit score in place and the bank still gets paid.
Agree on point one, Joe. There is no sense throwing money down the toilet on buyers who are already at the end of the financial rope.
On point two INRE short sales and your chastising of buyers that are upside down in value… not so simple. Buyers who purchased during the astronomical rise are not at fault for the home prises during that time. They had to pay market prices because that’s all the sellers would accept based on a trend.
So they paid what the market was asking, what the appraiser substantiated via the past sales, and what the lender approved with their qualifications and loan package. There are many people who may have put 10% to 15% down, but today are in an upside down position. So your judgment call on short sales just doesn’t work. Just because someone bought a home in the overpriced years doesn’t mean the buyers are the bad guys.
Also, just so you know, FHA mortgages with 3% down have been around successfully for eons. Prior to the housing price escalation, these worked very well for buyers since housing generally never was too extreme in swings up or down in value under normal circumstance.
Again, this comes down to that perfect storm… the loosened criteria, the exotic loans, the low interest rates, and the flood of buyers really screwing up the supply v demand ratio driving prices far beyondthe norm.
I’ll also tell you that I know many that used interest only and ARMS to successfully to transition from one point in their financial life to another. They were merely financial tools to be used. A hammer in the hand of a five year old may be a danger, but not in the hand of a teenager with some responsible triaging. It’s the same with loans. I will, however, question the low and no doc loans, as well as the overall reduced criteria for lending. It’s not always about the money down, but the stability of the buyer and income to debt ratios.
There is also no problem with short sales. And frankly, they will help bring the housing prices back under control. Plus, you have heard “blood from a turnip”, right? These people have already lost their largest asset. They do not need to have judgments and tax repercussions because the housing prices became unrealistic.
BTW, there *are* no “rules” on short sales. Each and every one is different, individual, and sans any predictable outcome.
Nope… gotta disagree.
Mata
I will say I am truly surprised that Obama came up with this “solution”. I had thought his administration would force the banks to lower the principal for these loans to current value. That would be true redistribution of wealth. Of course, there would be many angry people who have not failed to make their mortgage payments and still have to pay the original principal.
BTW, since the banks (according to the democrats) are responsible for the market downturn how come they can’t give me back the $20,000 I lost in this kerfuffle? Not housing but stock. Since Obama is redistributing the wealth I want some my way to make up for what I lost in this boondoggle. When I retired I made sure I had no mortgage payment so that lets me out of the morgage gravy. I guess it pays to be irresponsible. BTW, I though minorities already had low interest government loans. A black friend of mine once let that little nugget slip in a fit of anger but immediately shut up.
Don’t forget that Republicans goal now is to ruin the economy. When Boehner uttered the now famous “Oh. My. God.” line, it was the first signal that the GOP was fully invested in America’s decline as a way to return to power.
The Bush adminstration took first half of the TARP funds and delivered to the banks in the fom of dumptrucks full of cash. The Obama Adminstration is trying to target those funds in a way that addresses the true source of our economic problems.
In many cases the chain of bad decision started with a homeowner, but there was a lender sitting down on the other side of that table as well as investment baks that bundled that questionable loan and sent it out to infect the world market. So far the homeowners have been losing their homes will everyone else in the chain gets bailout after bailout.
Is it “fair” to us responsible homeowners who aren’t in danger of foreclosure? No, I’m sorry to say it is not. But failure to stop the current rate of foreclosure will destroy the value of the home that they are in. Failure to stop the foreclosures will drag the economy down even further (remember, that’s the Republican’s plan) and many of us responsible homeowners will find ourselves jobless and facing foreclosure.
@Fit fit: “Republicans goal now is to ruin the economy”
Obama’s running around talking about a “castrophe” and you think Boehner is talking down the economy becuase he is appalled at a trillion dollar train wreck?
You really do have things backwards don’t you?
Question: do you really believe what you say or are you just being an ass?
Never mind the answer… I know what it is.
@Fit fit:
Republicans are betting the economy is their only chance back into power. I didn’t say Boehner was talking down the economy, I said he is standing in the way of recovery. He and rest of the American Taliban will most likely continue to do so.
