and no one bears the burden of a mortgage! Everyone gets exactly 200
sq.ft. of living space."
Posted on 10/13/2008 1:32:04 PM PDT by BGHater
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why.
Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.
To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don't make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.
In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.
Schiff is president of Euro Pacific Capital and author of “The Little Book of Bull Moves in Bear Markets.”
Now Obama is “proposing” a 3 months hold on any foreclosures. Great 3 more months for free! Whoopie!
We’ve been wanting to take a cruise. Sounds like now is a good time. It can be an even better one than we had hoped for as long as we don’t have to make our house payment for 3 months.
don’t do stupid things just because obama makes it easier to do stupid things. keep your debt down because it’s just going to bite back
I don’t believe that you go into foreclosure for about six months. Now they want to add three more months to it?
Who is the stupid one? It pays to be stupid.
I’m 22 years in on a 30 year mortgage on a house I can afford to pay for. I’ve never been late on a payment. What’s in it for me? (Except higher taxes and less equity in my home.)
Ain’t Marxism grand! Gee, I wonder how come it didn’t work in the USSR. Or Cuba. Or China. Or.......
I personally don’t understand how that is going to help the credit market. What financial industry would want to lend in this climate when they know they will get screwed by government action?
How is this helping and how is the stock market rising so fast when it was supposedly the financial market was the problem?
This is too much for wee little brain to figure out.
Um, the buyers might try to screw the lenders, but the socialist approach tied into the extortionist bailout means the lenders will have their butts covered by the government dole-amatic!
It’s not a bad thought for people to make repeated inquiries with the news media — maybe with enough push they can point out how ignorant the BO proposal is... just for fun.
At minimum, conservative commentators should have a field day with this.
look at iceland. they lived off the easy ride and now the game is over. the whole country is broke.
It is your fault we are in this mess! Your hardwork and responsability has made others look and feel bad. All your wealth will be redistributed, and you WILL be honored for the chance to help out your government and fellow man. Understand!?!
I’m thinking I take the max deductions, claim lots-o-phoney deductions and get “mine” too.
I will not take it up the @ss for the government.
The real dirty little secret is that so many mortgages have been passed around that the people you pay your mortgage to may not have the “note.” No note, no mortgage payment.
We have not looked into this, even though our mortgage was passed around quite a bit. But it is useful to know if hard times come knocking.
The bad news for these people on government loans is that when the Fed writes down their mortgage the IRS will consider the amount of the write-down as immediate taxable income.
It’s some picture of housing in Russia.
It has been interesting that the drive-by’s neglect to inform the sheeple that, isn’t?
I personally will find it funny when some of these twerps who thought they were getting away with fraud end up with their wages garnished to pay their taxes.
Good article.
Too late. The people's treasure just got robbed by the very ones that were elected to protect it.
I will say this though. I both cried and laughed while reading the article. Weird, ain’t it?
That is the limit of my knowledge. What specifically happens to the note when the underlying mortgage is sliced and diced at differing rates of return?
“A chicken in every pot campaign is so yesterday. Now it’s two chickens in every pot and no mortgage payment. What a load. “
I’m screwed. I’m vegetarian and I worked by butt off to pay off the mortgage about 4 years ago. I’ll be one of the two skinny chickens in the pot.
(My Dad used to joke about a job of being a chicken-dragger at the soup factory. You know, the guy who dragged a chicken carcass through the big vat of hot water to make Campbell’s chicken soup. Guess you had to be there during the Great Depression.)
I’ve paid mine off. Like a fool, I should have seen the Bolshecrats coming and defaulted. Maybe, 0bama will give me three years off my property taxes.
I thought I heard that there would be an exemption for that too.
I could be wrong, of course, but I think the mortgage holder is the bank.
Don't worry, they have that covered. From the article:
The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
And I'm sure there will be more extensions as needed...
Probably not. The IRS doesn’t like to let go of money and there’s nothing in any of the current legislation (passed or proposed) that lets people out of their tax debts.
Peter Schiff has been predicting this mess for years. He’s only half sarcastic in this article. He’s half serious in advising new homeowners with underwater mortgages and no other assets to quit paying. That’s the only way to get a bailout just like the really smart guys on Wall Street.
Schiff was an advisor to Ron Paul, who also has been predicting this for years. Of course, many of the Freepers consider Dr. Paul to be a nut. He just happens to be the sort of nut that understands the way things really are rather than they way you’d like them to be. Because Republicans drank the RINO koolaid, they’ve got compassionate conservatism, interminable war, a wrecked economy, and disaster socialism. Even worse, they have McCain, who until a few days ago thought the economy was fundamentally sound and continually talks about fighting “wars”. Good luck with that.
BTW, despite what Rush and Hannity say, it wasn’t just subprime loans, Fannie Mae, and CRA that brought about this mess. Of course, they contributed to the corruption of credit standards for mortgages and just about any other kind of lending. But without Greenspan and Bernanke’s insane monetary policies of the last twelve or so years, financial institutions wouldn’t have had the money to make insane loans.
Stan Liebowitz (University of Texas at Dallas) has an excellent analysis of just what caused this mess:
http://johnrlott.tripod.com/Liebowitz_Housing.pdf
To my knowledge, Liebowitz wasn’t connected to the RP campaign.
I think there will be crying to come. Stock up on beer, it will help.
All I can do is laugh. I wish I could be so flat out irresponsible. But frankly I like being able to look my self in the eye in the mirror. I guess I just suck I suppose.
Ya, it's all because of sub primes. Lol.
fwiw: Jack Daniels or a good scotch whisky is a better selection ... it takes less room and has a longer shelf life.
Can lenders give all holders of an ARM or other exotic mortgage an 30 year fixed at 7%, or is that impossible?
If your a homeowner now, I would bet that your mortgage lender will try to help you out without the Gov’t getting involved right now.
Problem is that McCain, Bush, and most GOPers supported the bailout.
The GOP is just as much Socialist as the DNC...
You can put two turnips in your pot and for added measure a carrot.....
Trust me, you’re not the only responsible person who is bitter about this whole deal.
Not without a job : )
I’m just saying that’s the spin you get from Rush and Hannity et al.
The subprime meltdown is huge, and the CRA, Fannie Mae, Freddie Mac share huge portion of the blame ... but it’s the deterioration of credit quality generally that’s the root cause of this mess. (e.g., my teenagers have been getting a credit card offer about once a week for the last two or three years until recently.) However, without ridiculously low interest rates, the money to create these loans simply would not have existed. Thank you Greenspan and Bernanke.
“Compassion conservatism” for you is just another road to serfdom.
These people will use their three months to go Christmas Shopping and then let the home go into foreclosure.
sw
I’m going to send this article to my mortgage broker!
Peter Schiff is a freakin genius. Thanks for posting!
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