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Forum Post: The Housing Crisis Will Only Get Solved When The Government Helps People Refinance!

Posted 12 years ago on Dec. 4, 2011, 2:56 p.m. EST by puff6962 (4052)
This content is user submitted and not an official statement

OK. Let's look at the big picture. The problem in the housing market relates to two things. Unemployment and the fact that home prices have fallen.

The fall in home prices means that a 100k house purchased in 2006 may only be worth 70k today. In other words, the home is underwater 30k.

Now, that buyer cannot refinance, and take advantage at historically low mortgage rates, because the bank will only loan 70k (actually, they are likely not to even loan that as they want 20% down against the current home value). But, anyway, assume that the bank will only loan 70k.....

The homeowner is screwed and can't stay in the home--despite having a job and a history of making his payments--because there is a 30k shortfall in what the bank will lend. Should the owner just walk away? Many are.

It is likely that home prices will rebound somewhat as the economic recovery crawls along. But, if the buyer above can't stay in his current home....despite being gainfully employed.....the deflationary spiral in home prices will continue and foreclosures will line every street.

The answer must address the 30k amount that the home is underwater and the only way to do that is if the government takes a more direct role in providing financing.

What I would propose is that the government make available to qualified borrowers a secondary loan in addition to the normal conforming mortgage amount of 70k. This 30k would be provided at the prevailing rate and the government would subsidize interest payments for a period of 2 to 5 years depending upon the homeowner's financial status. This secondary loan would be backed by the government and could not be factored into the debt ratios considered by lenders when making conforming loans.

Now, this loan would follow you and would not be fully eligible for dismissal in any future bankruptcy. It is a loan that will tide the homeowner until better times arrive and their negative equity becomes positive.

When that occurs, another mortgage could be written for the 100k total and the government then repaid.....or the buyer could just continue to make two payments. (One to the 70k conforming loan and one to the 30k government loan).

This system would allow people to remain in their homes, refinance at the best rates they will see in their lifetimes, and would not punish those who were conservative during the boom and who are doing fine in making their current home payments.

Some people can afford their home payments and have already refinanced. That's great. Others are so far underwater that foreclosure in inevitable and we need to make sure that there is a safety net for them.

But, this program is intended for the vast middle....those who are underwater to the extent that they may loose their home, but who cannot refinance so as to reduce their home payment. That is the line where the deflationary spiral in home prices must stop. These individuals may have bought at the peak of the market, but they love their home and can....with a little help....remain.

In the end, this program will help us all simply because, when my neighbor is foreclosed upon, my comp. home value is crushed. That foreclosure sale mayl drop my home value by as much as 10-20%. So, it's a worthy investment for government to intervene in an aggressive manner and to prevent this cycle from continuing.

It will benefit all while not punishing anyone.



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[-] 5 points by randart (498) 12 years ago

We should have never been sold the idea that our home is an "investment" in the first place. They are not ATMs and they are not going to rise in value by 20% every two months; it just can't work mathematically. This was supposed to be the place where you live not a bank account to flip and get temporary wealth.

They have been selling this crap to us for a long time. "Movin' on up to the east side, to a deluxe apartment in the sky...." They even have shows on how to "flip that house".

By playing the "my house will double in value in a year" game we created a pyramid scheme that was bound to fail. Seems to me that people are just too dumb, greedy, and short sighted to see through the bull crap we're being fed. Just look at who made the money from the last couple decades, banks.

[-] 1 points by SGSling (104) 12 years ago

Correct. The only home which is an investment is the one you don't live in.


[-] 2 points by randart (498) 12 years ago

There are con men in every industry and on every web site. Predators who are little more than neanderthal in their thoughts and hearts. The question you should ask yourself is which one are you?

[-] 0 points by simplesimon (121) 12 years ago

Well bubba, I don't work for an industry, I'm not a predator unless I'm shooting deer or catching fish because I know how to feed myself with something other than plastic wrapped meat, and you know that neanderthals are long gone from this earth. So I guess that makes me none of it. How do you like that answer? Does it stick in your warm craw like cornmeal in a dead chicken?

[-] 1 points by randart (498) 12 years ago

Just what are you then? Why are you here? What is your point? Do you have a reason to exist other than to be a thorn in someone's side?

Seriously. What are you doing here?

[-] 0 points by simplesimon (121) 12 years ago

What the hell are you talking about man? I can give my opinion here just like you, and according to your silly ass rules, my opinion matters just as much as yours, you being in the "collective" and all. What a dumbass.

I could ask you the same thing but I really don't give a dam why you are here.

[-] 2 points by randart (498) 12 years ago

It sounds to me like you are a wounded animal. What might have caused your wound is only between you and whatever deity you may keep in your heart. You strike out with demeaning names for me first of all, Weezy", Bubba, and I'm sure there are many more in your vocabulary. The reason you use them is to begin the process of dehumanizing me so that you feel you have a right to go on the attack.

As for the neanderthals, there is a theory that they were absorbed through inter breeding. If that theory is true then the genetics still exist within humans and especially those from Europe where they lived together for many centuries.

I haven't seen an opinion from you here friend. All I have seen of you is attacks. Do you have an opinion about what should be done?

[-] 0 points by simplesimon (121) 12 years ago

Number 1. We are all animals. We aren't any different than ants in colony. We'll populate this big blue marble until we kill it. That's what animals do.

Number 2. Weezy is the nickname for Louise in "The Jeffersons". If you would refer to the the first post where it states "Movin' on up to the east side", it reminded me of that. Of course, you are a dumbass so you don't make connections like that. You don't think.

Number 3. You are dumbass, bubba, but not Weezy. There is only one Weezy, and you ain't her. In the south Bubba is a term of endearment. Dumbass.

Number 4. If you think I dehumanize you then you are a thin skinned dumbass. Only humans have the ability of language. Dumbass. It is obvious that I am talking to another human.

Number 5. Theories are like assholes. Everyone has one unless yours rotted out and you shit in a bag now. I'm not from Europe either. Wrong continent bubba.

You see opinions from me every time you read what I write. I have "occupied" you. Dumbass.

[-] 1 points by puff6962 (4052) 12 years ago

If you have one foot in the past and the other foot worried about the future, then you are pissing on the present.

It was what it was and it is what it is.

Now, the question is, what do we do to fix it?

[-] 1 points by Censored (138) 12 years ago

But banks also have giant losses now too.

Government would help by getting out of the way. It should let foreclosures clear and then the market. It's still trying to prop up prices and buyers sniff the scam and manipulation.

Government has no business trying to protect the equity of sellers. It shouldn't be picking sides between buyers and sellers. For every middle aged boomer they try to protect, they fuck a 28 year old family looking to enter the market.

[-] 0 points by BTKcongress (149) 12 years ago

you took the words right out of my mouth. the under 40 crowd should be very tired of getting pissed on every day by this government--i hope when we get into power they cut benefits to retirees. i would be surprised if there's not a revolution and an age war: young vs. old

[-] 2 points by Censored (138) 12 years ago

The OWS 20-somethings are utterly incapable of understanding the problems they face. Wall Street? Politicians built our current system of intergenerational transfer payments, not Wall Street. They also protecting the home equity of older people. It all screws young people, yet they don't even know it.

[-] -1 points by Farleymowat (415) 12 years ago

The left love to set up class war. We are a classless society. Democrats came up with the class struggle as a first step to socialism. The rich need to pay there fair share they cry. This is a leftist tactic to incite hatred between people of different means. I would be considered lower class according to my family size and income. I am rich. I have warm clothes and a warm house and food on the table. I drive crappy cars by most standards. I have little money in the bank. I am rich.

[-] 0 points by justhefacts (1275) 12 years ago

If I could like your comment a thousand times I would. :-) Kids today have no idea how "rich" we all are when compared to people in other countries. We, as a country, have no right to demand ANYTHING until we become grateful FIRST, for what we already have.

[-] 2 points by thomasthetank (41) 12 years ago

It has been my long contention that the most important national security decision we could make in this country would be to ban access to the internet, video games, or television to kids who are not maintaining a B average.

Turning off the TV and electronic devices is the single best step proper parenting available today.

[-] -2 points by randart (498) 12 years ago

Banks are getting loss, if that is true, due to their own inability to self regulate. That is why we need to keep a tight reign over their activities. When they are left unchecked it causes all of us to go down with them when they screw it up and over reach.

[-] 0 points by puff6962 (4052) 12 years ago

If you live in a home for any length of time, you realize that your home is an investment.....you will soon acquire so much shit that you will gladly pay someone for the right not to move.

[-] 3 points by barb (835) 12 years ago

The government created the environment for the housing crisis to emerge so if you expect them to do anything about it, you are barking up the wrong tree.

[-] 2 points by demcapitalist (977) 12 years ago

Greenspan lowered the interest rates and pushed for the repeal of Glass/Steagall The banks begged for more leverage and to be allowed more risk taking --------they got everything they wished for in 1999 and it only took them 8 years to destroy the economy the exact same way that wall street destroyed the economy in 1929. Returning the country to pre 1999 banking laws would do the trick. It worked well for 50 years.

[-] 0 points by puff6962 (4052) 12 years ago

GSE's provided the impetus for home ownership for 60 years without a hitch.

What changed? Wall Street, itself, got into the securitization business. How did they break the hold of Fannie and Freddie (who required 20% down with tight underwriting requirements)?


The money was looking for buyers and the loans were recombined into garbage that almost destroyed the world.

The government may be the only way to avoid capitalism eating itself like a snake swallowing it's tail.

But, in the current foreclosure crisis, government must do more quickly.

[-] 2 points by hchc (3297) from Tampa, FL 12 years ago

Ah yes, more clamoring for help from the assholes that caused it...

