Editorial: Obama's Housing Plan "Won't Fix The Problem"

New York Times:

TO stanch the hemorrhage of foreclosures, we don't need another bailout. What we need is a fix -- and the wisdom to see what is in our own self-interest.

An avalanche of foreclosures is coming -- as many as eight million in the next several years. The plan announced by the White House will not stop foreclosures because it concentrates on reducing interest payments, not reducing principal for those who owe more than their homes are worth. The plan wastes taxpayer money and won't fix the problem.

Read the whole story: New York Times

Comments

[uzume]

It's a sorry state to be in when people who have purchased property are now having to be saved from losing it because they can't pay the mortgage.

Where the blame lies is on both sides, to purchase a home knowing one is overstretching the household income is stupid, we all know that - but there are a lot of stupid people out there, let's face it.

It annoys me that we homeowners who have purchased modest homes well within budget are now unable to sell at a fair price because of the banks and greedy or stupid buyers.

The bottom line is that this needs to be sorted out one way or another and to inject huge amounts of cash to save the banks only to allow the homeowners to sink would be a pointless venture which would completely de-value every home in the US. It seems that we can't do one without the other!

The market will only come back when the banks start lending and stop hoarding the bail out money and house buyers start seeing their property as a home again and not an investment. Choose a home where you want to live and you can afford, then live in it! The days of making huge property profits are over!

[dnpvd51]

I rent and I am disgusted that I have to pay taxes to protect home values.

I guess I should have bought a house that I knew was way overpriced because I should have known Obama would come along and stick it to people that rent.

[cylindar]

Yes, this is a good idea. The principal needs to be reduced. If it is not we are going to see a lot of people walking from their mortgages. The lenders are going to suffer from their greed one way or another. I hope they all enjoy it. I certainly will enjoy watching them go down and will savor every moment with glee.

[ElkoJohn]

Obama's Housing Plan "Won't Fix The Problem"
but the Bansters are holding their breath
just in case Mr. O decides to play hard-ball with them

[PhilipTaylor]

I guess if you are NOT an Elite Bankster with "INSIDER INFORMATION” from the ELITE FED you are going to lose most of your Retirement!

FED is not owned by our Government! Federal Reserve is purposely named so People think it is a Federal Agency!

FED is owned by the "Secret Society of Elites and Elite Banks" that have been in England and Germany since Roman Times, often called “Money Changers” or Banksters by some of our best presidents including Jefferson, Lincoln, Jackson, and Kennedy.

FED has almost nothing to do with our Federal Government, but can print endless amounts of money and charge our government interest to increase our National DEBT!

The FED exists because of some "TRICKY" legislation that was passed in 1913, while a lot of Congressmen were on Holiday Break.

A small TARP clause gave FED the ability to PRINT AN INFINITE AMOUNT OF MONEY.

FED main goal is to making sure the WEALTHY STAY WEALTHY!

FED charges our government interest on all the money it prints, as it deems helpful to the WEALTHY!

FED's other duties include protecting the WEALTHY from their own mistakes by forcing the AMERICAN TAXPAYER to pay for those MISTAKES!

Many think Government is taking over Banks when in fact the ELITE BANKS/FED are TAKING OVER OUR GOVERNMENT!

SOLUTION: Place the FED under the Treasury and President to break “Control by the Wealthy!”

[Peter007]

I have an easy solution.
Anyone that owes money on a mortgage and defaults must at a future date pay all the money back. There will be a judgment on that person or couple for the rest of their life for the amount they owe the bank.
If you cause the bank to lose $300,000, you have a judgement against you for $300,000.
This will supply an endless stream of income for the banking system well into the future. The bank could also sell the judgments in packages like they did with the mortgages.
This way, the people that caused the financial collapse will eventually have to pay for it.
It may take many people up to 30 years to pay off their debt, but lets face it. The agreed to pay for the mortgage for 30 years anyway. We won't have anymore bank bailouts too.

[Robert59]

How about we help all homeowners with a mortgage? Establish a baseline year (say 2000). Go to the tax assessor's office and obtain the assessed value of the residence. Use that assessed value as the price of the house. Force lenders to refinance all residences at the new price. Mandate the interest rate at 4.25 percent, terms 30 years.