Wow, FitFit.
So, here’s what happens in the real world. Do you remember how homes sold more than they thought in January? Why might that be? Could it be because houses are coming down in price? When they reach a certain point, they will be purchased, hopefully by home owners and not speculators.
So, let me ask a question. Who has been complaining for years about the outrageous prices of homes? The Democrats. Now, when the people who bought houses beyond their means, what happens? They go into foreclosure. And when the are listed on the market, they are generally listed for less than the original price. This drives down the price of the market. Which makes housing affordable. It is called the Law of Supply and Demand.
So, why did I bring up the Democrats? Well, now that they are in charge, they want to change the rules. They can’t let houses go into foreclosures, which is what normally happens. Just do a search on previous real-estate bubbles and busts. It doesn’t happen.
Now, they want to prop up over-valued homes, which will only extend the recovery out. Until the bottom hits, there’s no place to go but down. So, who do they punish? They punish the responsible home owners. How? They make them pay someone else’s mortgage.
But they are also punishing those people who have been waiting to get into a house. Because the price hasn’t corrected, they can’t get in.
Ironic, isn’t it?
As for me, I don’t care about the prices of houses near mine. I paid a certain amount. I plan on living here for a while. Housing prices only affect those on the short term plan. Just because my house is worth less today, doesn’t mean the intrinsic value has changed. That means I can still live in it, making the same payment I did before. I might be paying more than market rates for a little while, but eventually I will be ahead of the game.
This is simple economics. But, politicians only wants to juice the game in their favor for political expediency. You, my friend, are being used a tool. Or as Lenin would call you, a “Useful Idiot”.
Fit Fit,
I have a plan to stop the foreclosures. Stop lending money to people who can not pay it back. That is what this situation boils down to, too many people can not pay back their loans. Try as you might, you will not find immunity from debt responsibility enshrined as a right in the Constitution. Nor will you find loan availability regardless of financial status guaranteed.
I am sick and tired of listening to people advocate irresponsibility as a human right. That was the idiotic policy that brought us to this sad state of affairs, and more of the same is not going to solve the problem. When you are in a hole, and want to get out, first stop digging. The housing market and the economy in general is never going to heal as long as government is propping up the broken table leg with trillions of dollars of OUR money. If healing involves home prices dropping to levels they would have been at without artificial pressures, then so be it. It is called a bubble for a reason. We need to stop wasting our grandchildren’s money trying to re-inflate it.
(oh, by the way, how exactly are the Republicans “standing in the way” ? They do not have the numbers to oppose any legislation the Social Democrats care to pass.)
@Fit fit:
“The Bush adminstration took first half of the TARP funds and delivered to the banks in the fom of dumptrucks full of cash.”
Bush proposed $700 billion for TARP, Congress tacked on another $150 billion, of the $850 billion, Bush released *****$267 billion***** before leaving office. Obama wrote to Congress 1/12/09, prior to Inauguration requesting release of rest of the money, Bush and Congress obliged.
Other than the first $267 billion, Obama, Geithner and company have been in control of the bulk of the first batch of bail out money. Prior to that, it was Bushes’ Paulson, Bernanke and Geithner making the calls on the $267 billion.
Back to Geithner, who Obama just had to have, he’s now coming back for another big bunch of that transparent, untransparent cash.
So, I am not surprised that Republicans in Congress are balking at what’s going on, seems like it is also disturbing the bulk of “the American people.”
OK, trying to stand in the way. The house Republicans did just put on an impressive display of impotence.
@Fit fit:
Trying to stand in the way of those who are blindly throwing trillions of dollars down a rat hole never to be seen again is admirable not contemptible.
Chipset
Sorta, chipset. Actually, the best prices for homes are preforeclosure sales, aka short sales. After a bank forecloses they do one, or both of these two things… they put the house back on the market for slightly above fair market value… therefore, not necessarily a deal of a purchase. Or they sell it off to an REO, like Ocwen, who specializes handling resale of foreclosures. And most REO’s also put the home on the market for fair market value… again, no steal of a deal.
