Obama's foreclosure-prevention plan
This morning, President Obama unveils his plan pledging $275 billion to help stop foreclosures. To my understanding, it subsidizes lenders to restructure mortgages that are in trouble to the point at which the payments are brought down to 31% of the borrower's income. Banks that have taken TARP government bailout money will be forced to do this program, and that's a lot of the banks.
Critics of this plan keep pointing out that of all the mortgages that have been restructured so far, 50% of them are in redefault. They say this as a way to show that it doesn't work. But they're completely missing the point. That means that half of the time, IT DID WORK! They're making their payments. It saved an American family from going through the pain of foreclosure, it saved the lender a bunch of money by not having to foreclose, and if this plan continues to work just half of the time, it will prevent literally millions of foreclosures that continue to bring property values down for all of us.
Now I know this stinks for the rest of us responsible taxpaying, mortgage-paying Americans. Our tax money is going to be used to bail out some really ridiculous decisions made by borrowers, who will have effectively refinanced their homes that they could barely afford in the first place, outfitted their homes with swimming pools, big screen TVs, and god knows what else, and then bail them out. But unfortunately, it beats the alternative of doing nothing.
It would have been really nice if this plan had included something for people who have never missed a mortgage payment, some treat. But it does not. We just have to deal with the fact that the only benefit we will get from all of this is that by mitigating foreclosures, our property values will benefit, or not suffer as much.
Remember, 50% back in default means 50% worked. Maybe this will all be over in 50% of the time it would have otherwise taken!
Critics of this plan keep pointing out that of all the mortgages that have been restructured so far, 50% of them are in redefault. They say this as a way to show that it doesn't work. But they're completely missing the point. That means that half of the time, IT DID WORK! They're making their payments. It saved an American family from going through the pain of foreclosure, it saved the lender a bunch of money by not having to foreclose, and if this plan continues to work just half of the time, it will prevent literally millions of foreclosures that continue to bring property values down for all of us.
Now I know this stinks for the rest of us responsible taxpaying, mortgage-paying Americans. Our tax money is going to be used to bail out some really ridiculous decisions made by borrowers, who will have effectively refinanced their homes that they could barely afford in the first place, outfitted their homes with swimming pools, big screen TVs, and god knows what else, and then bail them out. But unfortunately, it beats the alternative of doing nothing.
It would have been really nice if this plan had included something for people who have never missed a mortgage payment, some treat. But it does not. We just have to deal with the fact that the only benefit we will get from all of this is that by mitigating foreclosures, our property values will benefit, or not suffer as much.
Remember, 50% back in default means 50% worked. Maybe this will all be over in 50% of the time it would have otherwise taken!
Labels: bailout, banks, foreclosures
posted by Jamie Mandel | 10:51 AM
3 Comments:
Hi all,
Here's an interesting one for you.
An analysis of the current economic crisis we are all unfortunately facing but looked at from a slightly different perspective.
This analysis looks at past banking crises and how they have effected various aspects of the economy.
It is titled The Banking Crisis - Where are we now? (follow the link should you be interested) and has particularly interesting points about how the previous banking crises has effected assets including property prices.
Excellent blog and great post information .. interesting
Interesting....
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