Home, Home On the Deranged
by Hal_10000
Obama has unveiled his housing plan. I mean, you know, in case you were wondering if he would let the market settle without blowing any more air into the bubble:
President Obama unveiled a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.
To be paid for, with interest, by the children of the tens of millions of borrowers who can afford their payments.
While still voluntary, the program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.
But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.
And with good reason. As bad as loans written by stupid financial executives might be, loans written by stupid judges are likely to be even worse.
The plan would help borrowers who owe more than 80% of their home’s value to refinance and reduce their monthly payments. Lenders generally won’t refinance people who have less than 20% equity in their homes.
But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can’t exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can’t be worth less than $200,000.
This isn’t the worst idea in the world, but it does trample on all kinds of state laws—such as the ones we had in Texas that prevented a real estate bubble in the first place.
The heart of the plan is a $75 billion package to finance reductions in mortgage payments so that they get down to 31% of someone’s income. How this will be accomplished and what the effect of blowing a stack of government into the market? No one knows. It could be worse. Barney Frank wants mortgage payments down to 15%. At that point, why not just give everyone a free house?
This worries me though:
The Obama plan calls for legal changes to allow judges to modify mortgages during bankruptcy. Judges would be allowed to reduce the loan balance, a measure the financial industry fears because it would lower the value of the mortgage.
Of course they fear it. In addition to basically robbing the banks of loan principle, it is just a plain bad idea, as Zywicki argues:
Mortgage modification would indeed provide a windfall for some troubled homeowners—but its costs will be borne by aspiring future homeowners, and by any American who uses credit of any kind, from car loans to credit cards. The ripple effects could further roil America’s consumer credit markets.
...
Allowing mortgage modification in bankruptcy also could unleash a torrent of bankruptcies. To gain a sense of the potential size of the problem, consider that about 800,000 American families filed for bankruptcy in 2007. Rising unemployment and the weakening economy pushed the number near one million in 2008. But by recent count, some five million homeowners are currently delinquent on their mortgages and some 12 million to 15 million homeowners owe more on their mortgages than the home is worth. If even a fraction of those homeowners file for bankruptcy to reduce their interest rates or strip down their principal amounts to the value of their homes, we could see an unprecedented surge in filings, overwhelming the bankruptcy system.
...
More worrisome is the opportunity for abuse.
Imagine the following situation: A few years ago a borrower took out a $300,000 loan with nothing down to buy a new house. The house rises in value to $400,000, at which time he refinances or takes out a home-equity loan to buy a big-screen TV and expensive vacations. He still has no equity in the house.
The house subsequently falls in value to $250,000, at which point the borrower files for bankruptcy, the mortgage principal is written down, and the homeowner keeps all the goodies purchased with the home-equity loan. Several years from now, however, the house appreciates in value back to $300,000 or more—at which point the homeowner sells the house for a tidy profit.
It’s also—not that this ever stopped anyone—flagrantly unconstitutional. Article I, Section 10 of the Constitution forbids rewriting contracts. Of course, that clause was ripped up by SCOTUS in the 1930’s (thank you, FDR!).
Oh, and then there’s this:
The administration also plans to build on the Bush administration’s use of mortgage financiers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which were taken over by the federal government in September. The agencies buy loans and securities backed by mortgages from financial institutions, giving them more money to make new loans.
The plan calls for Treasury to strengthen the companies by injecting another $100 billion into each. And it will allow them to buy more mortgages by increasing the size of their portfolios to $900 billion, up from $850 billion.
And, the government will continue to keep prevailing mortgage rates low by buying mortgage-backed securities issued by the agencies. This effort expands a $500 billion purchase plan announced in November that prompted mortgage rates to fall nearly a percentage point.
Yes. We’re going to inject even more money into the two companies that were at the epicenter of the mess.
There is some stuff to like in this bill. And if the Republicans can pull their heads out of their asses, they might be able to get something workable out of this. But there’s a lot of dangerous destructive shit that positively reeks of Barney Frank and his delusional banking ideas.
The question is: at what point are the American people going to get fed up? At what point will we put our foot down and say, “No More!”? It’s clear that we can’t rely on anyone in Washington to do it.
Comments
If the R’s oppose this, WVR will just bitch about it…
Well, the SEC heads are being fired, so that’s progress on the regulation issue. I think you’ll find a whole series of frog-marches from Upper West Side penthouses in the next few months.
Man, it would be refreshing to see some actual *ideas* from the conservative blogosphere about their nation’s financial crisis.