Actually, for the astute who have credit, this is a great opportunity. As usual, one man’s desperate times make for another’s best opportunities. You obtain the house in the preforeclosure stage to save the bank the foreclosure cost, and the waiting period for homeowner eviction. That’s where you get your best deals. And when this happens, it will be instrumental in correcting the housing prices.
You *were* joking when you said the Democrats were “complaining for years about the outrageous prices of homes”, right? Or did you forget to press that sarcasm button again… LOL
Fit Fit
Nice Alinsky move there, bubba…. Now go use it on the more gullible crowd. Won’t work here. An unbelievably dumb statement that a powerless minority can “stand in the way” of the supermajority and three-RINOs-in-tow. LOL! Thanks for the laugh, Fit. And as my pal, Aye Chi, would say…. thanks for playing.
Mata, I looked at Zillow, they are saying *over* 14 million homeowners qualify for the plan, an additional 14 million are sunk, many are east and west coast properties, some over valued by as much as 40%. So, we will have spent all that money and still have over 20 million homeowners out there with bad mortgages, 14 million are probably losing their homes.
I don’t see anything to be excited about in this Obama salvation.
Sort shows how absurd that “3-4 million homeowners” project is, right Missy? And that’s only today. Since the economy is one heck of a fully laden cargo ship that has a lousy turning ration, even market corrections will still translate to rising unemployed until that starts catching up. So if they say 14 million homeowners today, by the end of the year that figure will be shy of reality.
And you are very correct about the over valuation…. since, as I said in my post above… the majority of those in trouble are in that trouble because they are in overvalued homes because of the timing they bought, or self inflicted by withdrawing all their equity without improving the value of their homes.
I understand that Obama wants to make keeping the home affordable for as many as possible. The concept is not without it’s merit. The method, however, is a path to waste… and just downright “economic affirmative action”. The cost of rate buy downs needs to be consistent between qualified and unqualified borrowers. And I am not interested in paying for another person’s buy down if I can’t even afford doing that myself.
Nope… nothing exciting about Obama’s “salvation”. But there *is* much to be concerned about.
@Fit fit,
As my wife would say: “Yeeesh!” Claiming that the Republicans are trying to ruin the economy is just damned sh!t-faced propaganda (poopaganda?) Ultimately, both Republicans and Democrats want success for themselves and their cronies. True, the Republicans wouldn’t mind being able to put the pieces back together after the Democrats make a mess of things, but don’t for a moment think that the Dems weren’t just as happy to see Bush and his Administration have more than a little difficulty in their “War on Terror.” It would be just as reasonable to claim that Democrats wanted our military to sustain heavy caualties in order to point out to the American people that the War on Terror was a mishuided effort. The Dems clearly relished the opportunity to use the war (and its tremendous cost) to their advantage during the 2008 elections. However, you won’t see me suggesting that Democrats wanted our sons and daughters in the miloitary just so they would be able to get back into the oval office.
To be sure, both Republicans and Democrats (as distinct groups) in our government share common goals: they desire power and enrichment for themselves (and by extension, the special interest groups who support their campaign coffers) above all else, the public be damned. Beyond that, there are clear differences in ideology between the left and the right.
Obama ran on a ticket of change and integrity, which by the way, so did Rod Blagojevitch when he ran as a gubernatorial candidate in Illinois. Both of these crooks hail from the political machine that runs Chicago as well as Illinois politics. Unfortunately, Obama’s economic team is anything but the “fresh minds and new ideas” that Obama enthusiastically claimed them to be. Their appointments were obvious paybacks to the Democratic Party chieftans who helped Obama win the presidential election. Obama was indeed correct when he proclaimed “I won,” and I have absolutely no problem with the sentiment that the spoils of “war” go to the victors. What concerns me is how the spoils are used, and each Party has shown by their appointments that 99+% of political rhetoric is for the purpose of fooling the American public. Also unfortunately, the scheme works, especially for the down-trodden; for this reason in particular (and many other reasons in general) I am thoroughly disgusted with American politics. I think you and I and most of the other real truth seekers and thinkers share the same sentiment.
