Posted on 12/19/2008 3:57:17 PM PST by fightinJAG
[snip]
None of the existing proposals to help homeowners with negative equity would eliminate the incentive to default.
In an earlier article on this page I proposed a plan to prevent declines of house prices back to the prebubble level from pushing current positive-equity homeowners into the negative-equity group. The essential feature of that plan is to replace 20% of the homeowner's existing mortgage with a separate, full-recourse loan from the government. That "mortgage replacement loan" would have a very attractive, low interest rate. Because it would be separate from the mortgage and would have full recourse, it would establish an important firewall. Even if house prices fall another 20%, all mortgages would still have positive equity. The mortgage-replacement loan would involve no actual government spending and therefore no increase in the budget deficit.
The key to preventing further defaults and foreclosures among current negative-equity homeowners is to shift those mortgages into loans with full recourse, allowing the creditor to take other property or a fraction of wages. But the offer of a low-interest-rate loan is not enough to induce a homeowner with substantial negative equity to forego the opportunity to default and escape the existing debt. Substituting a full-recourse loan requires the inducement of a substantial write-down in the outstanding loan balance. Creditors have an incentive to accept some write-down in exchange for the much greater security of a full-recourse loan. The government can bridge the gap between the maximum write-down that the creditor would accept and the minimum write-down that the homeowner requires to give up his current right to walk away from his debt.
(Excerpt) Read more at online.wsj.com ...
. . . and then the insurance companies could apply for TARP funds. Brilliant idea!
Just why would someone that is already underwater want to refinance??? To what end!!!!
That is not necessarily true, in most states you can have your attorney make a deed from you to the mortgage company/bank and have him, the attorney deliver it, you walk and don't have a bad credit, make sure you have moved out of the home and you have it inspected and filmed.
Point 2
If a bank told such a homeowner, well give you a loan that is collateralized by certain personal property/equity stakes, etc., you put that collateralized loan toward your mortgage debt, then we refi the remaining mortgage debt, the lender gets a partially secured loan, the homeowner gets a lower rate/monthly payments, whats the problem?
Makes no mathematical sense!!! If you cannot pay the first mortgage you cannot pay two mortgages and if you cannot pay the first, you damn sure cannot, in the long run pay the additional expenses and maintenance of long term home ownership at this level, find a cheaper home.
Exactly. It is grossly arrogant, and not very conservative for a Freeper (the original poster) to propose robbing us to help him. He supports organized looting.
He bought at the top of the market and wants us to pay his bill. Ignorant. My wife and I sold four years ago and bought a VERY cheap house with the cash from the sale. We lived within our means. Those who payed ridiculous prices for more house than they could afford need to take their medicine.
It matters less what is done, in the specifics, as long as the result is a recognition that many homes - in some specific regional and local markets - were vastly over valued, and neither “affordability” nor normal building and selling prospects will return until many median-home prices have declined enough.
Propping up inflated-property/capital values delays economic recoveries instead of helping them.
It’s harsh medicine, but it results from the harsh reality of how out-of-kilter the values were artificially boosted, and the sooner the medicine is taken, the sooner more stable markets can return.
And someone still has to carry insurance and pay property taxes on that worthless shell plus the cost of maintenance - yard care, etc.
With all do respect to Dr. Feldstein, I find it rather absurd that I would be asked to subsidize the lifestyle of spend thrift Floridians and Californians while I freeze my tail off here in the frozen Midwest.
I have a friend who recently retired. He lives in a nice mobile home in a quite mobile home park. He sacrificed to put 3 children through college. Why should someone like him subsidize home buyers that made bad choices?
To lower their monthly payments so they don’t have to redeem so much worthless paper out of their retirement investment accounts.
If they miss payments throw them out in the street!!!!
That threat is only used on taxpayers. ;)
Unfortunately, whatever it is they’ve been smoking in New York for the last 20 years isn’t selling to the heartland.....
I am not sure what the problem is.
I signed a contract for oil at 4.25 and am locked in. The real value of the oil is now about a dollar and changed. But I still have to pay on the contract.
If I purchase a home for 500000 and it is no longer worth 500000 well I made a bad inverstment but I still made a contract. I can live in the home and pay it off. I can also negotiate with my town to lower my tax bill if it was reently reassessed.
If I bought a non home to flip. I guess I give the house tothe bank. Or rent it.
Ordinarily, of course that wuold be the approach.
But if the collective impact of these individual transactions is economic gridlock that cannot be budged by any other means, it’s time to at least consider-—though not automatically run to-—what other approaches might have a chance of being effective.
Wholesale, permanent wealth destruction is a different risk than the usual impact of charging off usual consumer debt.
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