We will never learn...

[-] 1 points by puff6962 (4052) 12 years ago

Those assholes have provided the basis for the financing of homes in this country since the 1930's. Fixing a flat tire is often easier than building a new car.

[-] 2 points by TheEvilFuckaire (208) 12 years ago

Any solution that involves more Federal Reserve Notes will fail. Always more principal plus interest than principal in circulation. PI>P cannot balance. The current system is made specifically to CAUSE defaults and foreclosures Until we end Corporate controlled government and debt based money it will continue 1 + 10% will never = 1.

[-] 0 points by puff6962 (4052) 12 years ago

What economic benefits did World War II bring us?

[-] 1 points by TheEvilFuckaire (208) 12 years ago

Increased production for war machines caused an economic boom, followed by a population boom. We had no economic benefit however, because the whole country was already bank owned. Short term gains caused by increased money supply are the net being thrown out. Deflation is the fish (us) being reeled in by the reduced money supply.

[-] 1 points by puff6962 (4052) 12 years ago

The majority of Americans have, for a generation, reacted to stagnant wages in a rather novel fashion.....they leveraged the future into the present. They did this by borrowing incredible sums of money and producing unsustainable dynamics.

With either deflation or inflation, with reductions in the money supply or with the expansion of it, we are actually poorer than we thought.

That is reality.

By the way, WWII produced nothing that was essential to the American economy other than the massive Keynesian stimulus that was required to jumpstart it. Pray we don't need it again.

[-] 2 points by TheEvilFuckaire (208) 12 years ago

In 1980 my mother made $3.35 per hour and a gallon of gas was about $1. Now minimum wage if you can get a job is $7.10 and a gallon of gas is about $3.50. 50% of an hours work compared to about 30% in 1980.

[-] 0 points by puff6962 (4052) 12 years ago

With either deflation or inflation, with reductions in the money supply or with the expansion of it, we are actually poorer than we thought

[-] 1 points by JesseHeffran (3903) 12 years ago

WWII created the microwave. just throwing that out there. life is ups a downs and goods and bads. but as long as we learn from our past we will keep evolving. the internet was a product, being that the gov't funded it, of the cold war.

[-] 0 points by puff6962 (4052) 12 years ago

great....so hitler gave us microwave popcorn and stalin gave us internet porn.

[-] 1 points by JesseHeffran (3903) 12 years ago

no, the american ingenuity gave us those things out of fear. and fear will give us the new tools to progress. I just hope we learn from the past, and not fall into the same traps.

[-] 1 points by puff6962 (4052) 12 years ago

yes. maybe next we'll get microwavable porn.

[-] 2 points by whisper (212) 12 years ago

Who is to provide the funds with which the government is to 'help people refinance'?

[-] 0 points by puff6962 (4052) 12 years ago

That is a very good question. The answer is you and I.

In effect, we are already paying for these individuals to lose their homes....in the form of diminished values on our own homes (I just sold one so I know) and through a sluggish recovery.

The federal government would set up another GSE with an implied guarantee that the securities issued would provide a set rate of return for private investors.....Similar to Ginnie Mae bonds.

Those homeowners who took advantage of this secondary loan would be required to pay it back without the option of bankruptcy wiping the loan or dramatically restructuring it.

Therefore, if you were a speculator or if you bought way too much home, you'd better not "take advantage" of this program.....But, if you love your home and it's feasible for you to remain there, the secondary loan option allows you to take advantage of mortgage rates you will never see again in your lifetime.

But.....the most important point to be made here.....is that---whether you do nothing or support a measure such as this--you are paying for people who are losing their homes.

I think that I would rather pay an extra .3% in taxes and see my current home price increase by ten to twenty percent. That is what will occur if the foreclosure fuel is removed from the housing market and it can't come too soon.

[-] 2 points by whisper (212) 12 years ago

I have no interest in paying for someone else's mistake. I would not ask someone else to pay for mine.

[-] 0 points by puff6962 (4052) 12 years ago

You will pay for somebody else's mistake whether you choose to help or do nothing.....

Have you checked how much home prices have fallen in the past two years?

That is the price of doing nothing.

I'm not trying to argue for some elaborate government spendathon.....instead, this would be a rational program for someone who just happened to have bought their home at the wrong time....a market peak.

[-] 1 points by whisper (212) 12 years ago

That the price of houses has fallen will allow those who would not otherwise have been able to afford them to do so. Surely even you wouldn't consider this a bad thing?

[-] 0 points by puff6962 (4052) 12 years ago

Horseshit. It will cause the economy to stall and for those same people to be out of work. Simple horseshit.

[-] 1 points by whisper (212) 12 years ago

People buying houses will cause 'the economy' to stall? It will cause them to lose their jobs? How do you figure?

[-] 0 points by puff6962 (4052) 12 years ago

When home prices fall, people freak out and stop spending. This lowers aggregate demand, the economy falters, and unemployment rises.

[-] 0 points by whisper (212) 12 years ago

For a short time, sure. But people still need to eat. They will continue to buy food. They still need clothing. The will continue to buy it. They still need water and (some, though probably less) electricity. They will continue to buy it. Those who do not buy it will create it. Those who create an excess of it will sell it. Certain member of 'the economy' (which refers to buyers and sellers of goods and services) will find that the market has changed and their model no longer works. They will either adjust or their market share will be usurped by those who "do it better" according to the new conditions. The belief that "the economy" is a static thing which requires carefully regulated conditions in order to function is ridiculous and shows a complete lack of understanding of what it is. "The economy" is a reference to all the buying and selling that takes place within a community. "The economy" is not the purpose of human life, simply an aspect of the means by which it is maintained in a society based on division of labor.

[-] 1 points by puff6962 (4052) 12 years ago

No, people will not buy a damn thing in your scenario....they will have no jobs and no money and no food and you will have your Herbert Hoover paradise.

[-] 1 points by whisper (212) 12 years ago

I... don't see how you can assert that and expect anyone to accept it.

[-] 0 points by puff6962 (4052) 12 years ago

Read about deflationary spirals and the liquidity trap/helicopter drop.



[-] 1 points by whisper (212) 12 years ago

My scenario deals with the necessities of life. If people do not create the resources they need themselves, they must buy them or they will die.

[-] 2 points by Farleymowat (415) 12 years ago

The housing market will recover when government stops propping it up. It will recover when people save 20% for a down payment, and the government doesn't use taxpayer money to help people that cannot afford to own a home, with a downpayment. Government needs to get the he'll out of housing. Incentives to help people purchase a home Is bad policy. If you can't save up, and do it on your own, why is the public expected to help? Terrible law making.

[-] -1 points by puff6962 (4052) 12 years ago

I don't think you can imagine a world where the "government is out of housing."

There is no entity that can carry that amount of potential liabilities without adding 2 to 4% onto any existing rates for mortgage interest.

No entity will ever trust a Wall Street bank to bundle mortgages again into securities. They want to know that there is a filter and that there is a back-stop.

Welcome to the world of the 1950's......the government was in housing then and they're going to be in it in the 2050's.

[-] 1 points by Farleymowat (415) 12 years ago

I agree Puff, that no one will trust in these assinine schemes again. Unfortunately, the majority of the public has been clueless on all of the bullshit financial trickery that has been going on behind the scenes. It was a scam of shameful and disgraceful proportions. It is a shame and disgrace that the taxpayer,(or people who buy our debt, but of course they assume risk) should bail out Fannie and Freddie, or Goldman Sachs, etc. I still say, though, that every bailout does nothing but create a bigger bubble, putting off the day of reckoning for another tomorrow. This kind of bullshit thinking by the supposed brains of our economists is a damn shame. Saddle the debt on the backs of our future,I.E. Children.

[-] 0 points by puff6962 (4052) 12 years ago

It is what it is. Trickle down economics is a bitch for the poor whether times are good or times are bad.

[-] 1 points by TrevorMnemonic (5827) 12 years ago

Instead of doing this the government chose to bailout the banking system that is taking people's homes.

[-] 0 points by puff6962 (4052) 12 years ago

Yes. They followed the horse and sparrow line of reasoning.

(“If you feed enough oats to the horse, some will pass through to feed the sparrows (referring to "trickle down" economics).” ― John Kenneth Galbraith).

[-] 1 points by MatthiasBr (1) 12 years ago

BIG IDEA What if Occupy Wall St. was to focus 100% on getting Consumer Protection Agency up + running by pressuring congress to confirm a nominee?

[-] 0 points by puff6962 (4052) 12 years ago

How can you force Congress to do anything unless you control who gets elected to Congress?

That may be the most important sentence you will see on this entire forum....ok, I'll try to be modest later....but it is the truth.

[-] 1 points by hchc (3297) from Tampa, FL 12 years ago

Or they could just write down the mortgage, with fixed interest rates. Seems a better/easier solution than loading people up wiht more debt.

[-] 0 points by puff6962 (4052) 12 years ago

Banks can't be regulated to lose money. They are simply not that strong.

Also, why wouldn't EVERYONE who has seen their home value go underwater want a right down?

[-] 1 points by MattLHolck (16833) from San Diego, CA 12 years ago

people are losing their houses because they're worth less?


[-] 1 points by TheEvilFuckaire (208) 12 years ago

Houses and land maintain their value as requirements of survival no matter what happens. The dollar changed in value and it was no accident. The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered. --Thomas Jefferson-- It has been known for a very long time that banks should not be allowed to create money or they will use it to take stuff from the rest of us.

[-] 0 points by puff6962 (4052) 12 years ago

Either one wage earner has lost their job and they can't afford the payment on an old 6% mortgage.....and can't refinance because they are carrying a 100k mortgage on a home that is now worth only 70k.