There are crooks and considerably misguided proposals in both camps, but now that the Democrats are in power it is only natural (and fitting) that concerned citizens and political enemies voice their dissatisfaction with policies with which they disagree. Do you really see Tim Geithner’s proposal as a solution, even after reading the intelligent critiques by Evan and Mata? For a supposed expert in finance, Geithner doesn’t seem to have a grasp on simple mortgage calculations. Surely he understands future value and present value of money concepts, no? Or is he so accustomed to working with billions and trillions of dollars at a time, such that he cannot understand microeconomics at the individual level? I doubt that he is this stupid.
The answer, I believe, is simple, and Obama has already hinted at it. This is only Phase I of a multiphase plan to “fix” the economy by means of elaborate wealth distribution schemes. By the way, I am all for wealth distribution, as long as it is voluntary and accomplished by means of incentives. Barring that, the only instance in which I would favor government-mandated wealth distribution is if the vast majority of wealth holders are purposely hoarding wealth so as to esstablish an arostocracy. And since there are as many rich democrats as there are rich republicans, I doubt that only one half of the elite is interested in ruing the economy just to share power with the other half.
There are going to be several stimulus packages is Obama and Geithner (and Summers) get their way. There was a reason to Congress’ self-imposed ~$800 billion limit to the latest bill; nobody in Congress wanted to use the “T” word and cause a public uproar. They figure if they push along a few multi-hundred-billion packages maybe the public won’t be as upset. We WILL have more than a trillion dollars of “stimulus” from Obama – unless, of course, the public finally grows a collective pair of gonads to stop the madness. Republicans and Democrats in the citizenry have got to stop blaming each other! The system is so f_cked up in favor of the politicians, big banking, and mega-corporations, and the rest of the population doesn’t stand a chance until we overthrow the corrupt political system and return to a people-centric government. We have come a long way from government of the people, for the people, and by the people, and we must take deliberate action to stop the runaway train. Congress will continue to enact whatever legislature they can to satisfy their own needs before everything falls to shambles. We the people are not their immediate concern at all.
Jeff V
Sorry for the typos.
In the first paragraph I meant to say “However, you won’t see me suggesting that Democrats wanted our sons and daughters in the military to die just so they (the Democrats) would be able to get back into the oval office.”
And in my last paragraph, I meant to state “There are going to be several stimulus packages if Obama and Geithner (and Summers) get their way.”
I will try to do a better job of proofreading in the future.
Jeff V
Why does the government feel we have to put everyone in a homeownership position? I understand the need for quality housing, but couldn’t they have come up with a modified rent-to-own situation for these folks. Then if they cannot make payments, an adult ends up making whole on the mortgage and finding a new tenant. Home prices would not deflate for everyone else, and the real homeowner potentials would benefit also in a escalating home price.
Tom in CA
Okay, I have a question for everybody. Since everyone has their opinion on how Obama is handling the economy crisis, what would you do differently? What IS the answer?
Oh goody, Erika is back!
Sweetness!
I knew you missed me.
Well hey there, Erika/voter girl.
INRE the stimulus… there is nothing to be done. That damage is done. However this BS plan for the Homeowner Affordability and Stability Act is the pimple just beginning to leer it’s ugly head. And I daresay it won’t be improved once Congress get’s a hold of it.
As to what should be done by government on housing? Very little.
1: Let the banks deal with homeowners direct thru their loss mitigation/loan modification departments, as they are doing now. The banks sort out who is a good risk, and who isn’t for their own survival. If the buyers qualify for a modification, they will do it.
2: For those who do not qualify, it’s weeding out those that are not solvent. The homes should be resold on the market. As I said, this is a great opportunity for those with stable jobs, and who would rather build a real estate portfolio than play the stock market. Considering they are leaving the markets in droves, they will be looking for alternative places to park their money… and real estate never goes out of vogue. It’s not as big a money maker, but general steady (if the government stays out of it)
3: The government should allow for tax write offs for the bank’s losses on the short sales, and provide loans witih interest to get them liquid again. With regular payments back to the feds. No free bail out money… just a government loan like any small business may get. And that’s ALL the government should do.
