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.
Why stop at mortgages? Are the Feds gonna’ guarantee the “negative equity” on car loans and credit cards as well?
Didn’t the last Fed move just give you the warm fuzzy — A range between 0 and 0.5%. Who ever heard of such a thing. T-Bills you have to pay negative interest to get them.
Don’t people realize, bankrupting the USA and everybody is worth ZERO — You think that is what the donks what? I am beginning to think so.
People underwater with non-recourse loans have every right to do just what the banks have done:
—Banks do what is good for their balance sheet,
—What business does: What is good for their balance sheet (including laying off employees if necessary)
—Why shouldn’t people who have been responsible not be able to do what is good for their balance sheet and walk away.
I would never refinance and take a recourse loan when I have a non-recourse loan. IMO, the housing market has not hit bottom yet and these people will only lose more money.
There is nothing being offered to help the responsible people, beware of the small print.
>>>>Let’s nationalize home ownership.<<<<
And car ownership.
Heres another idea, cut in half the money owed by people who actually were smart enough to lock in fix rates, bought houses they could afford, and have made all their payments on time. Once people see only those that actually pay their bills and live within their means get help, more might try doing it.
Au contraire. It is enforceable, but via a most distasteful and personal mechanism. The 2nd.
I do mortgage lending for the largest lender in the country. We can go up to 95% with fairly decent terms with a single loan.
The rate will be higher for being over 80%, but that means instead of getting 4.625% with 20 equity, someone will be paying over 5.000% but on the positive side no PMI.
We have pretty much quit doing second mortgages however.
But being over 100% due to property value declines really doesn't leave a lot of options.
The bubble prices were unrealistic and any attempt to recreate the bubble is silly.
This is a dumb idea. You can’t cure excessive debt with more debt. Furthermore, nobody in their right mind would sign on to a “full recourse” loan. Now, if people walk away from a bad mortgage, the bank gets the house back and that’s it. Of course, your credit’s ruined for 7 years but so what? Banks won’t be lending money for at least that long anyway. Right now, a good credit rating is worth approximately 1/2 a bucket of spit. With a recourse loan, not even bankruptcy can eliminate it. The borrower will be stuck paying with wage garnishments till the cows come home. So where’s the incentive to do this?
Collectively we are all underwater. The total of all Government debt has now eclipsed the total household net worth of the entire county.
Most states already are recourse. Some of the more notable, former bubble markets are non-recourse, particularly California. This proposal might fix things on a macro scale if everyone complied, but back down on the individual level, why on earth would a homeowner voluntarily be put on the hook, if their current mortgage allows them to walk away with no other consequences other than bad credit? If they’re in bad enough shape to participate in such a program, their credit is wrecked anyway.
This has echoes of the bankruptcy reform from a few years ago, that benefitted the credit card industry so mightily, and is raking strapped card holders over the coals with universal default. That’s all coming apart now, and is about to be reversed to some extent.
If they’re so all-fired determined to fix the problem, offer one time subsidized loans for “troubled” refi’s and purchases of troubled properties, with an extremely attractive rate, that is fully assumable, and make up the difference on forced short sales, within limitations to minimize abuse, on a primary residence only, with very strict guidelines that are enforced. No noncitizens, no sketchy ID, no straw buyers.
Housing prices have gone up and down from the time mortgages came into being. Countless times, I have known people who bought a house only to have it's value drop a year or two later. This is NOTHING NEW! Housing prices/values rise and fall all the time. I, myself, saw this when I was shopping for houses years ago, as well as when I sold a house. What all this is about is keeping minorities in houses, with mortgages the socialists in Congress made the banks grant, when they can't afford them and couldn't in the first place.
Towns and cities are up in arms because when house values go down, people can have them reassessed and OMG!! That lessens the tax base!!
Indeed, the responsible people will be robbed to help the irresponsible - as usual. Sad thing is, a lot of responsible people in some areas will be dragged down by the irresponsible around them.
New, this fall on ABC, “Extreme Makeover, Home Equity Edition”!
Why don’t we just have government housing for everybody?
i bought a house that i could afford and paid for it...what could be simpler than that. had to qualify, had to put 20% and never ever got a second morgage on it to play or pay for other things...i guess the value of it goes up and down...still live in it for rent free...the only thing that continues to go up annually are the taxes which i am sure are being pissed away as my ss taxes were for over 30 years...CRA had it easy for people who should be saving for a down payment or renting to get loans they can’t afford and now CRA has robbed my 401k and IRAs...it took me 30 years of saving and maxing out monthly savings....the same amount has been lost in 5 months....that took me 30 years to attain...now that i believe is something to be ENRAGED about...and i am!!!!!!!!!!!
I can’t believe this ****. I mean I had a house which I had totally rehabbed and had to sell at a loss in 94 with the mortgage insurance taking up most of the slack and me having to pay a 4k deductable and nobody was talking about helping anybody upside down in mortgages at that time, people were simply walking away from them. How do I get to be one of the people that anybody in government actually cares about??
Corporate, private, government debt and obligations like SS, Medicare are 350% (+/-) GDP.
If people are upside down in their houses, can you just torch the place for the originally higher value and collect it?
We may see a plethora of house fires.
And you will be helping reduce oversupply!
It's not that grown-up.
They are following the Katrina model to the letter. Help the politician’s friends, family and fellow criminals. Honest taxpayers need not apply.
Throw anyone that defaults out in the street.
It’s up to the lending party to protect the property and/or dispose of it but the defaulting party has no right to keep a roof over their heads.
Indeed, they are. And Katrina was the real beginning of the end - the turning point. It is the point when the President should have stood in favor of the taxpayers but instead threw taxpayer money out to a bunch of deadbeats. I don't know what happened that caused Bush to turn so far left at that point, but he did, and the damage to the country is permanent.
And as soon as THAT is official, every smart person will stop paying their mortgage and let it default.
Then the previously paid-on-time mortgage is halved. . .and smart people profit.
Make bad choices.
That’s an idea.
Whatever they do, it has to help the people who did the right thing and are presently paying for the crimes and stupidity of others.