Or, they were sucked into an adjustable rate mortgage...with a teaser....and now the mortgage rate is going up from 4.5% to 7% and they can't afford the new payment and can't refinance because they are carrying a 100k mortgage on a home that is now worth only 70k.

In both scenarios, the homeowner might be able to afford the payments if somebody would load the 100k amount at today's historically low rates.....4% is pretty damn low.

[-] 1 points by BlueRose (1437) 12 years ago

Housing values should rise in pace with minimum wage.

[-] 1 points by puff6962 (4052) 12 years ago

If there is a deflationary spiral, corporations get stuck with inventory that is overpriced and they begin cutting costs......which means layoffs.....the layoffs mean foreclosures and plummeting real estate values.....which freaks people out so they stop spending money.....which feeds the deflationary spiral and businesses get stuck with inventory that is overpriced.....and so on and so on.

While I do believe that the minimum wage should be increased, I do not believe that raising it would necessarily improve the current economic woes.....What would happen would be that employers might raise the base rate of the lowest employees on the food chain.....but lay off more of them in order to pay for it.

The answer here, as I've written about in another thread (titled "Inflation....or a World War....Is the Only Answer), is conterintuitive and fraught with risks. Inflation hurts those with savings and high net worth but it a better means of adjusting the economy to help the little guy and to reduce unemployment.

The way you induce inflation is to get people spending and print money.

But, if people are not spending money, then you turn to the spender of last resort....the government.

Whether Republican or Democrat, the government over the next few years will have to turn up the infrastructure projects and fiscal froth in order to plug that hole which is deflation.

The fed has done what it could....and that's not to say that it is without fault in all of this, but the demonization of Ben Bernanke is one of the greatest injustices I have seen throughout this crisis.

Anyway, back on point.....Japan suffered a lost decade and we are at risk of the same.

Home prices will not rise until banks and the government help people stay in their home and we will not see a turnaround until aggregate demand....by any means possible....is increased.

[-] 1 points by BlueRose (1437) 12 years ago

I am on-board with your economics, I just think workers need a little more protection against corporate abuses.

[-] 1 points by BlueRose (1437) 12 years ago

Value is not in labor (sadly), it is in the ground of wealthy men who decide what labor is worth. With high property prices, there will become a class of renters, and a class of owners. Don't forget, women are biblically not really supposed to inherit property. Libertarians keep that a secret amongst themselves. We need labor to be worth something.

[-] 0 points by puff6962 (4052) 12 years ago

The key to maintaining a living wage is to reduce the shambles the myth of globalization. It has not improved our quality of life....I has left us with two classes....and it is predatory on the most vulnerable people upon this planet.

Fair trade is the answer and I outlined a very concise solution in a thread entitled....well, here's a link:


Read it. It will work.

[-] 0 points by TheEvilFuckaire (208) 12 years ago

You are talking about a "Living Wage" many countries have that, but all that have central banks including us will fail.

[-] 0 points by puff6962 (4052) 12 years ago

Not true. Every individual European union country currently wishes it had it's own central bank.

Countries that have had "well run" central banks have flourished through history.

Show me one nation who lacked one who has succeeded.

[-] 1 points by TheEvilFuckaire (208) 12 years ago

Central banks are a good thing if they are owned by the nation. In the current system however the central banks are privately owned and money is borrowed into existence by the nations. Since there is always more principal plus interest than there is money in circulation the debts can never be paid back, resulting in private bank ownership of the nations economy. It is the biggest scam in history. As long as the central banks are privately owned there will be debt and debt = slavery.

[-] 1 points by aries (463) from Nutley, NJ 12 years ago

Not !

[-] 1 points by alouis (1511) from New York, NY 12 years ago

If the fed did another "abracadabra" and presto! created another trillion dollars and parceled that out to I dunno all home owners, or maybe just those underwater.....

This shit isn't going to get any better.


[-] -1 points by puff6962 (4052) 12 years ago

blah blah blah I'm in the lifeboat blah blah blah screw you and tread water blah blah blah Ayn Rand had a vagina somewhere blah blah blah

[-] 0 points by alouis (1511) from New York, NY 12 years ago


[-] 0 points by puff6962 (4052) 12 years ago

Let those underwater on their mortgage just eat cake.

[-] 1 points by BTKcongress (149) 12 years ago

home prices going up? let's get real:

1) financing costs rising in future (interest rates up, downpayments 25%) 2) would-be buyers under 35 strapped with massive student loans 3) home taxes going up alot (pay down excess muni debt) 4) boomers exit the market 5) too much supply 6) foreclosure process barely commencing in 2011 (market to be flooded) 7) negative sentiment about housing.

every factor that affects pricing is highly negative... for a very long time.

better rethink the premise.

[-] 0 points by puff6962 (4052) 12 years ago

My Lord, you're a pessimist.....or, you're heavily invested in rentals.

All of those items are true if the current, inept, governmental inaction is continued.

But, by your logic, the spiral will continue until ALL Americans just walk away from their loans.

Where will we all live? Zuccotti Park?

There will be an equilibrium at some point and it would be better if that floor were on the high side than on the low side.

Think about it.

[-] 1 points by BTKcongress (149) 12 years ago

actually i am indifferent (though optimistic about OWS), not a pessimist, as my job requires me to call the future correctly, and not be an eternal optimist or pessimist but to see the future clearly and connect the dots. I did foresee the crisis and sold my home in 2004 and I've been renting since that time. you see, my several friends in the lending industry and I talked about how the banks were lending at 45%-65% (they thought the median was about 52%) of peoples' future income to buy a house between 2004-2008, when the prudent level was not more than 30% in prior years... we spoke often of the pernicious impact this would have on the future of the US economy... as people were saddled with debt.

equilibrium would be great, but that won't happen until home prices come down to that 30% of peoples' income level--and they've got a long way to go, absent some government intervention--which would merely delay the inevitable... there's nothing they can't screw up.

same thing with education and healthcare and anything else the government finances.

[-] 1 points by aahpat (1407) 12 years ago

There is a third issue that exacerbates both the unemployment and housing value issues; housing over stock.

Developers, using too much free money and the false market of flipping to justify building built too much housing that was out of the way and too large for the declining family size in America. Until the housing stock declines there will be over saturation depressing the pricing of homes and no demand for home building contractors and their construction trades workers.


  • An Ohio bank has started destroying homes that can never be brought up to a marketable value. I don't like it but it reduces the stock which will stabilize the home value issue.

  • Most important:

  • Government infrastructure investment. This will give construction trades work that will support communities and help to jump start the economy.

  • Education investment. Keep the skills young people are learning up to state of the art so that they can be contributors when the economy starts to advance again.

  • Renegotiate American free trade agreements to be fair trade agreements where American imports will be price competitive with American made. Worker rights and healthcare for workers in countries we trade with that are commensurate with American standards. Negotiate to bring third world countries up to America's standard of living rather than devaluing America's standard of living until it is no better than a third world country. Make America a middle-class economy again that we can inspire others to aspire to.

[-] 0 points by alouis (1511) from New York, NY 12 years ago

Nothing save a miracle is going to "jump start this economy."

[-] 1 points by aahpat (1407) 12 years ago

Nothing can save the economy. Not as long as the right-wing are undermining everything and waging economic warfare on the rest of us to gain control of the nation by destroying the economy.

[-] 0 points by Farleymowat (415) 12 years ago

Aah Pat, please explain how the right wing has waged economic warfare. This big eared president and his senate and congress ran rough shod, completely unopposed for two years. Obama has done everything possible to shove this country into historical oblivion. He has done a damn good job of dividing us and polarizing us too. Obamacare had zero, none, nada, complete unsupport by over half the country. No conservative support. None. He shoved a piece of shit legislation down our throats. No one even read the damn bill. NO ONE. These ass holes should rot in prison, for screwing us. My anger is not onLy directed at libs, republicans share in much of this too. Insider trading! What a bunch of godless creeps.

[-] 1 points by aahpat (1407) 12 years ago

S-900, the Gramm-Leach Bliley Financial services Modernization Act of 1999.

SEE: The Congress That Crashed America http://home.ptd.net/~aahpat/aandc/congcrash.html

And if you think that Obama and his gang are not a part of the right-wing go look at his campaign finances. Wall Street loves him. Wall Street is the closest thing to economic fascism America has ever been afflicted with.

Your rant is nothing but GOP talking points and Fux News programming. Get your head out of Rupert Murdoch's ass for a minute and come up for air.

[-] -1 points by Farleymowat (415) 12 years ago

GOP talking points? Get a life. I know Obama loves to control you and me. Do you know that? Fox news programming? Kiss off, and don't insult yourself. Inthink you need to come up for air man.

[-] 1 points by ZenDogTroll (13032) from South Burlington, VT 12 years ago

I agree that the foreclosures must stop. It is the only way to keep housing prices stable.

I believe government intervention is necessary, the banks on their own have not addressed this issue.

It does not make sense to me to see homeowners locked into paying for two loans simultaneously - it is difficult to say that they will be in any better position with such a remedy.

I believe one loan is needed - the bank holding the loan should simply redefine the terms of the loan that already exist. It should be quite simple - but I'm sure it is not since so many loans were bundled and resold.

That whole strategy of profit taking needs to come to an abrupt end.

[-] 1 points by BTKcongress (149) 12 years ago

you are right on modification... the consent of too many parties is needed, example perhaps sovereign wealth fund of china sold some of their fractionalized interest to 12 other parties. they should "cram down" extended payment terms on all holders... however, then those parties receive lower payouts, so there's a ripple effect worldwide.

[-] 0 points by puff6962 (4052) 12 years ago

When someone borrows money, they are attempting to import the future into the present. The lender is providing the funds based upon past accrual of assets and requests some compensation for importing the past.