We're already on the hook for trillions lent through the TARP or the Fed to the mortgage holders. Time for us to get back a return on our investment.

My proposal treats all homebuyers with a mortgage equally; the authors does not. I have a coworker who lives in a neighborhood where the house prices were overinflated. He is one of the few still making payments. If we adopt the authors' proposal his entire neighborhood depreciates at once. He however is even more upside down than his neighbors. What is his incentive to make his payments? He will never get back what he owes as the new value of the homes in the neighborhood (the benchmark he prices against) are significantly lower than the price he paid.

His neighbors get a sweet deal and stand to make quite a bit of money when they sell.

[Peter007]

It would be better to lock up all the homeowners that defaulted and place them in work camps. They caused this problem.
We could mandate that they do community service work like road work.
Work in soup kitchens and hospitals.

[Robert59]

Homeowners didn't cause this problem. Lenders did. Give people enough rope and they will hang themselves. These lenders behaved in a predatory manner. If anyone needs to be in work camps it's the CEOs of the finance sector.
Look at what the finance sector does with credit cards, changing interest rates at a whim, tacking on all sorts of charges, and they are doing this because they can.

[mauibob]

The only help I would agree to and think is fair is to allow homeowners to reduce the principal to no more than their downpayment one time, add a second lien to the house that adds interest on a non cash basis and restructure the loan on that basis provided the owner can meet stringent and provable income to pay for the new loan. the second lien would be paid off upon the sale of the home. That is the only fair way to do it. People who purchased homes for nothing down have nothing to lose and should lose their home. Those making bigger downpayments shold get the best deals as they had more at risk and bought with a reasoable expectation of it being a safe investment.
Lastly, we should take Barney Frank, Raines and Dodd and prosecute them for crimes for rewrighting the housing bills and forcing Fannie Mae and Freddie Mac to make loans to unqualified and ill prepared buyers.

[Robert59]

Your solution does nothing to fix the problem. If anything it will worsen the fall. If 12 homeowners in a 96 house neighborhood lose their house and the bank repossesses then sells those houses at greatly reduced prices what happens to the value of the other 84 houses? They plunge.

Worse, what would motivate a homeowner to stay in a house he's upside down in? Equity, as you and I know, means nothing until you sell the house. There is no piggy bank of accumulated equity.

I buy a house for 250,000. I've lived there 15 years and have paid 45,000 off the price, but my house will only sell for 200,000 because all my neighbors who bought later lost their jobs or signed terms they could never meet and had their homes foreclosed on.

If I sell I will lose 5000 dollars. So much for equity.

Like Clinton and Greenspan said, encouraging mortgage companies to make loans wasn't a pass on those companies exercising due diligence and proper oversight.

Bush and company let this situation spiral out of control. They had plenty of warnings and chose to ignore them.

[KQuarksSuperKollider]

I ran some numbers for myself. They distinctly show lowering interest rates is far more the problem than lowering principle. This article is intentionally dishonest by saying the principle is the biggest part of the problem

A 9% subprime loan for a 30 year loan $200,000
$1,609.25/­month $579,328.2­8 total or higher

A 5% fixed rate loan for 30 year loan $200,000
$1,073.64/­month $386,511.5­7 total

A 9% subprime loan for 30 year loan $170,000 (15% principle cut)
$1,491.87/­month $537,073.8­0 total or higher

A 5% fixed rate loan for 30 year loan $170,000 (15% principle cut)
$912.60/mo­nth $328,534.8­3 total

Sure you get more savings when cut principle but you get a heck of a lot more savings for cutting interest. If you cannot have afford your mortgage when the payments are cut by 33% then you probably cannot it when they are cut by 43% which is the added savings by cutting the principle. It's just not that big of a difference. I wish people would stop acting like lemmings believing every article they read.