There are no easy solutions for the taxpayer- behind every door are huge dollar signs. Which one do we open? Is there one we haven’t seen yet? Regardless of the choice, you can count on the conservatives to bitch and whine and piss and moan about it.
And where was all this hand-wringing about future generations (think of the children!) when we were spending most of a trillion on defense supplemental for Iraq? During the Bush tax cuts?
So, after taking the country from a (projected) $5.6 trillion surplus to a $1.2 trillion deficit, the GOP has remembered their roots.
And with their long, power-induced amnesia cured, they’re ready to tell anyone who will listen about their “bedrock principles” of restrained spending ... now that they’re actually restrained from spending.
I think we’re screwed for the foreseeable future. With this kind of cash flying around, everyone has their hand out.
My fear is that we’re setting up a precedent for the future. This administration’s policies could dog us for the next century.
Yeah I know, what about the last administration? I’ve heard every argument over the last 8 years on how they messed up, so I’m focusing on the present administration.
And in a lot of ways these current actions will be more harmful because they internal.
Man, it would be refreshing to see some actual *ideas* from the conservative blogosphere about their nation’s financial crisis.
For what it’s worth, the Conservatives/republicans(i know, i know, the two arent exactly the same anymore) had two great ideas during the stimulus boondoggle: More tax cuts for businesses, since businesses make jobs, and less dough for stupid programs. Both were pretty much shot down.Especially the stupid program part.
This housing solution looks similar to the auto bailout. And that doesnt look super-promising right now either.
It really didn’t matter ow many ideas the GOP or Conservatives had because no one, not even “The One” were listeneing anyway.
My fear is that we’re setting up a precedent for the future. This administration’s policies could dog us for the next century.
Yeah I know, what about the last administration? .... in a lot of ways these current actions will be more harmful because they[’re] internal
Really? More discretionary spending is more harmful than the erosion of the checks and balances on the executive via signing statements and the refusal of congressional authority to subpoena? Worse than Abu Ghraib, gitmo and extraordinary rendition? Worse than spying on Americans via executive order? Worse than being asleep at the switch of financial, food, drug and budget regulatory agencies? Worse than _all_ things things *plus* more discretionary spending?! (Rx plan alone was a huge increase in entitlements)
Really? REALLY? Re-HE-HE-HE-LY?
Because I fear you, and millions of others like you, have no clue what you are talking about and are making it up as you go along. I fear that you can’t hold enough of the argument in your mind at one time to realize what you are saying by the time you finish typing a paragraph.
The fire is raging, the firemen are rushing about with hoses, and the tech-savvy, politically-literate conservatives of this country are bitching like middle-aged housewives about the color of the fire truck.
Again, frankie you are faced 180 degrees away from the truth. (It’s uncanny, you’re like some sort of anti-compass.)
“That One” made considerable effort to bring in Republicans but got nothing after making a few significant changes (Repub House leadership fought tooth and nail for a party-line vote), so why continue down that path?
He took enough of a hit for failing to be “bi-partisan” enough when he should have been celebrating the stimulus slam dunk. After a dog bites you once you stay out of his yard.
Things would be so much better if our culture was one where massive screw-ups were accounted for by ritual suicide by the offending people....
Because I fear you, and millions of others like you, have no clue what you are talking about and are making it up as you go along. I fear that you can’t hold enough of the argument in your mind at one time to realize what you are saying by the time you finish typing a paragraph.
hazehead, on behalf of myself and every other person who was responsible with their money for most of their adult life, and was able to pay their bills even when employed because we planned ahead, fuck off and die.
NONE of this economic bullshit is my fault. I’m thrifty with my spending; I pay my bills on time; paid off my car last year--a year early; and rented instead of buying a house because I recognized back in 2003 that a housing bubble was forming, and sooner or later all hell was going to break loose. Despite being unemployed for three months last year, I was never delinquent on one single bill. And now you and the Jug-Eared Messiah are telling me that none of that shit matters, because I’m still going to get cornholed by the government to pay the bills for deadbeats that didn’t have my sense of personal responsibility. You and every other waste of life that put this pinhead in office can kindly go fuck yourselves.
You’re goddamn right that “bipartisanship"--why the fuck should I give a crap about clueless, greedy assholes(yourself included) that are using the government to rob me because they are too gutless to do it themselves? “Oh honey, I’m so glad we didn’t do what our parents did and put a substantial down payment on a home, and we ended up using it like an ATM machine! Planning for the future is just SO 1940s! Don’t you just love our granite countertops? Maybe Obama can cut us a great rate on a 1000-year mortgage!” Die.