Now, that simple relationship has become so convoluted and corrupted that we no longer have faith in our financial system.

You cannot do a single loan for these refi's because no lender is going to loan an amount greater than the current value of the home. They just can't do it. It would expose the bank to a substantial loss above what the home is worth today and, if deflation continues, what it is worth tomorrow.

No government can command a company to lose money.....it just isn't going to happen. That is why a second GSE loan is necessary to supplement the current appraisal amount.

[-] 1 points by ZenDogTroll (13032) from South Burlington, VT 12 years ago

no lender is going to loan an amount greater than the current value of the home. They just can't do it.

According to 60 Minutes that is exactly what they did do at CountryWide - by lending a couple of points over the loan itself to compensate the borrower for signing documentation that made them nervous.

If a homeowner is underwater on their loan, in that the home is worth less than what is owed, then the loan already exists - all that is required is to change the terms of what already exists.

The bank benefits - they actually get paid, rather than foreclose or see a homeowner walk away.

Just redefine the terms on paper - so the payment amount returns to that pre-reset rate.

[-] 2 points by BTKcongress (149) 12 years ago

right. it was called "pick-a-pay" which allowed the borrower pay whatever he wanted to pay,,, the shortfall, if any in a given month, was tacked onto the principal amount owed and thereby generated more interest for the bank. this is called "reverse amortization"--and anyone with a brain can extrapolate the "end game" to this scheme. except, apparently, congress, bank regulators and countrywide investors.

[-] 0 points by puff6962 (4052) 12 years ago

That is what they did.....in fact, some people were getting 125% loans.

And, I think that they have learned their lessons on that strategy.

As far as banks making money, realize that banks most often simply originate the loans.....then they sell them to Fannie or Freddie or to some other mechanism for securitization. In house loans are the exception and not the norm.

This was the fuel for the fire in the housing bubble....the hot potato got passed on to somebody else and originators made off like bandits. They only got burned when they were finally stuck the the last potatoes in the barrel.

Because restrictions and Fannie and Freddie have dramatically tightened, the bank would not be able to pass a 100% cost loan on and would, instead, keep them on their books. There is not a bank in this country that could carry that risk when the home is now valued 20-30% below purchase cost.

The secondary loan option is best as it would be sponsored by a GSE, similar to Fannie and Freddie, and would allow a division of risk between private banks and the government.

The secondary loan is a big commitment for the buyer as, similar to a student loan, it will follow you and will be partially excluded from any bankruptcy filing.

It would therefore not "delay the inevitable," but would flush out who is serious about remaining in their home and separate them from those who are not.

I'm not pretending to solve the world's problems....but I just cannot fathom another workable strategy for this problem.

[-] 1 points by ZenDogTroll (13032) from South Burlington, VT 12 years ago

I'm not a financier, so I dunno.

It just seems that if they already have the loan, and if the home owner was originally able to make payments, and then ceased being able to when the rate ballooned, the most sensible solution is to roll back the reset.

you are probably right, it may not be workable given the numbers of loans that have been passed on to third parties.

I just think that with a dual loan, what will happen is that the home owner may still be stuck with a combined obligation that is equal to the current obligation in terms of monthly payment due, and therefore not do them any good in the short term - if they can't make the payment now an arrangement like that may not solve their problem.

If they could make the payment with the original payment schedule, before reset, it just doesn't make sense to foreclose if other factors of their economics have not substantially changed.

They may not have read or understood the fine print - but the banks have a responsibility in that, one that cannot be denied, and must be taken into account in solving this dilema.

If they won't make good, I would seize their assets and use them to set up a solution. But we all know I'm a madman.

[-] 0 points by puff6962 (4052) 12 years ago

The loan that will be closed out has a thousand owners.....each owning a part of the security.....the owners of a new, solitary, loan made for more than the current home value, would be nonexistent.

Again, banks will carry only a limited number of home loans on their books. They would rather pass them along so that they can originate new ones.....rather than collect 4.2% for carrying a 30 year risk.

No legislation would be able to force these banks to make this type of loan and hold it on their books.....they would rather, or would, go bankrupt.

I wish it were not so, but that is the nature of banking. They are entitled to, and certainly will, protect themselves when extending credit.

They may have behaved maliciously or irresponsibly during the bubble, but what was.....was.

Today, banks are again married to securitization through Fannie or Freddie....and underwriting guidelines and 20% down have again become the rule.

We have a house on the market and it's been sold three times.....two deals went down in flames because loans could not be obtained.

[-] 1 points by TheEvilFuckaire (208) 12 years ago

We have no government look up the act of 1781. An organization which does not exist can fix nothing. End The FED and UNITED STATES INC.

[-] 0 points by puff6962 (4052) 12 years ago

I would rather end the housing crisis.

[-] 1 points by TheEvilFuckaire (208) 12 years ago

Everything is interconnected. Corporations masquerading as government. The Federal Reserve System. People Farming. Fractional Reserve Banking. The system is set up to cause failure like musical chairs is set up to always have less chairs than people.

[-] 0 points by puff6962 (4052) 12 years ago

I would rather end the Republican party.

[-] 1 points by libertarianincle (312) from Cleveland, OH 12 years ago

Who is going to be the savior? Barack "Goldman Sachs" Obama?

[-] 0 points by puff6962 (4052) 12 years ago

I don't know, but the question may be more aptly phrased....."Who is going to lead us toward a solution and who is going to lead us away from one?"

[-] 1 points by libertarianincle (312) from Cleveland, OH 12 years ago

In my opinion none of the leading candidates in EITHER party are leading us anywhere. Christ, Obama is GWB II.

[-] 0 points by puff6962 (4052) 12 years ago

Agree. One is stuck in the water, the other is providing the anchor.

[-] 1 points by cmt (1195) from Tolland, CT 12 years ago

One of the real values of owning is the possibility of paying it off, which produces reduced "rent" cost (there are still property taxes and upkeep).

However, if a person does not need to sell the home, and can make the payments, worrying about being "under water" is a waste of time. If there is no need to sell, stay put. Keep making payments. The sale price may recover, and if it doesn't, there is still the long-term value of a paid off house.

[-] 0 points by puff6962 (4052) 12 years ago

A home without equity is just a rental with debt.

That is why we have to establish some floor in the housing market. We're already well below construction cost....so all depends on slowing the deflationary fuels and reversing unemployment.

I would somewhat agree with your sentiments with some caveats. Home ownership, as you allude to, has psychological differences from just renting. There is some hope that, someday, there will be no payment. And, home ownership is a huge part of the American psyche. So, when a homeowner is underwater 30k and, to double the hit, is unable to take advantage of today's ultra-low interest rates, they feel trapped and retract their propensity to spend. That means fewer dollars changing hands, a slowing of the velocity of money, and effectively an economic anti-stimulus.

So, while my original post was meant to apply principally to those on the edge of solvency, you may see the advantage of helping a broad swathe of those doughnut hole homeowners as a form of economic stimulus.

Like the payroll tax cut, this form of stimulus would concentrate it's effects on the lower and middle class and could shorten a "lost decade" significantly.

In the end, there is a tipping point where people tighten their belts, or just walk away from their home, and both of these scenarios are hurting our economy today.

Does that make sense? Hope all is well.

[-] 1 points by BTKcongress (149) 12 years ago

home equity = dead money (not generating any interest or increase in value).

the above is true only if home prices do NOT increase. and they're not likely to go up from here.

[-] 0 points by puff6962 (4052) 12 years ago

Not true. Home equity is not dead money in respect to it's influence on whether or not you can currently borrow for a car, a business, or refinance that home at historically low rates. Home equity, and it's corollary negative equity, are perhaps the single greatest influence upon slowing the velocity of money in our economy.

Average home prices are already well below reproduction or construction costs and that is having a strong effect upon new home construction. That, and a still growing population, will lead us back to some equilibrium in the housing market provided that foreclosures can be slowed and a floor established.

"the above is true only if home prices do NOT increase. and they're not likely to go up from here."

That is an interesting phrasing. Because, the best way to restate that is that the only way home prices will rebound is if the above is made true.

Think about it. It's a good idea whose time has come.

[-] 1 points by BTKcongress (149) 12 years ago

what's the ROIC (return on invested capital) of home equity if the home price stays exactly the same for 10 years (good luck on that now)? negative 30% assuming a 3% inflation rate (i won't bother with how the rate is manipulated). to get a zero ROIC the home would have to increase by 30%.

what you speak of is using equity for leverage to borrow against... tantamount to co-opting your future income with a bank to buy stuff today--only if it's an investment of some sort would that be wise (like buying a business. what i speak of is compounding,,, and if home equity is getting a zero rate of return unless home prices increase faster than the rate of inflation, and hence, it is dead money. in fact, all factors affecting home prices imply a strong trend down for a long time, and so equity is probably getting that solid negative 8% loss.

[-] 0 points by puff6962 (4052) 12 years ago

what's the ROIC if the whole system goes down?

equity...either in cash or in the value of the property....is the only rational thing to borrow against.

according to your logic, nobody would ever buy a home.....the opportunity cost is too great.

however, to counter your logic.....I believe that there will be significant inflation in about two years. The Fed has unleashed a demon....the money supply....in order to kill a demon.....deflation.

if you can find someone to loan you money at 4.5% for 30 years, and you can find a home or rental properties that you can purchase and really expect to hold on to, START BUYING.

i am, as you noted, waiting for the foreclosure moratoriums and the winter to buy additional properties, and i don't care about the marked to market value, because the cash flows on that 20% down are like a savings account that pays you 20% per year.....and that number will only go up with inflation.

