Posted on 12/19/2008 3:57:17 PM PST by fightinJAG
[snip]
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 ...
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!
No.
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.
Me, too.
Except I am also enraged about the fact that we had to move in 2005 and, even knowing the market would go down *some*, we bought a new home that we could afford and put 20% down as we always have.
Because of the “other guy” ruining the housing market with these scams, home values in our city have gone down about 40%. The guy who put nothing down and has skipped payments can get a loan modification, a short sale, or some kind of gubmint handout. Me, I can’t even get refinanced to a lower rate under any circumstances.
That’s enraging. If the loss of value had been part of a “normal” cycle, so be it. But to lose 40% in less than a year, and then lose 40% of my hard-earned retirement, while deadbeats who got a gubmint handout are ALREADY RE-DEFAULTING AT A RATE HIGHER THAN 50%-—that’ll blow your mind.
Isn’t this voluntary on the part of the lenders? If so, what’s the problem?
This allows lenders to get part of the debt “guaranteed” with a recourse, as opposed to having 100% of the loan non-recourse.
This separate loan would be collateralized by the borrower’s personal property. Therefore, the borrower is exposed to the consequences of not paying (unlike with many mortgages where, except for credit ratings about which some people car little, the borrower can just walk away from the home/loan).
This type of proposal actually goes to the homeowner who is not about to default, but who make a “business decision” to walk away from their loan because the consequences are not as terrible as the financial devastation of continuing to pay double the value of the home they are in.
The point is to give these folks who are willing to do this (or feel they should) some incentive to keep paying that mortgage-—the one the banks gave them with “NO RECOURSE”-—meaning: the bank cannot go after the borrower for any deficiency, which of course will arise because by definition the home cannot be sold for what it is worth.
If a bank told such a homeowner, we’ll give you a loan that is collateralized by certain personal property/equity stakes, etc., you put that collateralized loan toward your mortgage debt, then we refi the remaining mortgage debt, the lender gets a partially secured loan, the homeowner gets a lower rate/monthly payments, what’s the problem?
Like I say, I MADE a bad choice in 89 when the only right choice was not to buy, and nobody gave a rat’s ass when the bill came due. Why are this year’s group of homeowners so much better and so much more worthy of protection than I was and the people who bought then were??
The housing bubble popped because unrealistic expectations could not be sustained by the free market, any government sleight-of-hand that artifically props those prices up maintains the unrealistic expectations, at least in part.
House prices have to sink back to free market levels. There's no permanent solution beyond that.
And this is a desirable thing, because? Why is that particular group of people guaranteed that their asset not decline in value?
Thoughts?
Kinda like Ted Bundy as a rape crisis counselor.
Kinda like throwing good money after bad.
Kinda like sex in the name of virginity.
yes i understand your position...very surprised more formally lower middle class...now going broke baby boomers are enraged enough to be taking to the streets in dc and wall street
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