Yes… it will hurt for awhile. But that hurt has to happen at some point, and better to get it done now with minimal taxpayer repercussions than to have it again crash downline… like five years later with this government “ARM” or sooner…. and this astronomical taxpayer funding.
Besides, I’d love to challenge this concept in court for fair lending practices… any private lender that offered one price of discount rate pricing to some, and not to others, is clearly boundering on illegal IMHO.
That’s what I’d suggest they do… nothing for the consumer, and federal loans to the banks to help them absorb their losses and again become liquid.
For me, the answer is simple. Let the markets correct.
By taking a position that the government is going to prop up bad borrowers (and lenders), they have basically said that the rules of economics no longer apply.
Let’s give you some real world examples. There have been multiple corrections over the years. Here’s what happens:
1. A market downturn happens.
2. Real-estate property prices start to fall.
3. Foreclosures happen, either by default or because the borrower decides to walk away.
4. The prices drop further.
5. People on the sidelines, waiting to buy a house, buy houses.
6. The market stabilizes.
7. New people own houses, some former owners now rent.
Let’s look at what his plan is doing:
1. Penalizes the good home owner.
2. Tries to keep some homeowners in their houses at the expense of everyone.
3. Keeps the housing prices propped up.
4. Keeps renters, who might otherwise buy a home at lower prices, priced out of the market.
5. This delays the correction in housing prices, causing a larger correction later.
The only people this hurts is the short term person. If you plan on staying in your home over the long run, it makes no real difference. You will still be able to live in the home, even if for a little while, you might be paying above market prices.
Imagine if Bush had decided that the DotCom blowup should result in the government taking care of people’s financial losses? The market wouldn’t have tanked, the prices would have gone even higher then the crash would have been much worse.
Instead, here’s what happened. The market crashed until the prices reached a level where people wanted to invest again. Once it did, it hit another high in October 2007. We are on another downward slide. These are corrections and are natural.
The case Obama is making is this: If these people fail, then everyone is going to fail. Everyone. We will never be able to overcome this failure. Ever. Ever. ::frightened face::
@MataHarley:
They say over 28 million today which means he’s coming at us again for billions more.
http://www.zillowblog.com/refinancing-requests-surge-after-obama-announces-housing-plan/2009/02/
I see what you are saying. For me, I have a few concerns about the stimulus overall. I think Obama is on the right track as far as creating or keeping 3.5 million jobs, but majority of that is short term. I would like to see making more of a long term impact. For example, give all those companies that outsource a tax break to entice them to come back and give us our jobs back. As far as the home mortgages go, we’ll see how it plays out, but I want to hear more about creating more NEW credit. The people out there that can’t get a home loan, that CAN afford it, is what I would like to see something done about. Just my little two cents.
@voter: Just how does one measure whether Obama was successful in “creating or keeping 3.5 million jobs???”
Are you folks just going to believe it if he says he met his goal?
What are you going to do when unemployment continues to rise?
When will you see that the stimulus had very little to do with saving jobs and everything to do with rewarding Obama’s liberal base?
One problem is that the job projection number is an ever spiraling figure that has been revised down and down and down.
It’s an ever moving goal post.
Sort of like the ever changing, ever morphing numbers related to the middle class and tax cuts that we saw during the campaign.
There are myriad other problems with the plan.
That’s just the beginning.
I’m going to assume that you are getting your information from the media, Erika. Me? I work with this stuff daily, and I’m here to tell you that those with verifiable income, some cash down… and even those with no cash down and good credit/documentation via FHA loans… have no problem whatsoever getting loans for homes that qualify. And what I mean by that is you can’t buy a dump with an FHA/VA or other government insured/guaranteed loan. The home must be in minimally good conditions for the basics (which doesn’t include cosmetics, but solid plumbing, heating, roofs, not riddled with dry rot).