[-] 1 points by BTKcongress (149) 12 years ago

you're correct, i'd pull out the equity and invest it in a business and take dividends out of the business and reinvest them in something else that pays me more dividends.

if the whole system goes down we're in trouble.

Couldn't agree more on the money supply, but I'd be very careful about buying real estate. this is from another post of mine--the factors i see affecting real estate:

1) financing costs rising in future (interest rates up, downpayments 25%) 2) would-be buyers under 35 strapped with massive student loans 3) home taxes going up alot (pay down excess muni debt) 4) boomers exit the market 5) too much supply 6) foreclosure process barely commencing in 2011 (market to be flooded) 7) negative sentiment about housing.

someone called me a pessimist for that,,, i am just a realist and calling them like i see them... it's not like i crave this result, but i foresaw this crisis coming (talked about it all the time with finance friends) and I don't see a rebound except further contraction,,, meaning we have to inflate.

it's nice to converse with someone who actually know what "mark to market" is:)

[-] 0 points by puff6962 (4052) 12 years ago

Yes, but a long time ago, our family moved to Colorado......that was 1980. I payed a preferred mortgage rate and got 17.7%. My home payment was nearly triple that of my next door neighbor who....if you've seen the tract homes that were built in Colorado back then....had exactly the same house.

That will be the dynamic that makes the investment pay off. If you can find assets that you wish either to live in, or to rent, and you plan to keep them for a very long time.....there will never be a time like today.

By the way, that BTK moniker is particularly offensive to someone who knows what it means and once lived in Wichita.

[-] 1 points by BTKcongress (149) 12 years ago

sorry to offend but i am not sure what you mean?

[-] 0 points by puff6962 (4052) 12 years ago

bind torture and kill.....BTK


[-] 2 points by BTKcongress (149) 12 years ago

oh--i am going to change my moniker thanks.

[-] 1 points by ineptcongress (648) 12 years ago

that is a scary dude. changed the moniker. nobody called me on that choice for a long time.

[-] 0 points by puff6962 (4052) 12 years ago

I've seen some scarier ones here.

What's frightening is how "normal" everyone thought he was.

[-] 0 points by puff6962 (4052) 12 years ago

Furthermore, why are you worried about ROIC? Are you going to pay cash for a home?

The Return on Equity is, particularly in a low interest rate environment, the best parameter for measuring the desirability of an income producing asset.

[-] 1 points by BTKcongress (149) 12 years ago

exactly ROE is key and it's very low on home equity in good years, and in fact has been significantly negative for many people.

[-] 0 points by puff6962 (4052) 12 years ago

Yes, but there are so many other reasons why people buy homes....it is a part of the American psyche.

That is to say that it is not, nor has ever been, a good investment from the point of view of other investment opportunities.

But, people need somewhere to live and that seems to be the point that you are missing.

When comparing the economic validity of purchasing a home versus other alternatives, the comparison should be to the cost of renting....not to the opportunity cost of taking that house payment and investing it in the market.

[-] 1 points by BTKcongress (149) 12 years ago

i know people need to live somewhere, but i was suggesting having huge buildups of equity means you're not likely to get good returns on a large amount of capital. I can't have 600k sitting in equity in a house with a 1% return, that's like stashing cash under the mattress (which has been the standard return on home equity,,, home prices prior to 2000 and over long periods rose 4% per year on average and assume 3% inflation)

[-] 0 points by puff6962 (4052) 12 years ago

Yes, but....buying that home today....would require 120k down and would leave a balance of 480k to be financed at 4%.

Your payment would be 2291.

Assuming you had, instead, lived in a tent and had invested your 120k in a 5% bond (yielding 6k/yr), your real cost would be 2791 per year.

Assume that your home owner's deduction is canceled out by property taxes....

So, for 2791 a month....fixed for thirty years....you get to live in, likely, a nice dwelling and, because of inflation, that payment becomes progressive cheaper in the future.

If there is 4% inflation, your mortgage payment will be relatively halved in 18 years. If inflation is 6%, it takes 12 years for this to occur. Assuming 10% inflation, your bet strikes it big in only 7 years.

Homes are not great "investments" unless you find someone who will loan you money at less than the rate of future inflation.

So, this may be the best time in history to buy a home.

[-] 1 points by cmt (1195) from Tolland, CT 12 years ago

Yes, in general I agree. I was uncomfortable with the wording "can't stay in the home" which seems to be because of (1) being underwater plus (2) being unable to refinance. Those do not lead to "can't stay" unless the original loan was improperly underwritten so it was unaffordable, and/or it was a variable or balloon loan, or there has been later loss of income. That part of your original post still seems illogical.

However, getting this stabilized in a way that hurts fewer homeowners - that makes sense.

[-] 0 points by puff6962 (4052) 12 years ago

You're right, there are those who just bought too much home and there's nothing that can be done for them. But, there is this vast middle....the doughnut hole.....that would benefit immensely from the current low interest rates and increase their cash flow (or remain in their home with only one paycheck) who are getting shafted by the mark to marketing of their home values.

[-] 1 points by debndan (1145) 12 years ago

Wow very very good post.

I think this would work well, just have to watch out for all the pie pan wearing libertarians that'll say this is just more big gov't.

So I second your emotion SCREW the libertarians

[-] 2 points by puff6962 (4052) 12 years ago

Yes. I love saying that....SCREW the libertarians. Their hypocrisy!

And, there are a new set of nutcases to deal with....the traditional values set.

Do they not realize that all of their arguments were spouted about farmers trying to refi. their debt in the 1930's...."oh, you're starving....well you bought it and you'd better make the payment...."

They're like Mr. Potter in "It's a Wonderful Life."

[-] 1 points by debndan (1145) 12 years ago

ever notice how Potter looks like Rupert Murdock? hmmmm...........

[-] 0 points by puff6962 (4052) 12 years ago

Never thought of that.....but, it's frightening.

I always look at Murdoch and think of "the Head" in CS Lewis' book, "That Hideous Strength."

He is, in other words, an instrument of the devil.

[-] 1 points by TommyNYC (730) 12 years ago

There are similar programs through HUD. The problem is that they are to restricted and not available to everyone.


What the gov should have done was make the banks work with homeowners as a condition of the bailout, but libertarian Bernanke didn't want to fetter the hands of the all holy market.

Perhaps if there is another bailout when the ECB crashes or whatever, the big banks should be forced to refinance with US mortgage holders as a condition of the next bailout.

[-] 0 points by puff6962 (4052) 12 years ago

Yes, banks must be forced to participate, but they cannot absorb the negative, "paper" equity. The government must fill this void until home prices bottom and begin to turn around.

[-] 1 points by MsStacy (1035) 12 years ago

If the people in your example are working why can't they just keep paying the current mortgage? Why should the government get involved at all in this?

[-] 0 points by puff6962 (4052) 12 years ago

Because they are paying a high interest rate, can't refinance to a lower one, and are barely surviving....all the while paying for a devalued asset with current dollars.

You have to provide that vast middle with an incentive not to just walk away.

[-] 1 points by MsStacy (1035) 12 years ago

That doesn't make much sense. They were paying a mortgage for the house they wanted, according to your example they still have a job, but now for some reason they feel the payments are more then they can afford. I understand the desire to help people that are unable to pay because they've lost a job or took a big pay cut. That isn't the case here.

I know you're dealing with a generalized hypothetical, but it sounds like the people in your example are too hung up on the paper value of their house. That value will come back in time. Bailing out people just because they don't like the new value of their house is almost as bad as bailing out the banks.

[-] 0 points by puff6962 (4052) 12 years ago

If I told you that there was a way to save 100 dollars a month on your single-wide trailer payment, would you ignore it?

[-] 1 points by MsStacy (1035) 12 years ago

If there was a way to save any reasonable person would look into it, but the point of the original post was to introduce an element of government bail out for homeowners. It's not saying there is a way to save, it's asking to create one.

[-] 0 points by puff6962 (4052) 12 years ago

No, any secondary loan the government subsidized would have to be paid back by the borrower and would be excluded largely from any possible bankruptcy in the future.

A homeowner, therefore, would have to make a very careful calculation as to whether he would definitely go the distance to remain in the home and a floor in housing would be established.

You have to build a bulkhead. Otherwise, the deflationary spiral will continue.

[-] 1 points by MsStacy (1035) 12 years ago

I'm not sure how effective government intervention has been in economic matters in the past. Might be best to let values reach a natural low level and allow the cycle to complete itself. Banks could just as easily solve the problem by revising loan terms.

If the entire plan revolves around doing something over adjustable rate mortgages, then maybe, for conventional mortgages however, if you could afford it then, you live with the terms you agreed to now.

[-] 1 points by puff6962 (4052) 12 years ago

Banks cannot afford to absorb all of the restructurings....people can't afford to pay their mortgages.....adjustable rate mortgages were a bad idea for many....

It is what it is. Now, the question is what do we do about it.

You are confusing what you wish to be true for the facts you must deal with.

[-] 1 points by TLydon007 (1278) 12 years ago

"You are confusing what you wish to be true for the facts you must deal with."

Definitely quote-worthy.

[-] 0 points by puff6962 (4052) 12 years ago

Thanks....stream of thought kinda thing.

[-] 1 points by MsStacy (1035) 12 years ago

I'm not confusing facts, I don't know what's best or pretend to know. Government however has a poor record of efficiency when it comes to these things. Their solutions look good at the time, but that doesn't mean they are what is best for the economy in general.

[-] 0 points by puff6962 (4052) 12 years ago

Fannie and Freddie worked perfectly well for over 50 years.....and then we turned the American home into an investment vehicle.

There are any number of ways to do this. Each relies simply on an appraised value for the home, a lender, and then a GSE to underwrite the difference.

