A Different Kind of Blog

news and things sacred and irreverent put together by opinionated people.

“Get out of Jail Free” card?

Posted by lawman2 on February 19, 2009

Why pay your mortgage if the government is willing to bail you out?


Is Obama’s new plan  a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom?

This caveman says: One problem with the program is that it does not seem to include principal reductions or deal with piggy-back loans. 

The plan will help some struggling homeowners. But by investing in failure, the Administration will also prolong the housing downturn and make financing a home purchase more difficult for future borrowers. Meanwhile, the plan isn’t likely to slow the continuing decline in housing prices.

Let’s focus on the plan’s effect on the individual borrower. Anyone with mortgages owned or guaranteed by Fannie Mae and Freddie Mac will be able to refinance to lower rates if his mortgage is between 80% and 105% of the value of the home. This is a sweet deal that is not available, for example, to many renters looking to buy homes now. Sadly for those who deferred the gratification of homeownership, the 20% down payment has now become industry standard. But at least their taxes will allow other people to stay in homes they can’t afford.

Existing borrowers who may not qualify for Fan/Fred refinancing can still receive loan modifications that move their mortgage payments down to 31% of monthly income. In either case, no effort will be made to verify that recipients of aid were truthful on their original mortgage applications. Given that mortgage fraud skyrocketed during the housing boom, and that the Obama Administration intends to assist up to nine million troubled borrowers, we can say with certainty that the unscrupulous will be among those rescued.

What investors, businesses and working Americans want to hear is a President with ideas to spur economic recovery. What they’ve been getting are plans for a long national Chapter 11 workout.

Kerry Vandell, professor of finance and director of Center for Real Estate at UCI
“It is trying to deal with the foreclosure issue primarily by reducing mortgage payments and not through principal reductions (partial loan forgiveness), except possibly through “cramdowns” as a component of bankruptcy. This does not get at the heart of the cause of the foreclosure crisis: cash flow insolvency is certainly an issue, but equity insolvency (i.e., being “upside down”, when the balance owed on the loan is significantly greater than the current property value) is the primary factor driving defaults, and it not being dealt with at all. At some point, someone will have to take the hit in this regard, either the lender, the borrower, or the government (or possibly the servicer or others). Not all foreclosures can or should be prevented and not all banks can or should be saved.”

 Video 1 Just think about this video 2 Rick Santelli’s Rant

Vodpod videos no longer available.

Vodpod videos no longer available.


You Can read more caveman’s perspectives from lawman Just A Caveman


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