We have a housing plan. We have the details. Now we wait
Yesterday the Treasury Department released the specifics about how mortgage servicers are to be coaxed into rewriting loan terms to keep struggling borrowers in their homes. This, as you may recall, is one part of the government new three-pronged housing crisis fix. (The other two are letting some underwater borrowers refinance and using Fannie Mae and Freddie Mac to keep interest rates low and the mortgage markets liquid.) You can read the new details here (it's a PDF). You can also go here to read the story I wrote last month when the whole plan was first rolled out.
I have to say, I was a little shocked by the level of coverage the new guidelines got in the papers this morning (though perhaps not as shocked as you are that I still read actual ink-soaked newspapers). We already knew a lot of this. I would guess that the average person out there is most interested in figuring out how, if at all, they are going to benefit. If you go here (it's a PDF), you'll find a Q&A geared toward housing counselors. But I think it's a really good walk-through for homeowners, too.
Of course, the broader idea is that if we clean up the mortgage mess, we all benefit by having one less economic albatross around our collective necks. Again, I'd direct you to the story I already wrote for a glimpse of how likely I think this is going to be a magic snap-your-fingers cure-all (spoiler: not very).
Barbara!
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1
I'm still confused as to why the mortgage servicers need to be "coaxed" into rewriting bad loans.
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If you've got a mortgage out for $100,000 to a guy who can only pay on a mortgage worth $60,000, and the house he bought is really worth $75,000, you would lose more by going through foreclosure than you would by reducing the guy's principal by $40,000 and rewriting the loan.
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For the purposes of this argument I'm assuming that additional depreciation/neglect of the house while it's in foreclosure and lost income while it sits on the market for two years > 1/5 the houses value, which I think is actually a pretty conservative estimate. A friend of mine recently bought a house here in KC. I toured a ton of foreclosed and/or bank owned houses with him. Most required a minimum of $20-30k in repairs before they were livable. Most of the repairs were to fix things like water damage and mold that had occurred when the houses were unoccupied. This doesn't take into account the absolute disasters of houses that had been stripped of piping etc.
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I don't like the fact that we have to "force" investors to make a profitable decision. Just something wrong with that on a lot of levels. In other words, this is just another way for the government to finance these jerks' losses while pretending to help the common man. -
2
I don't like the fact that we have to "force" investors to make a profitable decision. Just something wrong with that on a lot of levels. In other words, this is just another way for the government to finance these jerks' losses while pretending to help the common man.
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I'm with Sean here -- the most shocking aspect to me is that the plan subsidizes mortgages up to $749K -- without any real restrictions. The government will pay 18.5% of your mortgage (31% of your income) if the bank "modifies" your mortgage to be no more than 38% of your income. What that means is that someone who makes $1,970,000 a year ($749,000/.38) gets an $740/month subsidy from the government to make their mortgage "affordable." (based on a 30 year mortgage at 5%)
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Meanwhile, the guy who has a $100,000 mortgage and gets his payments reduced to 38% of his annual salary of $17,000 only gets a subsidy of $99/month. (based on a 30 year mortgage at 5%) -
3
oops... this "The government will pay 18.5% of your mortgage (31% of your income) "
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should say this
"The government will pay 18.5% of your mortgage (to 31% of your income from 38% of your income) "
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