New housing rescue bill - anyone figured it out?

[laurence]

This is the only thing I can find breaking down the bail out bill's goodies:

How the housing rescue bill can help you - Jul. 26, 2008

From the article:

"Who's eligible?
Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program."

It goes on to say you don't have to be in default to benefit, you just have to 'pinkie swear' you can't afford the loan.

More...

"Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home......The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.
But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process."

There are strings...

"However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.
Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.
Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.
After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays."

So IMHO, with all these attachments, caveats, and upside potential limits placed on the current homeowner, I see the math still working in such a way that most will still choose foreclosure. Say the "new" loan balance is 400k. The 1.5% fee per annum is 6k, plus now they'll be in a conventional loan that forces you to pay part of the principle (like a 30 year fixed), which will be higher than the crappy loan was when they could afford it. In this case it's about a $500 spread between a 5/1 ARM (interest only) and a 30 year fixed. Considering interest rates are probably higher now than when they bought it, I just don't see a lot of people getting much help from this. It looks like they have to pay off their HELOC first as well - fat chance of a short changed person doing that!

Is there something I'm missing?

 

[Purron]

It's interesting you just posted this as I just put up a poll on the subject. I sure hope it helps as DH and I hope to sell a house in the next year or so but I do have reservations. At least it should inspire some confidence in the short run - will it work in the long run? Time will only tell.

 

[Htown Harry]

For the [-]masochists[/-] dedicated, here's a link to the full bill's table of contents (it's a big bill, with a lot of elements):

Housing and Economic Recovery Act of 2008 (Engrossed Amendment as Agreed to by Senate)[H.R.3221.EAS2]

The provisions laurencewill is reviewing are found in the "HOPE for Homeowners Act". For that part of the bill only, see: Search Results - THOMAS (Library of Congress)

Also of possible interest to the ER crowd are new requirements related to reverse mortgages. It reads as though the intent is to create an enforcible separation between the sellers of second mortgages and the sellers of insurance policies / annuities. These provisions are found farther down, in the larger bill as part of the Housing and Economic Recovery Act of 2008, SEC. 2122. HOME EQUITY CONVERSION MORTGAGES.

 

[boont]

The Speech

"Treasury secretary Paulson has quietly tried to tell members of Congress that the whole world is watching how America deals with its housing problems, including Fannie and Freddie."

"I would rather not be in the position of asking for extraordinary authorities to support Fannie and Freddie," Mr. Paulson said during a speech at the New York Public Library. "But I am playing the hand that I have been dealt."

"What the White House isn't publicly emphasizing is that overseas governments and investors hold a considerable amount of securities guaranteed by Fannie and Freddie. If they sell off those securities it could spark a huge market disruption." NYTimes. 7/26/08

I've been waiting for the speech. That will be the turning point. We had a little comment the other day but we haven't had the full blown speech yet. Soon we will see President Bush in the oval office giving a reassuring talk to the American people.

b.

 

[laurence]

Whether or not it will help stabilize markets is any one's guess, but for individual homeowners (like my neighbors who are trying to find a way to keep their home) this doesn't seem to have a lot to offer. I was just checking if I was reading it right with the experts on this board.

 

[JPatrick]

Having read the highlights of the bill, I have come to the conclusion that the participants in the fraud, waste, and abuse game are going to find themselves in "tall cotton," as we used to say in Texas.

I doubt if this guvmint action will rival the response to Katrina, but about the time the summer games are winding down and the wait has begun for those great new fall shows, I suspect we have some interesting viewing thanks to the great housing bailout. The hearings and investigations likely will begin warming the cockles of our hearts about the time the heating bills begin to arrive and the snow begins to fly.

Anyone care to bet against me??

 

[cute fuzzy bunny]

"Who's eligible?

"Are you an idiot?"

 

[ESRBob]

When did everybody in Washington decide that capitalism didn't work anymore? I missed that arguably momentous shift in America's development -- must have been sometime last week. "That's it, we have to 'help' the markets with thousands of pages of hastily drafted rube goldberg pipes and bailing wire." Honestly makes me worried for this country. Hopefully it will all settle down after the elections, and not too much mischief will be actually encrusted into law before November. We should be paying Congress at this point to stay on vacation.

 

[laurence]

Having read the highlights of the bill, I have come to the conclusion that the participants in the fraud, waste, and abuse game are going to find themselves in "tall cotton," as we used to say in Texas.

