So it looks like we are bailing out stupid people again

#1
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droski

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#1

Creating a $75 billion homeowner stability initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

Obama seeks to aid up to 9 million borrowers - Feb. 18, 2009

I do think SOMETHING needs to be done, but this just seems like rewarding people who overbought. First off, people can lie about thier incomes easily. What about people who get layed off before they do the loan modification and then get another job afterwords? if i bought a $1,000,000 home and can only afford a $300,000 home is my payment going to drop 70%? the fraud is going to be unbelievable.
 
#2
#2
Based on what I read they are just refinancing loans to lower the payment they will still owe the same amount:

7. Will refinancing reduce the amount that I owe on my loan?

No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
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http://ac360.blogs.cnn.com/2009/02/18/qa-on-the-foreclosure-plan-and-what-it-means-for-you/
 
#4
#4
all they have to do is turn 30 year fixed or whatever garbage loan they have into 40 or 50 year fixed at 5%. Boom problem solved. Who cares how long it takes to pay off as long as they are still paying into the "system"

seems fair and too easy for this to actualy work
 
#5
#5
VolsNSkinsFan said:
all they have to do is turn 30 year fixed or whatever garbage loan they have into 40 or 50 year fixed at 5%. Boom problem solved. Who cares how long it takes to pay off as long as they are still paying into the "system"

seems fair and too easy for this to actualy work
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That's what I was thinking, but from what I understand people in California, because homes are so expensive already have 50 yr loans, so I guess those become 80 or 100 yr mortgages. That will be a problem.
 
#6
#6
oklavol said:
Based on what I read they are just refinancing loans to lower the payment they will still owe the same amount:
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apparently they will allow bankrupcy judges to write down the principle which is a horrible idea.
 
#7
#7
Do they really already have 50 year mortgages in Cali?? Dorski chime in...

I dont think that it makes a difference in the length of the loan, the important thing (imo) is that they pay the interest.

Should be interesting to see how the market reacts
 
#9
#9
droski said:
apparently they will allow bankrupcy attourneys to write down the principle which is a horrible idea.
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Maybe I'm just cynical, but this is how I see this playing out. They write down the principles on these things, or even move them in to fixed rate mortgages-supposedly helping the consumer. The problem is that in 10 years, these guys are going to be whining again and will figure out how to parlay all of this "good will" into screwing the consumer with some new "product" to make this money back hand over fist. It won't happen on the current homes of course-but future mortgages are going to make more money for the lender.
 
#12
#12
the original proposal i saw required that if the person takes this lower interest rate the govt gets 50% of any future upside on the house which makes a lot of sense. at least then only the real desperate will take this deal and it discourages fraud from those who can actually afford their payments. apparently they got rid of that though.
 
#13
#13
droski said:
the original proposal i saw required that if the person takes this lower interest rate the govt gets 50% of any future upside on the house which makes a lot of sense. at least then only the real desperate will take this deal and it discourages fraud from those who can actually afford their payments. apparently they got rid of that though.
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i wonder how this would effect the death tax.
 
#14
#14
droski said:
the original proposal i saw required that if the person takes this lower interest rate the govt gets 50% of any future upside on the house which makes a lot of sense. at least then only the real desperate will take this deal and it discourages fraud from those who can actually afford their payments. apparently they got rid of that though.
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that part was discriminatory
 
#18
#18
droski said:
apparently they will allow bankrupcy judges to write down the principle which is a horrible idea.
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Here's the (or at least one) rub. If banks are in trouble because the assets they hold lost a tremendous amount of value, how does lowering the value of their assets further help them ease credit?

What a cluster.
 
#20
#20
volinbham said:
Here's the (or at least one) rub. If banks are in trouble because the assets they hold lost a tremendous amount of value, how does lowering the value of their assets further help them ease credit?

What a cluster.
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These assets are already "written down". In fact, here is what's interesting right now.

Assume BOA had $100B in home equity lines and they wrote those down to $50B (I'm simplifying for arguments sake). Their books now shows $50B in assets, the stock price is hammered, and so on and so forth. However, if said equity lines get paid in full then BOA books this as profit.

In the end, the value of the asset is most likely already "written down" -- a new valuation or strengthening of the real estate market will actually increase the valuation and be booked as profit.
 
#25
#25
MG1968 said:
there will always be the strong. Not all of the banks are in trouble because not all of them wrote mortgages to unqualified buyers.
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I doubt there is a bank that has any presence or serious capital that I would call strong.

Also, whether or not you wrote bad loans is insignificant at this point. Even if you did 20% down payment loans on qualified borrowers -- if the values of homes have dropped your book value of assets is getting killed. "A-paper" borrowers have proven they are not exempt from this housing problem, nor are any lenders.
 
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