Here is your chance to dump your mortgage on the taxpayers!
What a deal for people who have lost money on their homes. This is a huge bailout for Wall Street investment banks.
Suppose that you have a homeowner whose house is underwater. That mortgage has been bought up by Wall Street investment banks at may be 30, 40, 50 cents on the dollar. The government now says that if the holder takes 10 percent off the mortgage, the government will guarantee 90 percent of the mortgage. So they may have bought a $100,000 mortgage for $50,000. If the mortgage holder agrees to write-off $10,000, the government will guarantee the mortgage for $90,000. You, the taxpayer, has just given these Wall Street investment firms $40,000!
Why is the government giving a 10 percent write-off to people whose homes are underwater? Marking down a $400,000 mortgage by 10% is $40,000. That is a lot of money. Why do people in California, Nevada and Florida get these pay-offs? But not people in Texas? Why do people who bought houses recently get the money, but not people who have lived in the same house for 15 years whose houses are unlikely to be underwater?
Even worse, suppose that you couldn't afford your home and you didn't want to default, so you did the responsible thing and rented out the home and moved into a smaller apartment. Guess what. You aren't eligible for this money.
How big will this program be?
This is great. Those who made large down payments when they bought their homes get no benefit but those who put little or no money down get a reduction in debt and the banks are bribed by the government with a 90% guarantee on the mortgage when they forgive 10%.
Suppose that you have a homeowner whose house is underwater. That mortgage has been bought up by Wall Street investment banks at may be 30, 40, 50 cents on the dollar. The government now says that if the holder takes 10 percent off the mortgage, the government will guarantee 90 percent of the mortgage. So they may have bought a $100,000 mortgage for $50,000. If the mortgage holder agrees to write-off $10,000, the government will guarantee the mortgage for $90,000. You, the taxpayer, has just given these Wall Street investment firms $40,000!
Why is the government giving a 10 percent write-off to people whose homes are underwater? Marking down a $400,000 mortgage by 10% is $40,000. That is a lot of money. Why do people in California, Nevada and Florida get these pay-offs? But not people in Texas? Why do people who bought houses recently get the money, but not people who have lived in the same house for 15 years whose houses are unlikely to be underwater?
Even worse, suppose that you couldn't afford your home and you didn't want to default, so you did the responsible thing and rented out the home and moved into a smaller apartment. Guess what. You aren't eligible for this money.
Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain “underwater” non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10% of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.
The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth—or “underwater”—because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3-4 million struggling homeowners through the end of 2012.
“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.” . . .
How big will this program be?
HUD estimates that between 500,000 and 1,500,000 borrowers will refinance using these enhancements and the net economic benefits will be between $11.774 and $35.322 billion.
This is great. Those who made large down payments when they bought their homes get no benefit but those who put little or no money down get a reduction in debt and the banks are bribed by the government with a 90% guarantee on the mortgage when they forgive 10%.
Labels: financialmarkets, mortgagecrisis
posted by John Lott at 2:00 AM
1 Comments:
If one has sufficient funds in savings (e.g. ira/401k) and has an underwater home, is it a foregone conclusion the your mortgage bank would not sell the loan as such at a discount?
Namely, if my bank were going to sell my mortgage to an investment bank, at such discounts, I'd have a high interest in being a competing buyer. Liquidation of retirement accounts, etc,. to buy your own mortgage at 50 cents on the dollar is not a difficult decision! Is there a way to offer to purchase your own mortgage in such an event, of course one would have to offer a little higher rate than an investment bank would offer?
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