If you are a lender or a broker, I agree, but the restrictions on homeowners are pretty stringent! 1.5% annual fee, 3% exit fee, profit sharing with FHA, etc.

I think the "you have to retire your HELOC or 2nd before you get any help" pretty much a**es out all the people we like to pick on here who cashed out for fancy cars and boats.

I'm just trying to figure out if there is any hope/help for my neighbors. As much as I was mad at them for looking to get over on the system, their backs are against the wall, and I don't want them moving out and having another abandoned house next to mine (I already have one abandoned house as a neighbor). Dang.

 

[ziggy29]

Whether or not it will help stabilize markets is any one's guess, but for individual homeowners (like my neighbors who are trying to find a way to keep their home) this doesn't seem to have a lot to offer. I was just checking if I was reading it right with the experts on this board.

One of the worst things about this bill is that those who are struggling but found a way to do the right thing and keep paying it likely get nothing. Those who frittered their money elsewhere and went delinquent get the help.

 

[OAG]

I looks like there are three situations (IMO) in this "bought too much or for too much" syndrome:

1. Bought too much or for too much but staying and managing to hang on (and getting by) = No help.

2. Bought too much and/or for too much and still there but can't really handle it financially = May actually get some help.

3. Bought too much and for too much (and got additional HELOC or 2d Mortgatge) and tried to "live it up" (i.e, no money available) = No help and WILL likely go into foreclosure and/or Bankrupt.

Additionally, this bill contains money for cities, towns and counties to "fix up" and get already foreclosed properties maintained and kept up to local standards. This is where the rip offs and fraud is going to come into play.

Also, uniquely this bill is not effective until October 1, 2008. Unique because this the the starting date for the Govt Fiscal Year (FY 2009). Now the question is whose "Cow gets gored" to pay for it. Cutting a Govt program or two, that do not impinge Security, don't hold your breath. Maybe a declaration that the CPI, which actually looks like it will be about 6%, will be declared "canceled" for FY 2009.

 

[ziggy29]

It looks like they have to pay off their HELOC first as well - fat chance of a short changed person doing that!

This could be one of those rare times where, at least in a few specific circumstances, it might be worth cashing out a 401K/IRA and eating the taxes and penalties in order to pay off the HELOC.

 

[laurence]

This could be one of those rare times where, at least in a few specific circumstances, it might be worth cashing out a 401K/IRA and eating the taxes and penalties in order to pay off the HELOC.

You may be quite right. Unfortunately I can almost guarantee they don't have either. Their 2nd is 80k. She wants me to break down the details of the bill to her today. I think I'll suggest she talk to a "professional". Her loan was originated in 2004, so it sounds like that alone puts her out of luck.

 

[ladelfina]

I have also seen talk of a $7500 "credit" to stimulate new home purchases.. but it turns out that's actually a loan also. I'm not sure if that's part of this bill; just saw reference to it in passing.

 

[ESRBob]

Also, uniquely this bill is not effective until October 1, 2008. Unique because this the the starting date for the Govt Fiscal Year (FY 2009). Now the question is whose "Cow gets gored" to pay for it. Cutting a Govt program or two, that do not impinge Security, don't hold your breath. Maybe a declaration that the CPI, which actually looks like it will be about 6%, will be declared "canceled" for FY 2009.

OAG,
We could only wish a cow would get gored to pay for this. Unfortunately, in the new economics of the US Govt, nothing gets cut and its all just more debt piled onto the backs of our kids, more corruption of the federal reserve balance sheet, more selling out savers and trashing the currency. Because the people in charge are going to get something out of it today (votes, campaign contributions, their name under a photograph depicting them with pious concern for the little guy) and someone else will have to pay for it and sort out the mess and consequences some time in the future.

It's a rerun of the same problem that got us into this mess:
Mortgage brokers and issuers got paid today for making crappy credit loans, and passed along the bad loans to investment bankers who got big bonuses today to show a bunch of paper profits and pump up a load of new mortgage backed securities, which got bought by institutions whose managers got big bonuses for managing large amounts of money that made a few years of gains -- but now all the crows are coming home to roost, so who pays? Taxpayers, shareholders, our kids- because most of this is paid for with debt. We're basically turning our kids (and a whole generation of young Americans) into peons for the chinese and middle easterners.
[end of rant]

 

[laurence]

Crows come home to roost? We don't even get chickens? It's so bad you had to go death harbinger Edgar Allen Poe on us?

The part that made me shudder was the raising of the debt ceiling by ~$1 trillion. Swammy sees higher taxes in my future.

