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Johnnie B. Byrd, Jr. practices in the areas of personal injury, family law, criminal defense, business law, real estate, probate and estate planning. |
Posted on 10/11/2008 7:02:25 AM PDT by Kaslin
Senator John McCain finally acknowledged during the second presidential debate that some American home owners might just be victims of something more than “biting off more than they could chew” in a home mortgage. Take the example of a typical Florida family and their quest for the American dream:
Nancy and Billy bought a new home in Central Florida two years ago for $349,000, paying $35,000 down (their life savings) and financing the balance with an adjustable rate mortgage. Today, the home appraises for a mere $229,000—a 30 percent market drop in two years. These Florida homeowners are upside down and there is no relief sight—sadly, they are typical. Now, Nancy has been laid off from her job and this couple is trying (unsuccessfully) to make ends meet. Like many of their neighbors they have quit paying their mortgage, have been served with foreclosure papers and are preparing to walk away from their home. The rows of “for sale” signs are sad evidence that there are no prospective buyers on the horizon, and even if there were, how does one sell a home in this situation?
On this count, the Democrats seem to “get it”—supporting legislation that would allow Nancy and Billy to seek relief from a bankruptcy judge to “cram down” the mortgage debt to the true value of the property and modify the payment schedule accordingly. In the Democratic scenario Nancy and Billy obtain relief from bankruptcy court reducing the debt on their home to $229,000 and resetting their amortization schedule to reasonable market interest for 30 years fixed rate. Democrats say this will stem the tide of foreclosures and keep Americans in their homes. “Cram down” is a ham-handed remedy that some have labeled “socialist.” But at least it’s a solution.
The concept that the Republicans are against mortgage restructuring for the “little guy” verges on the “let them eat cake” mentality. That Senator McCain has finally seen the tragedy in this scenario in announcing the use of the bailout dollars to adjust the principal balances of such mortgages is hopefully an idea that is better late than never.
As President Bush said in his statement on the economy, “America’s economy is facing unprecedented challenges, and we are responding with unprecedented action.” McCain is right to start showing some unprecedented compassion for homeowners on Main Street before it’s too late.
McCain’s bold move may be too little too late—but it’s better late than never. Nancy and Billy will be watching.
If Nancy and Billy’s neighbors bought the house next door for the same price, made all the payments on time, and even paid a “point” (a fee to lower the mortgage interest rate) to lock in a low fixed rate mortgage...what will the government be doing for them?
Will they get the amount they owe on their mortgage reduced as well?
Will they get their “point” back if everyone else, who went with an adjustable rate, gets to lock in a fixed rate for free?
I understand why some don’t like this approach. Not my line of thinking either. What some have not understood is that with this bailout comes consequences for the homeowners. Not only will they not be able to sell their homes any time soon, but when they do, the government will take their profits (if any) as a repayment of the bailout. It is broken down by the number of years they hold on to their homes. So, while they don’t lose their homes, it becomes a near $0 investment in the long run.
Well, it’s sad, but this is what buying a home is.
My father bought housing for years, and I’ve grown up since the 70’s understanding this. Houses go up, they go down, and sometimes in drastic drops, often reacting to something weird the government has done.
They are expensive to maintain. They can be a disaster, or it can work out. If you speculate, the odds are there are times when you can make great money and there will be times where you get stuck maintaining (and paying taxes on) a black hole.
Speculators I have no sympathy for. That’s the deal, it’s not a game.
Homeowners, that’s really tough. I remember during the Carter and Reagan years almost everyone I knew got stuck upside down in a mortgage. Some walked away, some stuck it out.
These houses would not have been so expensive if the govt had not forced the subprime mortgages. Working class houses went up to unaffordable levels all over the country.
By allowing a court to readjust the mortgage it will force banks to charge higher rates and higher downpayments on everyone.
People made mistakes buying near the peak. I’m sure that their owning costs far exceeded their rental cost at the time of purchse.
I feel sorry for them, but do I want to pay more for my next mortgage because of them..NO.
An even better solution would be for this couple to go to the bank holding the paper and propose a mortgage with payment schedule that they can meet. Let the bank decide if it makes sense to write down the mortgage or not. If not then they walk away, declare bankruptcy, and let the bank (or the investors in the mortgage backed security) try to collect their money in bankruptcy proceedings.
The thing that should not happen is the federal government basically giving the couple and/or the bank a dime.
Government has no authority nor ability to determine what a house or anything else should cost. If someone paid more for something than they were later able to sell it for then they speculated unwisely and should eat their loss without complaining. Had they reaped a profit they would have happily pocketed it without sharing it with other taxpayers. The people described in the article do not own any portion of “their” house and they cannot afford to buy it. Let them go back to renting and saving and when they have enough of a down payment (and sufficient income) to get a 30-year fixed rate mortgage let them buy something they can afford then.