[SkippyJones]

I was surprised by this article - obviously the authors are very knowledgeable and studied. But it seems they missed a hugely important part of the Obama plan regarding mortgage modification. Yes, there is a 5 year period where the government provides subsidies to lower payments, and yes there is a $1000 per year incentive to the borrower that is straight principle reduction. But the loan does not reset to any previous subprime rate after 5 years. Instead, it resets to EITHER the rate at which the loan was made (ie. subprime) OR - and this is the important part - The Freddie Mac Avg on 30yr fixed conforming loans at the time the borrow enters the modification program. That rate right now is at 5.125. The borrower doesn't then shoot back to 9% or higher mortgage rates after 5 years. No, after 5 years they move to what is for all intent and purposes a fully refinanced mortgage at prevailing 30yr fixed market rates when the modification agreement was entered into. Unless I'm mistaken, and I could be, to miss this is to miss the entire thrust of the plan. How can a Yale professor overlook such a crucial and obvious detail? The loan modification program is essentially a refinancing program with a five year government subsidy that wil make monthly payments especially affordable for five years. After that period, if people can't afford their mortgage at a 5-6% rate, then they are out of luck.

[notAMoron]

Don't forget, Yale Professor and a PARTNER in a Hedge Fund which trades Mortgage backed securities­... What do you want to bet he has a load of money tied up in these things and he is looking for a way to get rid of them by selling them to the tax payers for more than they are worth?

[notAMoron]

The point of the article is that if the house is worth less than the principle on the loan, selling the home will cost the occupant money. If it takes 5 years of payments before the owner starts to have equity in their home, they will be the occupant of a property in which they have no ownership interest (AKA a renter) with a 5 year lease.

If they found a new job in another city, they could not sell the home (without ponying up tens of thousands of dollars) they would have to walk away and take the credit hit for a foreclosure.

The author recognizes that if you are in this situation right now you are better off cutting your losses and walking away sooner rather than later.

[JoeBlough]

Instead of knocking down principle unfairly, why not lower payments and double the length of the loan?
That way everyone wins? What's the problem with this? Lowering principle penalizes the people who put up the money.

[Rule Of Law]

Joe, who "put up the money?" And I ask that sincerely. My understanding of the fractional banking system is that until a debt (house mortgage, in this case) is created, that no money exists. That the act of pledging to pay money to the bank, including the interest (which is what they're really after) and putting the property up as collateral, allows banks to make an entry on their books that says, Yes we "loaned" X dollars out, and now that X is really worth 10 times X on our books, and then they go on to "loan" out even more imaginary money.

The days of banks having the corresponding funds on hand to back up their loan to you are over, and may never have really existed. Since the banks willingly rode the mortgage bubble created by Wall Street to these imaginary inflated values, what's wrong with everybody taking the hit, and rolling it back to reality?

[research]

The investment in Americans and the Budget spending is what will rescue the housing market and the entire economy.

This is just to help people survive till then.

[KQuarksSuperKollider]

This is like government paying people for their Wall Street loses or allowing people to get tax credits for their Wall Street loses. It's just an insane president if you look at it objectively.

I'm all for helping people with foreclosed homes by giving them a low interest rate on their original promissory note. I just don't get why government should pay or the banks should incur the loss (write down is a euphomism the article is intentionally using) for the difference between the mortgage and what the house is worth on the market now. People knew the price of the home and if they cannot afford the home because of outrageous interest rates that is one thing but if they cannot afford the home because they could not afford the original price of the home that is quite another thing.

I paid half of what I qualified for based on my salary at the time I bought my townhouse because I never believed in the Bush economy and had previous health problems. It worked out well for me because I did become disabled after I bought my home and my disability income is about half of what I previously made.

I believe in helping people but really folks this is just going too far. I think the populist outrage is clouding people's vision of what they are asking government or the banks to do in this case.

[Rule Of Law]

Government IS paying people (Corporati­ons/Banks) for their Wall Street losses. Read Learsy's piece today--

http://www.huffingtonpost.com/raymond-j-learsy/billions-for-aig-to-prote_b_172102.html

and see how the money that went to AIG was funneled directly to the Wall Street banks that were betting against their own bonds, in some cases, that the economy would fail, and now they want to be paid--with our money.