 

[Gumby]

Crows come home to roost? We don't even get chickens? It's so bad you had to go death harbinger Edgar Allen Poe on us?

The part that made me shudder was the raising of the debt ceiling by ~$1 trillion. Swammy sees higher taxes in my future.

Higher taxes are inevitable even without this new bill.

 

[Retire Soon]

"Housing Bill Won't Perform Miracles"

An estimated 8,500 homes are falling into foreclosure each day. Over the next 5 years, 1 in 8 homes will have entered foreclosure. The housing bill is too little too late and will probably not be a significant amount of help. It's now time to pay the piper and its not going to be pretty.

washingtonpost.com

 

[Frugality_of_Apathy]

Higher taxes are inevitable even without this new bill.

They would never allow that so directly. They'll just bump up the inflation tax a few percent. By the time they are done it'll cost a few billion for a loaf of discount store-brand day old bread.

It's like nobody remembers how exactly how the U.S.S.R. fell but it certainly wasn't from overextending and overspending.

 

[tryan]

I can't see why a lender would allow a +20% write-off on a performing asset. Unless there is pressure to bundle performing with non-performing assets ... the new goverment backed CDO (yikes!).

 

[ziggy29]

I can't see why a lender would allow a +20% write-off on a performing asset. Unless there is pressure to bundle performing with non-performing assets ... the new goverment backed CDO (yikes!).

I'm sure this was much of the impetus for focusing on the breaks for the non-performing loans; a lender isn't likely to accept (say) 75 cents on the dollar on a mortgage that is current. But unfortunately, it does have the side effect of rewarding those who default on payments.

 

[UncleHoney]

I was reading one provision of the housing bill that provides $4 billion dollars for cities to buy foreclosed homes, fix them up and resell them to the low income.

Looks like a trap to me. The cities buy the homes from the mortgage guys which gets them off the hook for maintaining the properties and paying taxes. Now the cities fix up and try to sell them. If they can sell them they get new taxpayers and all live happily ever after.

But if the properties don't sell quickly the cities lose out on tax revenue and they are probably sitting on a depreciating asset which will be worth less than they paid the mortgage lenders.

Looks like the cities (taxpayers) will end up holding an empty bag if home values continue to fall and if mortgage rates go up as some are predicting. Plus, potential buyers are probably the people that got foreclosed on that now have a subzero credit score.

Anyway you slice it, it's a win win deal for the mortgage brokers.

 

[ziggy29]

I was reading one provision of the housing bill that provides $4 billion dollars for cities to buy foreclosed homes, fix them up and resell them to the low income.

Looks like a trap to me. The cities buy the homes from the mortgage guys which gets them off the hook for maintaining the properties and paying taxes. Now the cities fix up and try to sell them. If they can sell them they get new taxpayers and all live happily ever after.

But if the properties don't sell quickly the cities lose out on tax revenue and they are probably sitting on a depreciating asset which will be worth less than they paid the mortgage lenders.

It was this provision that led the president to originally threaten a veto. But in the end, he blinked.

 

[brewer12345]

I can't see why a lender would allow a +20% write-off on a performing asset. Unless there is pressure to bundle performing with non-performing assets ... the new goverment backed CDO (yikes!).

Nah, this will directly refi the loans that are in trouble/delinquent where the lender would rather take the hit up front instead of going through the long, costly foreclosure process.

The potential wrinkle I see is the prohibition on HELOCs. These borrowers won't have the cash to pay the HELOCs off, so the only way out is to get the HELOC lender to agree to get nothing. Dunno how tough that will be, although HELOC defaults already approach 100% loss to the lender.

Laurence, tell your neighbor to contact her lender(s) and start asking for help. Pretty much every lender would rather do a work-out of some sort thatn just have a loan go bad and proceed to foreclosure.

 

[laurence]

Nah, this will directly refi the loans that are in trouble/delinquent where the lender would rather take the hit up front instead of going through the long, costly foreclosure process.

The potential wrinkle I see is the prohibition on HELOCs. These borrowers won't have the cash to pay the HELOCs off, so the only way out is to get the HELOC lender to agree to get nothing. Dunno how tough that will be, although HELOC defaults already approach 100% loss to the lender.

Laurence, tell your neighbor to contact her lender(s) and start asking for help. Pretty much every lender would rather do a work-out of some sort thatn just have a loan go bad and proceed to foreclosure.

Thanks Brew. I'll talk to them.