The scam is going to get worse in the housing market. I mean the scam that will let the predators and hucksters, who lured people into bad deals, off the hook, either via congressional bailouts or actions by the Federal Reserve. And the outcry has to build now so that we don't let, once again (remember the savings and loan scam), the speculators skate, leaving hundreds of thousands of people to lose their homes. Here is one plan to consider to guarantee people do not lose their homes.
My colleague Dean Baker, the co-director of the Center for Economic and Policy Research, offers this idea:
The Subprime Borrower Protection Plan
This proposal ensures that subprime borrowers will not be thrown out of their home because they cannot meet the terms of a predatory mortgage. The plan:1. Gives homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
2. The proposal requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply changes the rules under which foreclosures can be put into effect.
3. The proposal does not bail out in any way lenders who made predatory mortgages or made risky gambles in the secondary market.
4. There are no windfalls for homeowners. They will have the right to stay in their house, but will no longer own the home. This means that there is no real incentive to abuse the program. The plan would be capped at the value of the median house price in a metropolitan area, so it will not benefit high income homebuyers.
5. Rents will be adjusted in later years by the Labor Department's consumer price index for rents in the area. If either the owner or renter believes that their rent is unfair, they can arrange, at their own expense, to have the court make a second appraisal.
6. After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.
The point is that this is a moment where a reckoning must occur -- for the speculators, big business advocates, hedge funds and for the so-called experts. Baker's proposal is a clear path to make sure that people do not find themselves homeless
A better solution would be to investigate Wall Street bosses who put AAA credit ratings on what were essentially junk bonds. I'm pretty sure that broke some laws and meets the legal definition of fraud.
I think that a more appropriate solution would be to condemn the predatory mortgages as "illegal." This would make it possible to impose restitution upon the banks. This could be done by forcing the bank to re-issue the loan, under "not to exceed" terms, AND to forgive the indebtedness for a value between the amount of the mortgage and the present appraised value of the home. This indebtedness would not be recognized as "income" against the homeowner.
One advantage of this strategy, versus the others, is that it would compel banks to re-value their portfolios, which are vastly over-extended with imaginary valuations. And if the bank is thereby rendered insolvent, "oopsie!" (Well, it was insolvent already.)
UH HUH
NEVER!!!
Why should some greedy twit who 'just had to have' that $40,000 kitchen be allowed to benefit when many people who had more sense stayed out of the water and did not jump in with the sharks? They have been patiently shut out of the housing market because greedy fools who thought they 'deserved' the house they wanted right this minute drove up prices by using high risk mortgages.
The stupidity of those buyers went from the guy with the 8th grade education all the way up through physicians.
I want a house that is out of my budget too. To be fair, your (idiotic) 'law' should make someone sell it to me for what I can afford and the lender pays the difference.
The people who were hurt are not the borrowers who got no-down interest-only loans with balloons. They couldn't afford the house they bought. They've been paying less on their loans than it would cost them to rent. This phony system should not be propped up as suggested because it still leaves housing at the grossly inflated prices. The rental value reflects the inflated price.
Let them foreclose. They can't re-sell for the value of the existing loans. That means they have to reduce the price of the house which benefits the people who have really been hurt by this system, which is the people who do not own homes and cannot afford to buy. Even if the buyers do a deed-in-lieu -- just transfer title to the lender and walk away -- the buyers would be better off. Because in a few years, they could go back and buy a similar house for 1/2 the price.
This is what is more likely to happen. The whole neocon agenda is to put Americans into life-long permanent non-dischargeable debt. As part of that plan, lenders will start making 50-year mortgages. Watch. Monthly payments go down, people can "keep" their homes, they will end up paying four times more because of the extension, no one will ever pay off their mortgage. People will spend their entire lives working and paying most of their money out for housing, healthcare, and credit cards.
The rational for tightening bankruptcy laws just as Greenspan was lowering interest rates and stimulating the housing bubble. Dumb Democrats in Congress went along with that legislation.
