Skip to comments.How to Help People Whose Home Values Are Underwater
Posted on 12/19/2008 3:57:17 PM PST by fightinJAG
None of the existing proposals to help homeowners with negative equity would eliminate the incentive to default.
In an earlier article on this page I proposed a plan to prevent declines of house prices back to the prebubble level from pushing current positive-equity homeowners into the negative-equity group. The essential feature of that plan is to replace 20% of the homeowner's existing mortgage with a separate, full-recourse loan from the government. That "mortgage replacement loan" would have a very attractive, low interest rate. Because it would be separate from the mortgage and would have full recourse, it would establish an important firewall. Even if house prices fall another 20%, all mortgages would still have positive equity. The mortgage-replacement loan would involve no actual government spending and therefore no increase in the budget deficit.
The key to preventing further defaults and foreclosures among current negative-equity homeowners is to shift those mortgages into loans with full recourse, allowing the creditor to take other property or a fraction of wages. But the offer of a low-interest-rate loan is not enough to induce a homeowner with substantial negative equity to forego the opportunity to default and escape the existing debt. Substituting a full-recourse loan requires the inducement of a substantial write-down in the outstanding loan balance. Creditors have an incentive to accept some write-down in exchange for the much greater security of a full-recourse loan. The government can bridge the gap between the maximum write-down that the creditor would accept and the minimum write-down that the homeowner requires to give up his current right to walk away from his debt.
(Excerpt) Read more at online.wsj.com ...
Well, if you said pay or the gulag, that might work.
And the enumerated power specified in the Constitution which allows this transaction is found in what paragraph?
I didn’t think so.
This is an interesting proposal for stemming the coming tide of foreclosures in non-subprime categories.
Although interest rates are falling, many homeowners who bought in the last five years cannot refinance because lenders (now) require a 80% LTV. When a home has lost 20% of its value, as many have, the owner can forgetabout refi.
Offering a separate loan, as suggested here, might work. Thoughts?
0bama did say he’d put us all to work.
That salt isn’t going to mine itself...
You help people by making them help themselves.
They need to learn a lesson.
Don’t do anything. They knew what the payment was going to be. If the value drops, just don’t borrow more until it comes up or the balance goes down.
If you were stupid enough to get funny financing, get a couple part time jobs so you can make those payments you signed for. Or file bankruptcy and move out.
Heck, the way we are headed they will be paying us to borrow money pretty soon, that should help. sorry, its Friday afternoon.
Yours was more succinct than mine.
Shall we protect everyone from the consequences of their actions everywhere and always?
What is this, Kindergarten?
An I’ve got cash and want to pick up a few homes cheap. And no there is not a damn thing wrong with that. My wife and i worked and saved and did without while others were living the high life and going into do. Now I want to set my kids up for life, and get the hell out of my way.
Throughout Moscow, a huge city, there are thousands of traffic intersections. Instead of a traffic light at each intersection, there was a kiosk with four uniformed men discussing just “when” they should change the light.
Yes, yes........everyone works in Soviet Union............
do = debt. My bad.
I am in this situation. It’s really fuggin ugly. No Mortgage company or broker will touch you, and the bank REALLY does not want to talk to you.
From my perspective, I am screwed. I pay my Mortgage, I get screwed because I can’t sell. I don’t pay my mortgage and I get my credit screwed, and I have spent the last 6 years trying to recover my husband’s crappy, flat out crappy, Credit score to now face this.
I am telling you....... It really f’ing sucks. And we bought with EQUITY already in place. JOY.
Just why is it Mr. Feldstein’s perogative to debase the savings of those Americans who live within their means to the advantage of those who don’t?
That's the only problem with the Constitution...it's unenforceable.