Posted on 10/14/2008 1:30:12 PM PDT by Travis McGee
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.
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The only people who will get screwed are the tax payers. So why work and pay taxes? The government will forgive your housing debts, credit card debts, etc., but NOT your tax debts.
This article assumes that the lenders will get a loan face value buyout from the government which I think is preferable over a “what I can get for it on a fire sale” foreclosure. If this is the case, the lender isn’t going to let the home nonowner stay there unfettered.
The affects of all you say are predictable.
The “government assistance” will operate against private capital lending, causing the government to “need” to intervene even more to “restore” the mortgage markets, which will comprise of more “tools” that will work even more against private capital lending until the only mortgages available are from the federal government. Of course, the Marxists will claim the “private markets” have failed, while the real basis of any truth to that is that they will have “failed” due to government interference.
All is as designed by Obama’s communist friends.
I must say this has crossed my mind. What the heck ARE we paying our mortgage for if millions of scammers, deadbeats and thieves will get rewarded by the feds?
The point is that pandering pols won’t throw voters out on the street, no matter what. Just don’t pay, claim hardship...and promise to vote for those who keep extending promises. Obama is already up to a 90 day “foreclosure holiday.” Do you think it won’t be extended?
***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.***
Hahaha so true. The sad thing by the way we measure the economy (GDP), that would help the economy.
Built into the rate I pay is some percentage to cover people who don't as of the time I took out my mortgage. Since the idiot SOBs who took out loans they could ill afford are now covered, and the idiot SOBs who pimped the loans don't have to worry about reserving for those loans, then I want a reduction too, by gummit.
I also want all their tiny heads to explode spontaneously like in Scanners, but I'll settle for some cash.
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It is actually worse than that. HUD has started a program to “help” people with their mortgages. Only, HUD will get a portion of the homeowners value when it sells:
http://www.hud.gov/news/release.cfm?content=pr08-150.cfm
“The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.”
Welcome to the Socialist States of Amerika, citzens!
Unfortunately my house is paid off. I’d rather stop paying someone else’s mortgage.
“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.”
Sigh. That’s me. The responsible FOOL.
If you note the picture does not have Jane and John Doe receiving the bailout.
It is the banks receiving this money not J6P. IMO, the poster that posted the article about HUD/FHA accurately points out that there will be a big price to pay to those who want to settle or rewrite their mortgage in foreclosure. IMO, that assumes the financial system gets beyond the central bank problems that are being propped up/financed by the taxpayers.
Finally, if this scheme works and loans will be made to people who did not pay in the first place, will they not pay in the second place and we will do this all over again?
http://blownmortgage.com/2008/10/14/derivatives-the-great-unwind/
ping
This article, now that I’ve read it through, certainly solidifies my earlier post to you.
Unless I am mistaken.....before foreclosure, the banks will attempt to work with the home owner.....normally about six months before going to foreclosure. Add 90 days to that and you are out 9 months. Must be nice not to have any house payments for 9 months. I could do a lot with that money but that puts me on their level and I don’t think I would like that.
I'd have laughed at this a few years ago but it is sadly true. I'm still aghast at the "economic stimulus package" of earlier this year which saw most of us get a $600 check in the mail. I'm all in favor of tax rebates but what got me about the "stimulus package" was that it came with the explicit wish that we spend the rebate check. That was the whole point; to stimulate the economy. If everyone had simply banked the check in their children's college fund or retirement account, it would not have served its purpose and if the Feds thought that this was likely to occur, they probably wouldn't have given it to us.
That's a major part of the American economy; consumer spending on items which are mostly imported.
Savers and the thrifty are the enemy in the new America.
So we saved, lived within our means and don't want to subsidize those that don't. How conservative of us. We're screwed. Retirement don't look too likely for me either. If I wasn't bitter, clinging to my religion and my guns before, I think the time is now.
It is a long and rambling article. There is a lot in it. It is always hard to find time to keep reading, even for me the guy who posted it.
Ditto. Of course, I have no intention of selling until the mortgage is paid off. “Buy and hold” worked for me in the stock market (I cashed out before the crash)... it’ll work in the real estate market, too.
I am sure that they are going to tell alot of people that ask for help for their forclosed properties that that they make too much money to qualify for help. Heard real life stories on this. Only the illegals and idiots will get the help!!
And lots more govt. dependent ‘Rat voters.
Maybe you can get a tax break for not paying mine? After all, farmers get subsidies for not growing food.
In fact, I want a piece of that action myself- I suck at gardening.
Yes, that too.
I am sure that they are going to tell alot of people that ask for help for their foreclosed properties that that they make too much money to qualify for help. Heard real life stories on this. Only the illegals and idiots will get the help!!
You are right. The same people who feed at that government trough will get the help. And many pulled into these horrible "loans" will be left to twist in the wind. I'm not against helping people - but it has to be done in a way that does help. And it has to be fair.
We’ve just invented another Racket, coutesy of Uncle Sam.
It is coming.
You always get more of what you subsidize and less of what you tax. If the government subsidizes mortgage defaults, they will get more of them, plain and simple.
“The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.”Hmm, reverse mortgages used to do that, but they made them stop. Now the govmnt is gonna do it?
Nice plan
“The State – or to make the matter more concrete, the government – consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office.
Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting A to satisfy B.
In other words, government is a broker in pillage, and every election is a sort of advance auction sale of stolen goods.”
— H. L. Mencken 1936
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