It doesn't seem fair that banks can be so far underwater and receive such a lifeline whereas individual homeowners are left high and dry.

[-] 1 points by JenLynn (692) 12 years ago

I don't understand why the homeowner is unable to stay in his home? Being underwater doesn't effect the original mortgage. If it was a house you could afford then, you can afford to keep making the payments if you are still employed. Unless the homeowner was foolish enough to take out something with a balloon payment or an adjustable rate mortgage. In that case he gambled and lost. I'd hesitate to reward that kind of bad judgement by paying his interest for him or much else, beyond pointing out to the bank that some payment are better then none.

[-] 2 points by TommyNYC (730) 12 years ago

Be careful calling these consumers foolish. Many were the victims of massive fraud on the part of the banks, who concealed the actual terms of the loans.

[-] 1 points by JenLynn (692) 12 years ago

People make mistakes all the time, I've heard of some brokers pulling switches at the last minute, but still wonder why anyone would buy a house without a lawyer to check the papers. Sorry if it upsets anyone, but my question is still if you can afford the mortgage the fact that your upside down shouldn't matter.

[-] 0 points by Daennera (765) from Griffith, IN 12 years ago

No they didn't. I will bet you anything that the copy of the loan docs the consumer has is the exact same copy the bank has. They just didn't read it before signing and now they want to cry fraud. Screw them. You're trying to tell me that the biggest purchase of your life and you went into signature auto pilot. They deserve what they got then.

[-] 2 points by chuck1al (1074) from Flomaton, AL 12 years ago

Daennera....Your coming across as a know it all....Why don't you read the FBI Report on fraud by mortgage Lenders...that should button your lip.

[-] 2 points by Daennera (765) from Griffith, IN 12 years ago

What fraud are you speaking of? I mean if my bank comes to me and goes "hey, your interest rate is rising" I go pull out my loan docs and go "no it's not"

What's the big deal here?

[-] 1 points by puff6962 (4052) 12 years ago

Have you ever tried to read a real estate contract through and through?

Imagine if you had a high school education, real estate prices were rising, you trusted your loan adviser, and the you got this low rate and thought that you would just refinance in three years.....

And, on top of all that, "home prices had never dropped." If you got in trouble with the payments, you would just sell the home and right size.

That was the market beginning in the early 90's. You couldn't lose.

Mistaken presumptions are always the bases for bubbles and this was a bubble to end all bubbles.

Now, you can condemn people for getting caught up in the fever, but the fact is that most were not speculators......they were just people who bought a new house when prices were much higher than what they are now.

You must, for their and your benefit, you need to find a way for as many people to stay in their home as possible and establish a floor in home prices.

It not usually a good idea to cut your nose off to spite your face, but there seems to a good amount of that occurring in these responses.

[-] 1 points by chuck1al (1074) from Flomaton, AL 12 years ago

Daennera....ormer mortgage lender accused of fraud A 16-count federal indictment charges the ex-chairman of a Florida mortgage firm in connection with an alleged $1.9-billion scheme that helped topple a major bank and then sought a chunk of the government's bailout fund. June 17, 2010|By Jim Puzzanghera and E. Scott Reckard, Los Angeles Times Reporting from Washington and Orange County —

Signaling a commitment to pursue fraud stemming from the housing market collapse, federal authorities Wednesday charged a former executive at a leading private mortgage company in connection with an alleged $1.9-billion scheme that helped topple a major bank and then sought a chunk of the government's bailout fund.

Lee Bentley Farkas, 57, the former chairman of Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., was arrested Tuesday night on a 16-count indictment charging him with bank, wire and securities fraud. It is one of the largest criminal cases to come from the mortgage meltdown.

The arrest came after a 15-month investigation by a dozen federal agencies triggered by the mortgage company's involvement in trying to secure $553 million for Alabama-based Colonial Bank from the government's $700-billion Troubled Asset Relief Program.

Colonial never got the TARP money and failed in August in one of the more spectacular collapses stemming from the mortgage meltdown. Colonial, the remains of which were acquired by BB&T Corp., was one of the 50 largest banks in the country, with $25 billion in assets and $20 billion in deposits when it was seized.

"The fraud alleged here is truly stunning in its scale and in its complexity," said Assistant U.S. Atty. Gen. Lanny A. Breuer, flanked by members of the Obama administration's Financial Fraud Enforcement Task Force.

The alleged fraud began in 2002 as Farkas and unnamed co-conspirators embarked on a series of elaborate schemes to cover cash shortfalls at Taylor Bean, authorities said. One scheme involved selling mortgage loans to Colonial Bank that did not exist, had little value or already had been sold by Taylor Bean.

Colonial Bank bought more than $400 million of what authorities called fake mortgage assets. Court documents said that Farkas then bilked Deutsche Bank and BNP Paribas Bank out of about $1.5 billion through a Taylor Bean subsidiary called Ocala Funding, which sold short-term loans known as commercial paper to financial institutions and investors.

The indictment said that Farkas and others diverted money from Ocala Funding to Taylor Bean to cover its losses and then sent false information to Deutsche Bank and BNP Paribas to support the firm's claim that Taylor Bean had enough collateral to back the commercial paper. When Taylor Bean filed for bankruptcy protection last year the banks were unable to redeem their commercial paper at full value.

Farkas also tried to defraud the taxpayer-funded TARP program, authorities said.

In 2008, Colonial Bank's parent company, Colonial BancGroup, applied for money from the program and received approval conditioned on its raising $300 million in private capital. In March 2009, Farkas and others falsely told Colonial BancGroup they had found investors to provide the money, authorities alleged.

Federal officials said the case was a warning to other mortgage "fraudsters" that the government was coming after them.

"This arrest and these charges send a strong message to corporations and corporate executives alike that financial fraud will be found and it will be prosecuted and it will be pursued using every investigative tool at our disposal," Breuer said.

The financial fallout from the alleged fraud was widespread, federal officials said. The collapse of Colonial Bank alone is expected to cost the Federal Deposit Insurance Corp. $3.8 billion.

In addition, authorities said Taylor Bean's alleged mortgage fraud could lead to a total of more than $3 billion in losses at the Federal Housing Administration, which guarantees mortgages, and Ginnie Mae, which produces mortgage-backed securities based on those loans.

With so much economic damage caused by the subprime market meltdown, federal officials have made financial fraud a priority, and more cases should be coming, said Ellen S. Podgor, a Stetson University law professor and expert in white-collar crime. Fraud investigations are complicated and take time to develop before arrests can be made.

"When you're dealing with a white-collar case, very often you're dealing with documents. You need analysis. You need accountants," Podgor said.

Authorities continue to pursue criminal investigations of executives at the former Countrywide Financial Corp. in Calabasas and the failed IndyMac Bancorp in Pasadena, two of the biggest players in the subprime housing market.

Federal officials have focused on mortgage fraud since the housing market began collapsing in 2006.

Last year, Congress passed legislation giving authorities new anti-fraud powers and authorized $245 million annually for 2010 and 2011 to hire hundreds of agents, prosecutors and other officials to pursue financial fraud. In November, the Obama administration launched its Financial Fraud Enforcement Task Force with a promise to go after "unscrupulous executives, Ponzi scheme operators and common criminals."

Bert Ely, an independent banking consultant, predicted more high-profile arrests.

"We're going to see a lot of news and headlines and indictments, undoubtedly some trials and convictions" he said. "I question how many of the bad guys will end up going to jail because of the difficulty of putting these cases together."

Farkas' case demonstrated the complexity of mortgage fraud investigations. His arrest is part of a lengthy ongoing investigation that could result in additional arrests.

Neil Barofsky, special inspector general for the TARP program, said the government's break came when Farkas took aim at the TARP program.

Agents working for Barofsky's office had been looking at the relationship between Taylor Bean and Colonial Bank and found the proposed $300-million capital investment suspicious. They began investigating and notified the Treasury Department not to give any money to Colonial, then referred the case to the Department of Justice, Barofsky said.



[-] 1 points by chuck1al (1074) from Flomaton, AL 12 years ago

Deannera Here's some more........In 2004, the Federal Bureau of Investigation warned of an "epidemic" in mortgage fraud, an important credit risk of nonprime mortgage lending, which, they said, could lead to "a problem that could have as much impact as the S&L crisis".

The Financial Crisis Inquiry Commission reported in January 2011 that: "...mortgage fraud...flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports—reports of possible financial crimes filed by depository banks and their affiliates—related to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at $112 billion. Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities."

New York State prosecutors are examining whether eight banks hoodwinked credit ratings agencies, to inflate the grades of subprime-linked investments. The Securities and Exchange Commission, the Justice Department, the United States attorney’s office and more are examining how banks created, rated, sold and traded mortgage securities that turned out to be some of the worst investments ever devised. As of 2010, virtually all of the investigations, criminal as well as civil, are in their early stages

[-] 1 points by TommyNYC (730) 12 years ago


[-] 0 points by puff6962 (4052) 12 years ago

A large swathe of people overbought during the boom, got adjustable rate mortgages which have now reset, and are barely making ends meet.

They would be in a fantastically better situation if their mortgage were factored at a 4.25% 30 yr. rate versus a 7.25% rate.

These people are in danger of losing their home.....or just walking away.....because their "equity" in the home is now zero or below zero.

[-] 0 points by puff6962 (4052) 12 years ago

First Power, Then Change.

