Bailing Out The Homeowner

RYou · 10-08-2008, 09:57 PM

This may be the offering that locks in my McCain vote.

http://www.msnbc.msn.com/id/27076838/

I'm all for rewriting the mortgages to a value that is affordable and keeping the owner in the home, as long as it's a primary residence and the owner resides in the home.

McCain would buy bad homeowner mortgages
He proposes $300 billion program to allow people to stay in homes

updated 12:19 p.m. ET, Wed., Oct. 8, 2008
WASHINGTON - John McCain's proposal to buy up bad home mortgages would use nearly half the $700 billion from the recent Wall Street bailout package to assist Americans directly, instead of indirectly by rescuing the nation's financial markets.

The Republican presidential candidate announced during Tuesday's debate that he would order the federal government to spend $300 billion in federal funds to buy the mortgages and allow financially troubled homeowners to keep their houses.

leglace · 10-08-2008, 10:14 PM

Thats money better spent than spending it on "liquididty". We have no idea where this liquidity money would go.

I think its the single best thing we can do to fix our problems.

Spider · 10-08-2008, 10:22 PM

What about people who couldn't normally afford the homes they bought, but were able (encouraged?) to overspend because of irresponsible mortgage practices? Do these people deserve to benefit from the money of taxpayers who only bought what they could afford and need no bailout? Am I missing something here (not a rhetorical question, is there really more to it than that?)?

RYou · 10-08-2008, 10:36 PM

I don't think they are going to be able to save every home purchase.
What I've read is that, say you bought with an original 4.5% adjustable rate loan and now because of the annual interest rate increases, the rate is up to 6.5%, which means they are now paying 50% more in interest per month. The loan would be rolled back to the 4.5 or 5% fixed interest rate which was affordable several years ago.

I don't see them plunking down $50,000 up front to cover the reduced market value.

Spider · 10-08-2008, 10:44 PM

Originally Posted by RYou

I don't think they are going to be able to save every home purchase.
What I've read is that, say you bought with an original 4.5% adjustable rate loan and now because of the annual interest rate increases, the rate is up to 6.5%, which means they are now paying 50% more in interest per month. The loan would be rolled back to the 4.5 or 5% fixed interest rate which was affordable several years ago.

When you assume an adjustable mortagage with no maximum rate, isn't this a chance you take? Is this fair to people who got adjustable mortgages (or any kind of loan) ten or fifteen years ago and have been paying faithfully, regardless of interest fluctuations?

leglace · 10-08-2008, 10:45 PM

Originally Posted by RYou

I don't think they are going to be able to save every home purchase.
What I've read is that, say you bought with an original 4.5% adjustable rate loan and now because of the annual interest rate increases, the rate is up to 6.5%, which means they are now paying 50% more in interest per month. The loan would be rolled back to the 4.5 or 5% fixed interest rate which was affordable several years ago.

I don't see them plunking down $50,000 up front to cover the reduced market value.

The way I read it is that they will buy out the difference in market value. However, before we start complaining about whether people knowingly bought beyond their means, there is a level of the market burying them much deeper. The fact is, that this would be the only way to get the housing market moving again.

Spider · 10-08-2008, 11:02 PM

Originally Posted by leglace

However, before we start complaining about whether people knowingly bought beyond their means, there is a level of the market burying them much deeper. The fact is, that this would be the only way to get the housing market moving again.

Please explain.

RYou · 10-09-2008, 06:13 AM

Originally Posted by Spider

When you assume an adjustable mortagage with no maximum rate, isn't this a chance you take? Is this fair to people who got adjustable mortgages (or any kind of loan) ten or fifteen years ago and have been paying faithfully, regardless of interest fluctuations?

I agree with you Spider, but I'm thinking of those low income families that bought in the low end of the market that created the demand sparking the overall increase in values at every value level. Having experienced a similar situatiuoin in a re-fi, these folks never fully understood that the interest rate tagged to the loan was the lowest it would ever be and it was guaranteed to go up.

I was dealing with Wachovia and could easily have said okay, 4% it is. Had I not been aware that the 4% was based off a 0.5% federal loan rate, I probably would have taken it, but it was a 1 year ARM, so it was going up and soon. The major banks tooks advantage of borrowers just as the brokers for Fannie mae and Fannie Mac did.

I am entirely opposed to bailing out someone that bought a $1.4 million home with a negative amoritization loan in speculation of rising values and is now sucking wind on the higher interest rate, a higher loan principal and a lower market value of $1.1 million. There are plenty of those around too.

I would oppose laying $300,000 on that buyer to make up the loss in value; however, I would be in favor of rewriting that loan at a fixed rate of 4.5, maybe even 4.0%, if the owner qualified financially to pay it back.

ODH · 10-09-2008, 07:22 AM

Originally Posted by RYou

This may be the offering that locks in my McCain vote.

You were seriously undecided before?

ODH · 10-09-2008, 07:30 AM

My take on this crisis is that the lenders and borrowers are both equally to blame for the situation. Banks should not lend money to people who cannot afford it and people should not take out loans that they have a good chance of not being able to repay.

Both parties are taking a gamble and if they win, they deserve the upside, if they lose they also should have to live with the pain.

Now the pain to the homeowner is real, but the only reason to bail either party out is because their actions have been effecting the entire credit system and the entire economy. The people who played it safe and did not take risks are going to be severely hurt by those who did. Therefore, the government should only be using bailout money to protect the "innocent". If that is saving homeowners or rescuing banks then it makes sense. I am not smart enough to know what the best way to protect the economy.

Bailing Out The Homeowner

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