What you are hearing is the media compare getting a loan today to getting a loan in the days of lowered criteria and EZ money. And of course, it’s harder to get a loan because you actually have to qualify with substantiated documentation, minimal credit scores, and a reasonable income to debt ration. Yes, the lenders may have over compensated under threat of government by raising the standards a tad too high. But if left alone, as they have been slowly doing, they have become more realistic…. but not crazy.
I’m glad to hear you have those concerns. There’s “hope” for you yet… LOL. It always sounds good to say you will “create or save” (he revised that “create” bit…) 3.5 million jobs. But the reality is he is busy increasing the size of government, and a high percentage of those created jobs are government bureacracy… not good. Especially since government bureacracy is highly inefficient on costs to production. Also, for every government job created, it takes away a job in the private sector who would be required to do it more efficiently, and bring costs down because there will be competition.
And yes… too many of those jobs are temporary. If he can actually build his green grid… assuming it’s not locked up in lawsuits as promised by the enviros… once built a wind and solar farm doesn’t have many permanent jobs attached to their daily operations.
If you’re improving existing roads, that creates jobs temporarily, but doesn’t give incentive for new business that already has road access. It’s different if you’re building a *new* stretch of road, opening up land that can be developed for more needed businesses. Devil in the details.
But, as Obama’s stimulus road show theatrics proved, the stimulus that was passed will do little if anything but increase the national debt, and stave off the inevitable.
I heard our bozo Governor say today (Oregon, so Dem of course) that if the stimulus works, we won’t see results until middle of next year. Well we had “stimulus” last October, and $267 bil (as Missy points out above) has already been passed out…. results? Nothing. Still the slide, and the hands with tin cups are still out. If this were going to work, we should be seeing *some* results now… not repeated and delayed failures.
Our esteemed Governor then also said that if the stimulus *doesn’t* work, the budget gap will grow. Hell, it’s already grown immensely… and there’s no near term relief in site for the expense under the Obama/Pelosi/Reid spending frenzy since the majority of the cash won’t even be spent for years.
This is a mess. And the best we can do as citizens is educate ourselves to put a halt to a nanny oriented government making it worse. And that is a very bipartisan duty.
Obama is trying to reinflate the bubble, instead of dealing with the structural weaknesses of the credit/lending system as a whole. The market sees through the scam, which is why the stock market indexes (or indices, if you prefer) keeps nosediving with each new program proclamation (by the way, where was the 5-day review period for this new $75 billion package? Certainly this doesn’t qualify as an emergency, does it?)
My idea of a plan to let the market recover:
1) Bring the value of all toxic assets to the surface, but not in a “Bad Bank” where taxpayers subsidize speculation. The only way to move forward is for these assets to seek their own price, at which point they will function as normal investment vehicles. I don’t care if banks have to take a loss; let it be a tax write-off, if necessary, but realize that the loss of tax revenues MUST be offset, preferably by cuts to non-essential spending programs. Also, let the CEOs, directors, and other senior management at these banks and investment firms take their lumps, even if it means seizing their assets. Why should they get positive “performance based” compensation for such poor performance? The average employee would get canned for much less significant infractions. The executives who were responsible for this boondoggle should be satisfied with not being indicted for their gross misconduct (not that I’d be against such legal actions, except it would almost certainly mean that someone else would take the fall.)
2) Allow banks to renegotiate terms of existing mortgages as they see fit, on a case by case basis. If (BIG IF) the government still sees a need to offer incentives and give aid to home owners in default, the homeowners should give up their right to make any profit on the sales of the affected homes, or have an option to repay the assistance monies (plus applicable interest) at the time of sale (or within a reasonable time frame – maybe 10 or 15 years).
3) Instead of offering tax incentives for companies to bring jobs back to the US, put an excise tax on the value of goods and services added by operations offshore. Most large corporations already take advantage of huge tax breaks offered by local, state, and federal governments. Along related lines, we also need to review NAFTA and similar legislation; these so-called “free trade” agreements were simply a way to reduce costs to a minimum by relying on comparative advantages obtained by paying lowest cost labor/production/regulatory costs offshore.