[-] 0 points by puff6962 (4052) 12 years ago

REALTORS: Existing Home Sales Rose 4% in November; Median Prices Continue to Drop

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Wednesday, December 21, 2011 - 22:30 By David M. Kinchen Huntingtonnews.net Business and Real Estate Writer REALTORS: Existing Home Sales Rose 4% in November; Median Prices Continue to Drop Existing home sales rose again in November and remain above a year ago, according to a report released Wednesday, Dec. 21 by the National Association of Realtors(NAR). The trade association also readjusted benchmarks with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners.

The latest monthly data shows total existing-home sales -- completed transactions that include single-family houses, town houses, condominiums and co-ops -- increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.

Although the readjusted benchmarks resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply, NAR reported. The new independent benchmark was discussed with government agencies and outside housing market experts, and will allow for annual revisions in the future.

NAR chief economist Lawrence Yun said more people are taking advantage of the buyer’s market. “Sales reached the highest mark in 10 months and are 34 percent above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing,” he said. “We’ve seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today’s market for buyers with long-term plans.”

The national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.99 percent in November from 4.07 percent in October, according to Freddie Mac. The rate was 4.30 percent in November 2010; records date back to 1971.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said housing affordability conditions have set a new record high. “With record low mortgage interest rates and bargain home prices, NAR’s housing affordability index shows that a median-income family can easily afford a median-priced home,” he said.

“With consumer price inflation rising by more than 3 percent this year, consumers are looking to lock-in steady payments by taking out long-term fixed-rate mortgages. However, the problem remains that some financially qualified families who are willing to stay well within their means are being denied the opportunity to buy in today’s market by the overly restrictive mortgage underwriting situation,” Veissi said. Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, down from a 7.7-month supply in October. “Since setting a record of 4.04 million in July 2007, inventories have trended down and supplies are moving close to price stabilization levels,” Yun said.

The national median existing-home price for all housing types was $164,200 in November, down 3.5 percent from a year ago. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in November (19 percent were foreclosures and 10 percent were short sales), compared with 28 percent in October and 33 percent in November 2010.

All-cash sales accounted for 28 percent of purchases in November; they were 29 percent in October and 31 percent in November 2010. Investors make up the bulk of cash transactions.

Investors purchased 19 percent of homes in November, little changed from 18 percent in October and 19 percent in November 2010. First-time buyers accounted for 35 percent of transactions in November, up from 34 percent in October and 32 percent in November 2010.

Single-family home sales rose 4.5 percent to a seasonally adjusted annual rate of 3.95 million in November from 3.78 million in October, and are 12.9 percent above the 3.50 million-unit level in November 2010. The median existing single-family home price was $164,100 in November, down 4.0 percent from a year ago.

Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 470,000 in November and are 6.8 percent higher than the 440,000-unit pace one year ago. The median existing condo price6 was $164,600 in November, which is 0.2 percent below November 2010.

Regionally, existing-home sales in the Northeast jumped 9.8 percent to an annual pace of 560,000 in November and are 7.7 percent above a year ago. The median price in the Northeast was $240,200, which is 0.1 percent below November 2010.

Existing home sales in the Midwest rose 4.3 percent in November to a level of 960,000 and are 15.7 percent higher than November 2010. The median price in the Midwest was $133,400, down 4.0 percent from a year ago.

In the South, existing home sales increased 2.4 percent to an annual pace of 1.74 million in November and are 12.3 percent above a year ago. The median price in the South was $143,300, which is 2.1 percent below November 2010.

Existing home sales in the West rose 3.6 percent to an annual level of 1.16 million in November and are 11.5 percent higher than November 2010. The median price in the West was $195,300, down 8.4 percent below a year ago.

An elevated level of contract failures continues to hold back a broader sales recovery. Contract failures were reported by 33 percent of NAR members in November, unchanged from October but notably above a year ago when it was 9 percent.

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including lower conforming mortgage loan limits, home inspections and employment losses.

The benchmark revisions to historic existing-home sales released on Dec. 21 reveals that there were 4,190,000 existing-home sales last year, a 14.6 percent downward revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.

“From a consumer’s perspective, only the local market information matters and there are no changes to local multiple listing service (MLS) data or local supply-and-demand balance, or to local home prices,” Yun said regarding the "rebenchmarking".

A divergence developed over time between sales reported by MLSs and sales determined by a U.S. Census benchmark; the variance began in 2007. Reasons include growth in MLS coverage areas from which sales data is collected, and geographic population shifts. “It appears that about half of the revisions result solely from a decline in for-sale-by-owners (FSBOs), with more sellers turning to Realtors to market their homes when the market softened. The FSBO market was overwhelmed during the housing downturn, and since most FSBOs are not reported in MLSs, national estimates of existing-home sales began to diverge based on previous assumptions,” Yun said.

NAR consumer survey data in 2000 showed FSBOs accounted for a 16 percent market share, which fell to a record low 9 percent in 2010.

“In essence, Realtors began to capture a greater market share. In addition to a decline in FSBO transactions, more builders began marketing new properties through real estate brokers that weren’t completely filtered from the existing-home data,” Yun said. “Some property listings on more than one MLS, and issues related to house flipping, also contributed to the downward revisions.”

[-] 0 points by puff6962 (4052) 12 years ago

Funny numbers, sober market In a belated correction, Realtors will admit to issuing flawed data

On Wednesday, belatedly, the National Association of Realtors is scheduled to issue revised numbers that show the nation's housing bust was worse than the big real estate trade group has reported all along.

'Bout time it got around to fessing up.

The Chicago-based organization has known for a long time that the existing home sales data it releases to the public each month were significantly inflated. It knew that it was double-counting, miscounting and relying on outdated census results that pumped up its report on housing activity. A rival research firm, CoreLogic, blew the whistle on the group's faulty methodology in February. Nevertheless, every month since then, NAR, as it's called, kept churning out its inaccurate figures — noting their inaccuracy in a footnote, for anyone who pays attention to those.

The group has said it will restate home sales back to 2007. Analysts expect the corrected numbers to show that an estimated 15 percent to 20 percent fewer homes were sold in the last five years than the original NAR reports suggested. Too bad NAR can't turn back the clock and restate some of the misleading assertions it made during that same period of economic crisis: As soon as the real estate market started to tumble, the group got busy dispensing bad advice, telling Americans that prices had hit bottom, so they should keep right on buying.

Millions of Americans who took the bait during housing's go-go days have suffered punishing losses. In many markets, prices still are sinking as supply outstrips demand. Though positive data on apartment construction helped drive Tuesday's stock market surge, most housing stats still lag.

The public needs to keep in mind that the Realtors group represents Realtors, not real estate buyers or sellers, and not homeowners. Realtors get paid when transactions occur. So the members of NAR have a financial interest in promoting activity. It is fitting that having misled the public throughout the bust, the group would wait to correct its data until just before Christmas: This is, after all, traditionally the slowest season for real estate sales, so Wednesday's reality check probably will have the least possible impact on pending transactions. It's also a time when Americans distracted by the holidays tend to tune out the news.

This isn't the only realm in which the trade group's priorities haven't jibed with the public's.

One lesson of the housing bust is that federal subsidies for residential real estate must be reduced. The only way to head off another government-backed bubble is to downsize the web of tax breaks and government guarantees that distort the marketplace, giving Americans a huge incentive to over-invest in their homes.

The housing lobby, which includes NAR, is accustomed to fighting for these subsidies. Consider the recent dust-up over government guarantees for the loans on personal McMansions. The fight concerned the Federal Housing Administration and the size of the loans it is allowed to back. Under a misguided law approved in 2008 as the housing market collapsed, Congress raised the loan limit to support very costly homes. It was supposed to drop Oct. 1 from a maximum of $729,750 to $625,500 in certain markets. (The limits are lower in the Chicago area).

Taxpayers have lost an estimated $150 billion guaranteeing mortgage loans so far — and they're on the hook for tens of billions more. Reducing the size of federally backed loans from gigantic to only slightly less gigantic was a first step toward unwinding these costly obligations and returning the marketplace to private lenders who would price their loans according to the risks involved.

But what's good for taxpayers would have been bad for Realtors — at least in the short run. So, under strong lobbying, Congress rescinded the modest cut in FHA loan guarantees through at least 2013. As a result, federal dollars still will be used to back enormous loans.

NAR's quiet little mea culpa Wednesday may come and go without attracting much attention. Meanwhile, the government may well keep subsidizing the housing market until another bubble forms. And you know how that story always ends: Pop!

[-] 0 points by puff6962 (4052) 12 years ago

SEE 60 MINUTES Tonight?

In some areas, deflation has reached such a crescendo that they are tearing down abandoned homes in some areas.

Scavengers have created a cottage industry in dismantling these properties and selling anything of value while surrounding homes see their prices drop by 30 to 50%. That causes others to walk away as well......

This is what a deflationary spiral looks like. It must be prevented from spreading further.

[-] 0 points by puff6962 (4052) 12 years ago

The answer to most of the comments I received on this page can be summed up this way....

Whether you enact this program or not, you are paying for your neighbor's underwater mortgage.

Your home value has dropped.

Aggregate demand, as a result of fear and pessimism, has remained weak.

Credit remains frozen.

Human misery has been compounded.

[-] 0 points by MattLHolck (16833) from San Diego, CA 12 years ago

cash flashes blast exposed eyes 0 reeling from the wheeling and dealing 0 distracted tracking stacking chips 0 vision on derision deferred

[-] 0 points by Censored (138) 12 years ago

Why should government prop up prices? Is isn't their job to manipulate a market to benefit older people at the expense of younger people. Every 20-something that might buy a home should be pissed that they own government is trying to make them pay more for it than they should.

[-] 0 points by puff6962 (4052) 12 years ago

You are frightfully stupid aren't you.

Deflation in home prices leaves a vast hole in our psyche. It effects the velocity of money and aggregate demand.

Deflation in home prices is the variable that could turn the great recession into The Greatest Depression.