More discretionary spending is more harmful than the erosion of the checks and balances on the executive via signing statements and the refusal of congressional authority to subpoena?
Yes, and those checks and balances have been eroding since day one. Read some fucking history.
Worse than Abu Ghraib, gitmo and extraordinary rendition?
Yes. You may have noticed that since 9-11, we haven’t been attacked.
Worse than spying on Americans via executive order?
You might want to get the details straight on that one.
Worse than being asleep at the switch of financial, food, drug and budget regulatory agencies?
This actually just another part of that, so it’s just as bad. You might want to figure out exactly who is as fault though.
Worse than _all_ things things *plus* more discretionary spending?!
You seem to think “discretionary spending” to the tune of 3 trillion is a good thing. Idiot.
4 trillion now…
I’m sure by the end of Obama’s 1st term it will be closer to 10 trillion....
Texas probably ought to secede… I think the reality of us being soaked to make up for the mistakes of the rest of the country is fast approaching.
I’ve done my job here. The conservative gangly bits are showing.
Yes. You may have noticed that since 9-11, we haven’t been attacked.
Hrmm… remember something called the Anthrax attacks that followed 9/11 jackass? Still unsolved I think. 4-5K solders have died for an Iraq that is less governable now than under Saddam, Afghanistan’s militants now taking over Pakistan (which has the bomb) and launching attacks against India (who also has the bomb) and Afghanistan still producting 90%+ of the opium on earth and using that money to bankroll terrorists.
Add to this our bungling of Israel-Palistine ("elections are good, m’kay!") and fucking up PRNK (Eight years later Bush finally went back to the Clinton plan. After letting them get the bomb) and you are making the argument the USA is FUCKING SAFER?! Are you out of your fucking mind or an utter fucking moron?
But yeah, good come back though. “Haven’t been attacked since 9/11”, I mean, not that it’s been used by idiots for six or seven years now and means absolutely nothing since OBL seems to space his terror attacks in the US by 8-10 years or so.
Fuck.
...and those checks and balances have been eroding since day one. Read some fucking history.
So let’s grease the slide and make the trip to fascism that much faster! Good idea!
Worse than spying on Americans via executive order?
You might want to get the details straight on that one.
I would love to, but it will be about 30 years before it’s declassified. You should read about the NSA and the change in focus in their intercepts. Some of their operators have already come forward.
Worse than _all_ things things *plus* more discretionary spending?!
You seem to think “discretionary spending” to the tune of 3 trillion is a good thing. Idiot
My point is that we got all the “evil Bush” stuff plus he spent like a drunken sailor with a year to live. So why not let the dems stay in charge? Sure they’ll spend our money, but at least we’ll get to keep a few of our liberties, if only for old times’ sake.
The thing you don’t seem to realize Outcast, is that the Republican party is not an alternative to the problem, that wrench has been tried and it nearly stripped the bolt.
Heartless Lib: like you, I have also been spared getting burned by the housing market but the difference is I don’t think that 100% of the people who did were stupid, criminal or both.
A lot of people got put into a sub-prime because they generated more profit, not because they had bad credit scores. Ratings agencies told investors that mortgage backed securities were as safe as blue chip corp bonds. Lots of bad decisions, big and small played into this. Hard for me to believe there were no victims, just cheaters.
Until you can come to grips with two facts you are just pissing in the wind:
1) Not everyone that got screwed in the housing market deserved it.
2) An economic breakdown (stagflation, rampant inflation or deflation, etc) would effect you, no matter how isolated you think you are.
4-5K solders have died for an Iraq that is less governable now than under Saddam
You made a couple good points hazehead, but THIS one is utter BS. Why could we send 17k troops to afghanistan then? Becuase violence in Iraq has gone UP???
Okay, I’ll amend that to “...just recently as governable now as under Saddam, but with 10% of the infrastructure intact and 5% of the middle/upper-class still in the country.”
Basically I’m making the point that we’ve spent a metric fuck-ton of blood and treasure to maintain the status quo in a nation that didn’t have fuckall to do with our security in the first place.
Saddam and his sons were not worth 4000-5000 white crosses. OBL and the Taliban’s heads on pikes? Sure, that’s worth some dead kids from Omaha and Louisiana, but I could give two shits about Saddam and his shitty little nation. Bush let that little piss hole bleed us dry, and for what? The best recruiting poster for AlQ they’ve ever had, that’s what.
Okay, I’ll amend that to “...just recently as governable now as under Saddam, but with 10% of the infrastructure intact and 5% of the middle/upper-class still in the country.”