[chocolatecity]

You can't have banks writing down principle. It would set a terrible precedent. If these folks are foreclosed on then they can rent. What's wrong with renting? But you can't tell people that you can buy a house at one price but when the value goes down, the government will subsidize the bank write down on the principle to fair market value. President Obama admitted that his plan wouldn't save everyone. It is not worth the cost to save 2% of homeowners. Yes the foreclosures will bring their neighbors value down, but the price is inflated and needs to come down. President Obama's plan will help many folks who are caught in the sub-prime mess to refinance to a fixed rate.

[KQuarksSuperKollider]

For one thing the so called losses are just not loses at all they are CURRENT values of the homes if you sell them NOW which is variable. When the economy gets better those home values will go up. It will take long but that was the problem with the housing bubble the housing prices were artificially high.

But that being said people were supposed to be able to afford the home price they agreed to in the first place. Giving people a low fixed interest rate where people will save thousands over the length of the loan should be enough or the people should not have purchased the house in the first place.

[notAMoron]

I think your right, it is a terrible situation and the medicine to fix it, allowing the prices to fall and the market to reach an equillibrium, tastes horrible. I don't remember who said, "memory is only one generation deep," but it is definitely true in this scenario. During the great depression everyone struggled and lost, as a result they learned the hard way how to be responsible with money and live within their means. Our generation has lost some of that frugality and there is a sense of entitlement, we are about to learn a lesson the hard way and pass on another hard lesson to our children and grandchildren with the debt our nation accumulated over the past 8 years and the coming few years.

The opposition from many democrats to the way the TARP is proceeding is that the investors in these financial institutions are in a "heads we win, tails the taxpayer loses" situation. Everyone agrees that investors should not be bailed out, but here is a question for all the HuffPoster­s... How many times did your realtor say that purchasing your house was an INVESTMENT? Why should we bail out real estate investors, even if they are occupying their investment?

[Rule Of Law]

This article makes sense--too bad it will never happen.

In case the reporters, or any one here, missed the news, the object of this Depression IS to move as many people out of their homes as possible, not fix the problems that Wall Street created in order to make that happen.

This is Class Warfare. Disenfranchising citizens of their vote--look at all the ways it was done in 2000, 2004 and 2008, that have not yet been rectified-­-destroyin­g their ability to earn a living (offshoring of jobs) or have a livable wage (destruction of Unions) all are part of continuing the flow of capital to the 1% while removing the last bit of power the middle class enjoyed.

On KPFA yesterday financial economist and historian, Dr. Michael Hudson spoke about the coming of the "new feudalism.­" This should be required listening for anyone who thinks that continuing the Bush bailouts in any guise will save this country.

http://www.kpfa.org/archive/id/48892

[bobwalters]

I agree the proposal sounds/looks workable, and makes sense from a macroeconomic standpoint. Sposton, the reason the proposals coming out of Obama's administration always take the side of the zombie bank shareholders and bond holders is because of the financial wizards who were forced on him by the "behind the scenes powers that be": Geithner, Summers and Rubin. These and all their sycophants need to be purged from the administration, along with any other DLC-types. Just as Summers and Rubin were the architects of Clinton's "welfare reform" that increased impoverishment of hundreds of thousands of American children, and, along with their Wall Street Repugnant allies, undermined the Clinton healthcare reform effort, they will likewise undermine much of Obama's progressive agenda if the Wall Street/Bankster thieves can't find ways to profit from it.

[KillTheMessenger]

And why do we need to stop foreclosures to begin with? The market was inflated and if foreclosures are what it takes to make home prices affordable again for most people, so be it.

[Razz]

I should have bought the most expensive house on my block, which was over a million, 2 years ago. But in reality, it wasn’t even worth 400K back then. Now the same house is worth 680K and I still cannot afford it, because of the 20% down that I have to come up with. My point being that homes are still overvalued in the west. We should just let the market take it course. If majority of the people who are trying to buy a house and they have good jobs with good credit but they still cannot afford it, then the prices are still overvalued. We will have to go through this again years from now no matter what, because home prices are still overvalued. We are just artificially band aiding the big bubble balloon nothing else.