Some ownership society
!!!!!
More like slavery as globalized economies dampen upward mobility.
Actually, they came out with 40 and 50 year mortgages about 2-3 years ago.
I was discussing current events (read: gossipping) with my banker and he mentioned it. I nearly fell off my chair. And then he told me that lenders were going as high as 65% of gross income for the mortgage payment as opposed to the traditional 28% - and I choked on my coffee.
My small local bank has more sense - they deliberately steered their customers away from ARMs and never touched the interest only, option ARMS or 2/28. Of course the local realtors whined and called them 'too strict.' On the other hand, none of that bank's customers are defaulting on their mortgages .....
In any event, the securities will provide that they are in default if the required revenue stream is not maintained as provided for in the underlieing mortgage Notes. Requiring changes in future contracts between lenders and borrowers would clearly be permissible. (When mortgage companies don't like lending laws, as has happened in several instances, they just curtail their lending). Requiring changes in the relationship between lenders and borrowers that were not agreed to by the parties, it seems to me, presents a whole different matter.
Then we have the question of lenders going out of business becasue they were left owning properties that they have no ability to afford. Every real estate agent will tell you that selling homes with renters in them is far harder than selling homes that are vacant. If nothing else, the buyer has no idea what condition the property will be in when possession is finally obtained. And there is also the fact that most folks trying to buy houses want to move into them as soon as the deal is finished.
This looks to me more like shuffeling the deck instead of changing the outcome of the game.
In LA, an $750,000 -1,000,000 house rents for $2800-3200. No where near enough to cover the mortgage.
In my village, a 3 bedroom 800-1300 sq ft house rents for $700-800 - the house that the bubble claimed where worth $180,000 - 280,000.
I suspect that the time period to which you refer is when interest was dropping and housing prices were low.
BTW, this is the only proposal that I have heard that does not involve (1) letting someone who was financially stupid and greedy in the house they bought and the mortgage to which they agreed keep title to the house and (2) doesn't bail out the greedy and careless lenders.
Problem is for how long would this situation go on? 3 years, 15 years, 30 years?
Also it does not get those properties back into the market. If the properties do not come back on the market and end up being sold at a lot lower prices then house prices overall will NOT fall to a more affordable level.
Only about 14% of households got themselves into such a mess. What about the other 86% who didn't fall for the snake oil sales and have been responsible and not greedy to 'have it now'?
We retired early, sold the house and travelled. When we stopped travelling, I looked at the prices, laughed because it was clearly an inflated market that would crash and we opted to rent a house on 1/2 an acre 3 blocks from the 300 miles of beach. We decided to wait it out befre buying.
Tying up inflated properties as quasi-rentals will not deflate the prices - and I have been patiently (and financially responsibly) waiting for prices to drop. I lose for being responsible while someone who was greedy and had to have that house now wins?
To say that the concept is disconnected from reality is being polite.
NYT profiled 3 of these households for whom we are supposed to feel sorry. One was moderately sympatheic in that they underestimated the costs of home maintence and dumb in that they took an ARM to get the house they wanted. The other 2 can rot as:
(1) Buy a $180,000 house on combined income of $70,000. They refi the house with an ARM to pay off the credit card bills (should have cut up the cards) and to buy a MOTORCYCLE going up to $230,000!
(2) 1999, bought with a $140,000 w/fixed mtg & payments of around $850. 2001, Refis into an ARM to add a $40000 new kitchen! 2003, refis again to pay off $40,000 in credit cards. 2005, refis again to pay off another $40,000 in credit cards. Now in bankruptcy with another $20,000 in credit cards and a house mortgaged for $260,000 and worth $200000 at best. And they couldn't manage to live on their combined income of $85,000 - the top 21.42% of incomes in the US?
You can't protect people who are determined to be stupid. "Against stupidity,the Gods themselves content in vain" Schiller