Go pollute another forum....like one about how to stab yourself to death with a dull knife.

[-] 0 points by Censored (138) 12 years ago

Markets should clear. Government manipulation helped create the problem, government manipulation isn't a way out. "Turn the machines" back on is a bad response to the bubble and is a giant rip off of younger people. It isn't government's job to prop up your equity. Smarten up.

[-] 0 points by puff6962 (4052) 12 years ago

Rip off younger people.....are you a complete buffoon. If you don't stabilize our economy now, there is not going to be much left for young people.

I've heard some doosies....buy you are living proof that a man can successfully mate with a water buffalo.

[-] 0 points by Censored (138) 12 years ago

Poor baby, equity under water. Waaaa, waaaaa. Yeah, young people are better off making sure that they overpay for your house. LOL. It's despicable that their own government would so blatantly side with sellers in a private transaction.

Government should stop interfering and allow the market to clear. If young people and buyers that were smarter about credit get a bargain, so be it. Cry babies like you have no right to be protected.

[-] -1 points by puff6962 (4052) 12 years ago

You're not rich enough to buy anything but entry level houses.....and young people often choose not to buy a home.

Go back to armwaiving little pissant.

[-] 0 points by Censored (138) 12 years ago

You know nothing about me.

Young people do too buy homes. See, middle age homeowners weren't always middle aged, you dope. At some point, many move from renting to buying. And when they do, the government shouldn't be siding with the seller.

Government shouldn't favor home sellers over home buyers. Doing so is just another transfer payment from young to old, just like Medicare and Social Security. Home equity shouldn't become yet another baby boomer entitlement program. Cry by yourself for the stupid things you've done, but don't cry to government.

[-] 1 points by daveindenver (36) 12 years ago

Censored, you should probably save you time. I am actually one of the boomers and I agree 100% with you. The government (Fed) created the housing boom, trying to quell the effects of the .com bubble. Keeping interest rates as low as they did created a buying frenzy that made it easy for people to make a living on flipping houses and satisfy their desire for toys by refinancing and using their houses as ATM. People living beyond their means is what created this mess.

[-] 1 points by Censored (138) 12 years ago

I am too. You got it right. Homeowners, of which I am one, get themselves so self-involved that they forget that the housing market has buyers and sellers. Government has no business taking sides. Government protection of current owners, just fucks perspective owners out of the bargain they'd otherwise get. It's wrong.

There's good to come out of this. As new households form, they're doing so with less leverage and lower prices. As long as government stops manipulating prices, that is.

[-] 1 points by puff6962 (4052) 12 years ago

I do know that no sane person would make the arguments you just presented.

Youth is not wasted on the young, it is just wasted.

[-] 1 points by Censored (138) 12 years ago

Waaa, waaaa, my equity fell, government help me. Make those bad people pay up for my house.... waaaa waaaaa.... turn the machines back on!

[-] 0 points by puff6962 (4052) 12 years ago

Nobody is suggesting that anyone pay for your house, except you. The program, however, would allow you to pay a 4% rate instead of a 6.75% rate.

Can't you see how much that would save you on your single-wide trailer?

Hell, you could even afford to rent a mower and find that car on blocks. You could get that tattoo spelling "Mother" removed from you chest. You could buy that new gun you've been dreaming about. You could actually afford Skinomax on weekends. You old lady may not like that last one.

[-] 1 points by Censored (138) 12 years ago

Government has no business taking sides in the housing market. Whiney little bitches like you have no right to have government protect your "equity", especially when it comes at someone else's expense.

[-] 0 points by puff6962 (4052) 12 years ago

Then you will pay for it in the form of continuing recession, decreased government revenues, higher taxes, and a generalized misery that typifies those who can only think of themselves.

[-] 1 points by Censored (138) 12 years ago

No we won't. What we're paying for now is government manipulation. Markets need to clear, that means housing too. People like you think the market can be medicated and manipulated and buyers will be too dumb to notice. Well, they aren't. And as buyers rightly sense a trap, the market continues in limbo and recovery is delayed.

Higher taxes? Here, let me help you out with this. The amount of revenues government needs don't change with home values. The tax RATE may change, but not the taxes paid. Yeah, it's math, but just think on it for a while.

Government has no business favoring and protecting current owners over future owners. It's simply more inter-generational theft.

[-] 0 points by puff6962 (4052) 12 years ago

blah blah blah markets work blah blah blah Ayn Rand blah blah blah I'm coming....

Gosh, I hope that you can at least picture her not as a rotting corpse.

Little necrophiliac you. At least you got over your coprophagia.

[-] 1 points by Censored (138) 12 years ago

Waaaa, waaaaa, make my home equity go back up waaa waaaa. Home equity is an entitlement program... waaaa waaaaa make a buyer give me what I "deserve" waaaaa waaaaaa

[-] 0 points by hchc (3297) from Tampa, FL 12 years ago

Right, because they are so competant. Doesnt matter, puff. Its all gonna come collapsing down. The question is: What do you want it to look like when the rebuilding begins?

A simple, small gov life, something a little less complicated?

Or a regualted police state? Because thats the ones hte D/R are just licking their chops to create.

[-] 1 points by puff6962 (4052) 12 years ago

The world runs on confidence. Capitalism, more than any other, depends upon sentiments about the future.

Now, there is something very sacred about the American home. Foreclosures have a tidal wave effect, not a ripple, upon the psyche and a rational, workable, solution to this debt crisis must be articulated.

I would prefer to save the world than to remake it in your image.

[-] 1 points by hchc (3297) from Tampa, FL 12 years ago

Again, puff, you have failed to give any details in a rebuttal. Im saying whatever your plans are, they dont matter, because this tidal wave of fiat money backed by a corrupted warmongering government is going to bring it ALL down.

So do you want a more regulated than now, police state, where you cant "puff" if you please?

[-] 0 points by puff6962 (4052) 12 years ago

Freedom has no greater enemy than those who wish to return a nation to it's former greatness.

[-] 1 points by hchc (3297) from Tampa, FL 12 years ago

Tell that to the Italians. We are going down the same path.

[-] 0 points by puff6962 (4052) 12 years ago

I'm telling it to you.

[-] 0 points by Daennera (765) from Griffith, IN 12 years ago

Why are we rewarding people who bought homes for stupid crazy prices again?

No, the last thing we need is more government intervention in the housing market, or any market for that matter. Leave it alone and it will sort itself out.

[-] 0 points by puff6962 (4052) 12 years ago

You're not. You're lessening a deflationary spiral in home prices that will continue despite all of the fed's inflationary measures.

The individuals still have to pay off the balances of their loan and the interest.

What part of the concept eludes you?

[-] 1 points by Daennera (765) from Griffith, IN 12 years ago

Then why can't they pay off the mortgages as they are now? Why do they need another loan?

[-] 0 points by puff6962 (4052) 12 years ago

Their loans resat to a level that means they can't afford their monthly payment at 7%, but could at 4.25%.


They qualified for their mortgage on two incomes and are now down to one.


They bought a home at 2006 prices believing that prices and their incomes would continue to rise.

or a thousand other reasons.

[-] 0 points by puff6962 (4052) 12 years ago

I have seen other discussions that would require banks to "restructure" loans. Unfortunately, this would hurt small and big banks while punishing those homeowners who are underwater, but making the full payment. There is, in the age of securitization or mortgages, some question of who actually owns the mortgage. I would find this system unfair and unworkable.

[-] 1 points by JenLynn (692) 12 years ago

The house is worth what you paid for it at the time, a drop in value is just a change on paper, it's meaningless.

[-] 0 points by puff6962 (4052) 12 years ago

yes, it is an abstraction......but, those high monthly payments based on previous high interest rates are not....

if the owner is underwater, with negative equity, he can't qualify for the 4% rates that would vastly lower their monthly payments.

This money would then be free for discretionary spending.....and would stimulate the economy.

[-] 1 points by JenLynn (692) 12 years ago

That's where this gets strange for me. If you could afford the payments originally and still have your job, as he says in his example, then why can't you make your payments now? Just live up to your agreement and stop looking at the paper value, that will come back some day anyhow.

Is the point that values went down so now everyone wants money back? You'd have to chase down the original owners for that, the bank had nothing to do with what you decided to pay for a house.

[-] 0 points by puff6962 (4052) 12 years ago

Blah blah blah.

People overbought with adjustable rate mortgages.

It was a boom and it was a bubble.

Now people can either get foreclosed upon or just walk away......which will worsen the deflation that is occurring in home prices.....and will continue to fuel this negative equity feedback loop that is making it more appealing to just walk away.

You can talk about values and gibberish all you want. People respond to incentives and you are much better off if you find a way for your neighbor to remain in his home versus foreclosing on him just because he got caught up in the hubris of 2006.

I would recommend that you do not cut off your nose to spite your face. It hurts.

[-] 1 points by JenLynn (692) 12 years ago

Adjustable rate is a different story, not the brightest move. But you are of course right. Hate to see more bailouts to anyone because the government usually screws things up more then it helps. Should be in the banks interest to keep people in their homes too. If they are going to do a short sale it would be just as easy to make some deal with the current owner.

[-] 0 points by puff6962 (4052) 12 years ago

Yes, there is still that question of the 20% down for the refinance. It the home were currently valued at 70k, the bank would want 14k down and would only finance 56k on the home.

The government could wrap this 14k into their 30k proposal.....but this would add cost and risk exposure to the federal government.

For this reason, I left in language that the extent of governmental support would depend somewhat on the homeowner's financial standing.....much like in student loans.

But, that secondary loan would have to be repaid during the lifetime of the borrower. It would not be Monopoly money and it wouldn't be a blank check.