$300B to basically stabilize the entire housing market and no one here takes notice. This is very big (despite being morally questionable as well). It means no one else is forced out of their subprime loans. In addition, they get to cut their monthly mortgage expense in half. This is HUGE and should mark the bottom in subprime (although I am not sure about the rest of the housing market).
Did you read details of this bill? PS Bill only goes into effect on Oct 1st so we are not going to see its full effect until some time in Q1 of 2009.
Looking on the congress website I found this: http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR03221: But do you have a straightforward (unedited) version of what passed Sat? Please post it here. Found this as well. http://dpc.senate.gov/dpc-new.cfm?doc_name=lb-110-2-123 Its not exactly clear to me how the program will work though. From the looks of it, they will facilitate the forgiveness of any underwater amount, and then let the borrower split half the profits on any appreciation from the new refinanced price. Example: a. Buy subprime house in bubble for $300k 100% financed. b. Now subprime house is worth $150k at market. This program forgives the $150k differences and makes a new loan for $150k. c. If the property appreciates above $150k, lets say back to $300k, the subprime owner splits half of the profit with the govt. (pockets $75k, instead of 'breaking even' in a previous scenario). Here's the supporting text I found from the above: HOPE for Homeowners Act of 2008 - The new loan be a 30 year, fixed-rate mortgage for an amount the family can repay or 90 percent of the current value of the home, whichever is less; - (2) All subordinate liens be extinguished through negotiation with the first lien holder, and all holders receive a portion of any future appreciation of the property; - (3) The borrower share the newly-created equity and future appreciation equally with FHA until such time as the borrower sells the home or refinances the FHA-insured mortgage, and the borrower's access to the newly-created equity be phased-in over five years. Whats not clear to me is how the lenders get paid to let the property owner refinance. Seems convoluted. Point #2 seems to contradict point #3. How can lien holders (ie home equity line or second mortgage) 'receive a portion of any future appreciation of the property' when #3 says 'future property appreciation' is split between the 'borrower' and 'FHA' evenly? I'll admit I'm confused. Found this too on: http://dodd.senate.gov/index.php?q=node/4324 'No investor or lender bailout. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.' Maybe I got all excited over nothing... It is up to lenders to choose between partial cashflow + loss vs. outright loss and no liability. This of course means no asset write-ups or stabilization if lenders don't partake. Please post the actual final text (without revisions/edits) if you can find it.. It seems difficult to find this.
http://money.cnn.com/2008/07/26/real_estate/housing_rescue_guide/index.htm?postversion=2008072611 Found this in another thread...
Paulson should have just watched this 3 months ago to figure out what would happen to Fannie Mae. <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/r7dq9pB_Tz8&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/r7dq9pB_Tz8&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
What happens to the neighbor of your example bailed out home owner? He also bought one of the $300k houses, but he put down 20%. However, with the current market value of $150k on his property, as well as being down $150k in over all equity, what does this home owner think or do after he finds out his neighbor has been bailed out? Does he ride it out? Even if he rides it out and his equity position improves, his bailed out neighbor begins building positive equity as soon as the house prices starts to rise, while Mr Prudent home buyer has $150k of property appreciation to go before seeing any positive equity. What does the Bail Out Team have planned when Mr. Prudent Buyer thinks he would be better off starting fresh by walking away from his under water property. Does Mr. Prudent Buyer have a right to civil action to modify his mortgage contract to achieve parody with the bailed out home owner? What's to stop Mr. Prudent Buyer from falling behind on his mortgage and qualifying for his own bail out party? There is a saying, when you find yourself in a hole, stop digging. However, the Bail Out Team appears to be handing out shovels.
Good question. Seems to me the people who really don't need this will take advantage of it, and the people who are in dire straits may just walk anyway. I think this is a horrible bill, and I wonder how much "good" it will really do for those it was supposed to help.
Joe Lunchbucket will be screwed. 3% fee on principal, 5% down blah blah. Anyone who signs up for this will be sharing his equity with the govt. Welcome to communism, Marx was right. http://en.wikipedia.org/wiki/Bourgeoisie
First of all, Mr. Prudent buyer probably won't be privy to his neighbor's finances. 2nd. He also probably does not base financial moves on whatever neighbor does. 3rd. He also values having a good credit score which gets shattered with this "bailout deal". IMo, the big part of this bill is the tax credit for 1st time homebuyers since this would prime the "pump" for the domino effect in real estate when people move up the price ladder when they have kids,need more room, etc.