I think this makes more sense than “bailing” them all out. This might allow more people a chance to keep their homes and HOPEFULLY learn a valuable lesson in all this. I am one person that allows people error in judgement if the lesson is learned. I think alot of people were either ignorant or stupid when signing up for these programs. Hopefully now when they purchase a home at another time they will think before they act. Plus, as a bonus, the experience of seeing their neigbors and friends going through this may teach others who were thinking about buying a home to learn what is best for them.
One problem with all this is that other types of loans out there will see a jump in interest rates. The lenders will recoup their losses somewhere else
Good time to clear all credit card debt...and maybe think about repairing that old car instead of buying another (unless you pay cash for it).
Of course, there are a variety of ramen noodles out there...
The lesson seems to be "take on more debt than you can afford and someone will come along to change the terms of your loan agreement so you don't have to pay what you said you would." How will that teach them a valuable lesson? They end up better off than the people who took on only as much debt as they could afford.
This IS bailing them out!
As a borrower with a good credit rating, plenty of money down, and a fixed rate mortgage, I anxiously await my opportunity to be treated in a similar fashion.
If they cut the rates for deadbeats, they should cut everybody's rate.
Agreed. This is an instance where a compromise in in everyone's best interests.
The government wants to stanch the flow of blood, because the buying, selling and building of homes is a key measure of the health of the economy. A housing crash isn't an apocalypse, but it ain't good. You've got homeowners who are in over their heads, tenants who are without a home because the landlord got over-leveraged, and so on.
The banks don't want to foreclose on a large scale, because banks are not fundamentally in the business of obtaining and selling real estate. Foreclosed buildings are generally sold at auction or at a discount, just so the banks can unload them. If the borrower is upside-down in the mortgage -- that is, his loan balance plus equity is more than the house is worth -- then the bank can at best recoup some of its losses, and then chase down the borrower for the rest. That's usually a write-off.
A lender forecloses to cut its losses; if the mortgage isn't getting paid, they seize the house and at least hope to get something out of it. Cutting losses is not a long-term business strategy. Better to extend those teaser "introductory" rates and maintain a profit, however modest, than to drop back and punt.
Obviously, it benefits homeowner/borrowers and their tenants. Having a stable home is better than, how can I say this? Not having a stable home. My brother is a renter, with three kids, who pays his rent faithfully and on time. If he got a note one day that his apartment building was in foreclosure and his lease was void, that would suck like an Electrolux. It's not fair, it's not just, and it's not good public policy.
IMHO, it seems sensible to strike a bargain rather than ride out an emerdement. It's a win/win/win deal.
In the interest of full disclosure, I'll mention that I'd rather not have my brother, his wife, and their three kids coming to live with me. I love them, I see them as much as I can, but I don't want to share a bathroom with them. I have a vested interest.
And that lesson would be:
Don't worry about making bad decisions, the government will eventually rescue you with other people's money.