You have to be kidding. Damn, I could have easily bought that Million Dollar Property on an adjustable and now that its worth three fifty, I would have a hundred thousand mortgage. Who takes the hit? Instead I bought a small property I could afford on a fixed mortgage. I make my payments. I’m still upside down in this market, but I don’t see a bailout for me. What ever happened to markets go up and markets go down? This adjustment idea only works if we all get to adjust our mortgages to the current market and that is known as socialism. For crying out loud.
I might add..we were upside down in some realestate in CA during the 90-91 downturn. We hung on and finally sold in 2003. There was no way the we would ruin our credit rating.
I believe the concept of moral hazard applies to the homeownersm as it should the banks or any business. If you buy a house and lose money because values go down, your mortgage goes up, or you lose your job, it is not the gov’t responsibility to bail you out. If a bank makes bad mortgages and goes broke, it is no the gov’t responsibility to bail them out either.
If the ‘cram down’ provision were to be undertaken by the gov’t and judges, there would be no more lending in this country. Who would want to lend money to another if the contract binding the two parties to the terms of the loan could be changed at a judge’s whim? If the lender wants to change the terms to make them more favorable to the borrower, that is fine. To have the gov’t force the change on the lender is socialism.
This scheme McCain has rewards the worst actors in the mortgage mess, and punishes the most responsible. It will only encourage more reckless borrowing on the consumers part, and if you thought the fraud in sub=prime mortgages was bad, this scheme will be the mother of all fraud.
Re the neighbors who made their payments: Not only don’t they get a break on their mortgage, they get to pay higher taxes to bail out Bill and Nancy. Sucks for them (and me) twice over.
Ditto that. The article leaves out a lot of the details. Was this Nancy and Billy’s first house? If so, who buys a starter house worth $350,000? Adjustable rate mortgage? Another bad decision. Thirty year mortgage? They should have started with a fifteen year mortgage.....that way, if Nancy loses her job, they could refinance to a 30 year and have hopes of continuing their payments.
This plan to have judges magically modify the worth of a home to current market prices is socialism. What happens if Nancy and Billy stay in the home and it sells for $450,000 in 20 years? Will they keep the profit? Sure they will.
Rewarding Nancy and Billy for poor planning, poor decisions, and adjusting their principal so they maintain a lifestyle of “want” vs. “need” will only bring us more Nancy and Billy’s.
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Johnnie B. Byrd, Jr. practices in the areas of personal injury, family law, criminal defense, business law, real estate, probate and estate planning. |
Our first home (24 yrs ago?) was financed at 14%. We lived there 4 yrs and lost money when we sold it to move to a larger place which was 1100 sq ft. lol
We lived in that second home 10 yrs and didn’t make a dime on it when we left, sold it for exactly what we paid for it.
We have been in our 3rd home almost 12 yrs now, 3 more yrs and it is paid off.
Real estate is not a guaranteed investment and I really have no sympathy for anyone who is upside down or ready to lose their home. We did everything the right way and I don’t want to help pay for anyone else whether they bought more than they could afford, have a change in circumstances, or whatever reason.
When the consequences of idiocy come to the fore, change the rules.
The rules I played by - 30% down, a house I can afford - make me the fool when this socialist clap trap becomes the new modus operandi
... just damn
The concept that the Republicans are against mortgage restructuring for the “little guy” verges on the “let them eat cake” mentality. That Senator McCain has finally seen the tragedy in this scenario in announcing the use of the bailout dollars to adjust the principal balances of such mortgages is hopefully an idea that is better late than never.
These folks are the victims of the Democrat/ACORN back door socialism forcing banks to loan money to people with no credit or ability to pay. A housing bubble developed because demand for housing (with all the new faux customers) was considerably greater than the supply. The price of houses went up and up until the bubble burst. As a result the "little guy" committed to purchase a home at a price much higher than its current worth, plus they committed to the sometimes risky adjustable rate mortgage.
But then there are those who avoided becoming house poor, and who avoided the risky ARM, but who are paying for a house worth considerably less than what they originally contracted for, but are not in a foreclosure state. What about them? What about many others like me who now are living in a home worth less than what we paid?
If the bailout money is tantamount to paying off toxic mortgages held by banks, why not do it directly for people in need? This whole situation stinks. Perhaps we should just let the free market decide.
Is this included in McCain's plan? If so it would make me feel a little better about it. I can't stomach the thought that people who were flipping homes and kept borrowing against the increased equity of their homes are now going to be “rewarded” at the expense of taxpayers who chose to live within their means and acted responsibly.
A variable rate is a gamble and the value of the house doesn’t matter if you are keeping the payments up.
It is obvious that they qualified on two incomes which is also a gamble. I would suggest that they vote for McCain because Obama will not bail out middle class folks.
They become renters. Under Obama's plan they will have to share their house with a family of Guatemalans.
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