Obama's Mortgage Restructuring Plan: Will It Work?
Thursday February 19, 2009
There are historical precedents from the Great Depression; former President Bush initiated a similar program in December 2007; and Congress got in the act in July 2008. Even with this pedigree, or perhaps because of it, this is a controversial proposal.
See
:: Recessions and Politics, U.S. Politics
:: Federal Government Doubles Fannie Mae, Freddie Mac Infusion, U.S. Politics
:: Stimulus Package Includes Billions for Energy and the Environment, Environment
:: Homeowner Stability Initiative to Stop Foreclosures, U.S. Economy
:: Economic Stimulus Packate – Fixing the US Infrastructure, U.S. Government Information
:: Recessions and Politics, U.S. Politics
:: Federal Government Doubles Fannie Mae, Freddie Mac Infusion, U.S. Politics
:: Stimulus Package Includes Billions for Energy and the Environment, Environment
:: Homeowner Stability Initiative to Stop Foreclosures, U.S. Economy
:: Economic Stimulus Packate – Fixing the US Infrastructure, U.S. Government Information
Comments
The devil’s in the details but on the surface it appears that good citizens who make their payments on time who were frugal in buying just an adequate home that fit their needs will get the shaft with this bailout. The citizens who bought more than they could afford with poor to bad credit, and haven’t made all their payments will be bailed out to the tune of billions.
Greenspan was right. ARMs are a very good tool for financing property. He wasn’t speaking of “Option ARMs” which were used extensively by many brokers/bankers and greedy home buyers. In fact, if you have an Option ARM that would adjust right now you would have a rate around 4.75% which is pretty darn good.
The problem of foreclosures is complex and not one trigger is responsible for all the chaos. The fault mostly lies in the fact that home prices finally stopped climbing and reversed. People who bought in the last 2 years lost any equity they had if they put 0% -10% down. Loans were made to people who weren’t credit worthy and should never have been enabled to own a home. These people should have continued as renters.
I have little faith that the government can step in and solve the problem. Trying to stop home prices from falling by creating a false bottom will only postpone the problem for another few years. jmo
C
Hi, Chuck – it’s a red-letter day as I agree with much of what you write.
That moral hazard inherent (which you allude to) in any plan like this is troubling. Of course, there is a moral hazard associated with bailing out the multi-millionaire banker executives who took their public companies into the toilet — and too many of us didn’t blink then. I agree that two wrongs does not make a right, however.
I also believe that in the mumble-20+ years since I bought my first home, the process has become more complex, not less. Read the guy from Newsweek quoted in my blog post from yesterday — mortgage and finance is his beat, and he outlines specific areas where a “buyer beware” warning would simply be insufficient.
I’ve not seen any demographic data about those who have gone into foreclosure proceedings — media give us poster-children like the guy in LA with four homes. I think he is the exception, not the rule, but I don’t know.
There are a lot of people losing their jobs — I know several, Seattle lags the nation but we are in a downturn, also — and their ability to pay their mortgages is not a function of buying beyond their means or being subprime (in all senses of that word) borrowers.
It’s a mess that has no good solutions.
The harsh reality is that every aspect of our economy is dependent on the appreciation of real estate. Yet, too many Americans live in areas where the cost of living is greater than incomes. . .people can’t afford to own OR rent.
Who wants to tell homeowners across America that their greatest investment has deflated by half? What happens to state and local governments dependent on tax revenues based on home valuations? CA and KS are teetering on bankruptcy.
It’s easy to blame it on the little guy. But, I think we need to focus our attention on the predatory lenders who set up the mortgage securitization con and the regulators who looked the other way.
There were lots of greedy hands pushing people to buy homes they couldn’t afford: the employers who didn’t pay their people a living wage ~ predatory lenders and brokers ~ HGTV ~ home improvement stores ~ credit card companies, etc.
If the majority of the American people don’t earn a living wage, all the government initiatives in the world aren’t going to turn the economy around or stop the freefall.