4) Revisit the rules for issuing H1-B and other work visas to keep companies from using “imported talent” as a method for reducing labor costs at the expense of American jobs. When unemployment is low, H1-B and other programs may be valuable for bringing into a company talent that is otherwise unavailable in the population of unemployed Americans. Nowadays, the “inability” to find qualified candidates is mostly an excuse to replace American workers with lower-cost foreign workers.
5) Work with corporations to develop executive compensation packages that not only reward senior management for their “bottom line” focus, but also for improving the social welfare of its workers and the American population in general. Huge bonuses and golden parachutes made from the sweat and intellect of American workers should not be rewarded unless living standards are elevated for workers and for other citizens whose tax payments subsidize the incentives offered to corporations.
Ultimately, our current global economy and transportation structure is inducing the equalization of living standards all around the world. This is not necessarily a bad thing, especially as regards improving the health and well being of all humans (including those who willingly participate in the global economy as well as those affected by it). It is unfortunate that there are individuals so focused on the bottom line that they are willing to lower living standards wherever possible in order to satisfy their own avarice. We should all aim to be socially responsible individuals. If we cannot convince corporations to think and act in a socially responsible manner, then perhaps we should consider boycotts. In this information age, it should not be difficult to devise far-reaching boycotts to highlight socially irresponsible actions made by any particular corporation or entity.
Finally, we need to dissolve the connections between industry and government. Public servants should serve the public (DUH!), and therefore should not be allowed to accept gifts from lobbyists at all. President Obama has already made this a rule for his administration, though I hope that rule is followed more closely than his “no lobbyists in my administration” rule. I see no other way to ensure that politicians’ loyalties remain to the people.
This country’s government has become a sham and a miserably corrupt institution. How can we recover the dreams that the Constitution’s founders held so dear?
Jeff V
Exactly. The pols are focusing on ways to keep the housing prices artifically high so that there will not be a loss for those that either purchased during the boom, or sucked out all their equity during the boom. There is no way back to that status, nor should there be. It was unhealthy to begin with, and remains an unhealthy goal.
I agree with most of what you say, ruaqtpi2. I will tell you that, INRE your #2 comment:
I will tell you this already exists on FHA mortgages… called a HUD Partial Claim. If a borrowers is in the arrears more than four months, they can get a one time interest free loan with no monthly payments for up to 12 months of their mortgage. The criteria includes that it has to be their primary residence, and whatever hardship made them stop payments (medical or job loss, etal) must be cured and once this loan brings up to current status, they must be able to make the payments.
This Partial Claim stays there as a 2nd lien with no payments necessary, nor interest charged. It must be paid off when the home sells, of if the owner changes it’s use to a rental, and no longer uses it as the primary residence.
>>The pols are focusing on ways to keep the housing prices artifically high so that there will not be a loss for those that either purchased during the boom, or sucked out all their equity during the boom.>>
And don’t forget real estate taxes. In California, at least, these supply the funds to the State – although assessed and collected by the Counties – which are sent back to the Counties to pay for schools. The reason it’s done this way in California is that some districts were wealthier than others, and had better schools. In order to make funding of all schools equal, the State collects the taxes from the Counties and then pays each school district on a per pupil per day basis. If real estate values fall, owners either pay lower prices for a new house, or a present owner can ask for a revaluation to reflect falling prices. If the appraisal is lower, then either the tax rate has to be raised, or the home owner will pay lower taxes which means less money for the State – and County – to spend. I don’t know about other states, but in California, lower real estate values will put a real crimp in the spending programs of both local and State governments.
And we all know how readily politicians adapt to less money coming into the coffers…
The following comes directly from the Executive Summary of Obama’s mentioned in the article. Are there any doubts remaining as to whether Obama’s overall plan is to reinflate the housing and credit bubbles?
Read for yourself:
Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements — by $50 billion to $900 billion — along with corresponding increases in the allowable debt outstanding.
———–
$900 billion MORE debt coverage, certain to be guaranteed by the benevolent taxpayer!?!? Better get your butt-cream ready!
BOHICA!!
Jeff V
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