Basically I’m making the point that we’ve spent a metric fuck-ton of blood and treasure to maintain the status quo in a nation that didn’t have fuckall to do with our security in the first place
Here, here. The invasion was a bad idea.
Really? More discretionary spending is more harmful than the erosion of the checks and balances on the executive via signing statements and the refusal of congressional authority to subpoena? Worse than Abu Ghraib, gitmo and extraordinary rendition? Worse than spying on Americans via executive order? Worse than being asleep at the switch of financial, food, drug and budget regulatory agencies? Worse than _all_ things things *plus* more discretionary spending?! (Rx plan alone was a huge increase in entitlements)
You can check down your liberal list all you want. 75 years from now is anyone going to give a shit about 3 guys that were questionably treated a couple of years after planes flew into the WTC? I don’t think so.
Because I fear you, and millions of others like you, have no clue what you are talking about and are making it up as you go along. I fear that you can’t hold enough of the argument in your mind at one time to realize what you are saying by the time you finish typing a paragraph.
I fear you are a condescending prick.
75 years from now is anyone going to give a shit about 3 guys that were questionably treated a couple of years after planes flew into the WTC? I don’t think so.
Now you are resorting to the last refuge of those in denial: making light. You do know people were tortured *years* after 9/11, right? No ticking bomb scenario, no pressing need for intel, just SOP for high value targets in Bush’s version of the GWOT.
I will bet you my rapidly dwindling 401K that in 75 years the behavior of US military interrogators in the years following 9/11 will be a bolded subhead in the history books, if not a chapter unto itself. Just like I read about Japanese internment camps in Jr High and Iran/Contra in High School.
And yes, I’m a condesceding prick. It’s my core nature, the rest has been whittled away in pitched battle with the dittohead brigade. If you want touchy-feelies point your browser at LOLcats.
the difference is I don’t think that 100% of the people who did were stupid, criminal or both.
Let’s see--spending money buying shit they don’t need; refusing to buy lower than what they can afford; not planning for the future in case they don’t have steady income for a certain amount of time; relying on the government to bail them out of the poor decision they made. That is the definition of stupid, or at least a lack of common sense and foresight. Obama’s plan to rob me to cover their shortcomings is what is criminal.
This housing bubble was, like the dot.com bubble, the result of a bunch of hoseheads thinking that their piece of the market was never going to go down and they could sit back and treat their house like an ATM machine instead of a place to be lived in, withhin their budget.
It doesn’t matter if you are in the freest market or the most socialistic, every fucking economy goes through down times. the fact that these homeowners thought they weren’t going to get bit in the ass by history isn’t my fault, and I shouldn’t have to pay for it. Period.
A lot of people got put into a sub-prime because they generated more profit, not because they had bad credit scores.
Nobody forced them to sign the contracts, dumbass. Not the banks, not Bush, not your momma. Stop pretending as if they didn’t have any other choice--a smart person would have read the terms of the fucking contract, and determined if they could afford the payments over time, not gone “Oooh, no down payment, 0% interest, and $500 mortgage payments on a $400,000 house the first three years? How can I lose? It’s going to appreciate anyway, so I’ll just sell it in two years!” Christ, if Obama is going to bail out gamblers like this, why not just give me $100,000 grand and I’ll go spend it in Vegas on strippers at Sapphire’s and dinners at the Wynn?
Until you can come to grips with two facts you are just pissing in the wind:
1) Not everyone that got screwed in the housing market deserved it.
You call this a “fact?” Bullshit. When you buy an overinflated house, with no money down, and you know the payments are going to skyrocket after a certain period of time, and don’t plan for the future in case something happens and you don’t have a steady income for a period of time to pay your mortgage, you deserve to suffer the consequences for your poor decision-making. Not rob me to refinance your house at its previously overinflated rate through Fannie and Freddie, which helped contribute to this whole mess to begin with.
2) An economic breakdown (stagflation, rampant inflation or deflation, etc) would effect you, no matter how isolated you think you are.
No, it’s only affecting me because human cancers like yourself think I have to pay for other people’s mistakes when I’ve been responsible with my finances and made good decisions. Unlike Obama voters, I’m not completely fucking helpless when the government doesn’t step in to solve every single inconvenience or problem in my life.
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THIS is what we’ve been waiting for? Another bailout? I hope the R’s can get some of the crap out of this. Giving more money to fannie and freddie while not doing anything(at least, not yet) to regulate the splitting of these mortgage backed securities is stupid.
This is going to cost waaay more than 75B…